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Auditing1 Flashcards

1
Q

Which standards are mandatory for all audits?

A

GAAS (Generally Accepted Auditing Standards)

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2
Q

Generally accepted auditing standards for non-issuers are issued by _______ in the form of ____________.

A

Generally accepted auditing standards for non-issuers are issue by
the AICPA’s - Auditing Standards Board (ASB)
in the form of
Statements on Auditing Standards (SAS)

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3
Q

The _________ establishes auditing and related professional practice standards to be used in the preparation and issuance of audit reports for issuers.

A

The Public Company Accounting Oversight Board - PCAOB
establishes auditing and related professional practice standards to be used in the preparation and issuance of audit reports for issuers.

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4
Q

The Accounting and Review Services Committee of the AICPA is the authoritative body designated to issue pronouncements in connection with the unaudited financial statements of non-issuers. What are the pronouncements issued known as?

A

The Statements on Standards for Accounting and Review Services - SSARS

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5
Q

Issuers reference to auditing standards…

A

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board.

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6
Q

Non-issuers reference to auditing standards…

A

We conducted our audit in accordance with auditing standards generally accepted in the United States of America.

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7
Q

What are the requirements when a component auditor is referenced in a Group Audit?

A
  • SAME framework
  • component auditor not audited by the auditor
  • magnitude of the portion of FS
  • NOT SAME framework
  • financial framework used
  • auditor takes responsibility for evaluating and converting to group financial reporting framework
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8
Q

What is a Qualified Opinion?

A

A qualified opinion states that EXCEPT FOR the effects of the matter(s) to which the qualification relates, the financial statements are presented fairly, in all material respects, the financial position, results of operations, and cash flows of the entity in conformity with the applicable financial reporting framework.

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9
Q

What is an Adverse Opinion?

A

An adverse opinion states that the financial statements DO NOT PRESENT FAIRLY the financial position, results of operations, and cash flows of the entity in conformity with the applicable financial reporting framework.

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10
Q

What is a Disclaimer of Opinion?

A

A disclaimer of opinion states that the auditor does not express an opinion on the financial statements because the auditor was not able to obtain sufficient appropriate audit evidence to provide basis for an opinion.

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11
Q

Which situations would require an Emphasis-of-Matter paragraph?

A
  • Going Concern
  • Consistency (Justified)
  • Changing Prior Opinion
  • Special Purpose Framework
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12
Q

Which situations would require an Other-Matter paragraph?

A
  • Restricts use
  • Predecessor audit not reissued
  • Comparative statements (audited current period/compiled or reviewed in prior period)
  • Supplementary information
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13
Q

What procedures would assist an auditor in assessing a Going Concern issue?

A 
"ADMITS"
Analytical procedures
Debt compliance
Minutes
Inquiry of legal counsel
Third parties
Subsequent events review
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14
Q

What conditions are events may be indicative of a Going Concern issue?

A 
"FINE"
Financial difficulties
Internal matters
Negative trends
External matters
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15
Q

What are some typical reasons why an opinion would be modified to Qualified or Adverse?

A
  • GAAP consistency change (unjustified)
  • Inadequate disclosure
  • Departure/violation of GAAP
  • Unreasonable accounting estimate
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16
Q

What are some typical reasons why an opinion would be modified to Qualified or Disclaimer?

A
  • Confirmation of AR is denied by management
  • Consolidated sub information denied by management
  • Audit restrictions
  • Inadequate records
  • No management representation letter signed
  • Client legal counsel inquiry is denied
17
Q

What must an auditor disclose when changing a prior opinion?

A 
"DORCS"
Date of the auditor's previous reports
Opinion type previously issued
Reason for the prior opinion
Changes that have occurred
Statement that the "opinion....is different."
18
Q

What requirements must be meant by a predecessor auditor when reissuing and PRESENTING reports from prior periods?

A
  • Read the statements
  • Compare with current period statements
  • Obtain a Letter of Representation from successor auditor
  • Obtain a Letter of Representation from management
19
Q

When a predecessor auditor PRESENTS prior period financial statements….what date should be used?

A
  • Original date when no revision

- Reissue date when revised

20
Q

What must a successor auditor do when the predecessor auditor DOES NOT PRESENT the reports from a prior period?

A

The successor auditor should express an opinion on the current period financial statements ONLY and indicate in an Other-Matter paragraph the predecessors’ opinion, nature of predecessors’ opinion, and date of the predecessors’ audit report. THE PREDECESSOR AUDITOR SHOULD NOT BE NAMED.

21
Q

What must a successor auditor do when the prior period financial statements were UNAUDITED?

A
  • If Compiled or Reviewed, include Other-Matter paragraph with explanation of prior service, date, description of any material modifications, and statement “less in scope than an audit.”
  • If NO PRIOR SERVICE, include Other-Matter paragraph and indicate the auditor did not audit, review or compile the prior period financial statements and the auditor assumes NO RESPONSIBILITY.
22
Q

What procedures must be performed to identify Subsequent Events?

A 
"PRIME"
Post balance sheet transactions
Representation letter
Inquiry
Minutes
Examine latest available interim statements
23
Q

Does the auditor have responsibility for reporting on other information contained in the audited financial statements?

A

No. However, the auditor should read the other information because of the credibility of the audited financial statements may be undermined if there are material inconsistencies between the audited financial statements and the other information.

24
Q

What must an auditor do if the other information contains a material inconsistency?

A

Advise management to revise the report. If management refuses, contact governance. Include Other-Matter paragraph if necessary.

25
Q

What must an auditor’s report contain for reporting on Supplementary Information - Non-issuer?

A
  • An Other-Matter paragraph (the purpose of forming an opinion on the FS as a whole). OR
  • A separate report (include reference to the report, date, nature of opinion, any report modifications.)
26
Q

What must an auditor’s report contain for reporting on Supplementary Information - Issuer?

A
  • Include with the auditor’s report OR

- A separate report

27
Q

What opinion may the auditor present if Supplemental Information is “Material Misstated” or “Unable to Obtain Sufficient Appropriate Audit Evidence”?

A
  • Material Misstatement = Qualified or Adverse

- Scope Limitation = Disclaimer (Why?)

28
Q

What procedures must be performed on REQUIRED Supplementary Information?

A

Limited Procedures

  • Inquire to management about methods used to prepare the required supplementary information
  • Determine if supplementary information is consistent
  • Obtain written management representation
  • An Other-Matter paragraph is added to the audit report and an opinion is disclaimed
  • An Opinion IS NOT REQUIRED!
29
Q

What are the KEY POINTS of:

Reports on the application of the requirements of an applicable financial reporting framework?

A
  • Report must be rendered on a specific entity’s transaction, not on application of a hypothetical transaction.
  • NOT REQUIRED TO BE INDEPENDENT.(but, must state lack of independence)
  • Consult with continuing auditor
  • Report must be restricted to: Management, Board of Directors, and Specific Parties
30
Q

What are the KEY POINTS of:
Reporting on a financial statement prepared in accordance with standards from another country?
Distribution outside the US?
Distribution inside the US?

A
  • For OUTSIDE:
  • The auditor must use the report of the other country or the report set out in the ISAs (International Standards of Auditing) OR
  • A US form of report that indicates the report is prepared in accordance with a framework generally accepted in another country

FOR INSIDE:

  • Report using an Emphasis-of-Matter paragraph that:
  • Identifies the financial reporting framework
  • Refers to the notes
  • Indicates that the framework differs from accounting principles generally accepted in the US
31
Q

What types of changes would require an EMPHASIS-OF-MATTER paragraph to be added to the auditor’s report due to a lack of CONSISTENCY?

A

FIRST OF ALL, IT MUST BE MATERIAL (DO NOT MENTION IF IMMATERIAL)

  • Changes in Accounting Principle (Retrospective)
  • Changes in Reporting Entity (Restate)
  • Corrections of an Error of Principle (Prior period adjustment) Example: Cash to Accrual
  • Changes in Principle Inseparable from a Change in Estimate (Although these type of changes are accounted for prospectively, they are considered to be partially changes in principle so they include a Emphasis-Of-Matter paragraph) Examples: Change in Depreciation Method/Change in Revenue Recognition: Installment Method to Immediate Recognition
32
Q

What type of changes would NOT require an emphasis-of matter paragraph to be added to the auditor’s report due to a lack of CONSISTENCY?

A

-Changes in Accounting Estimates (Prospective Only)

33
Q

Which reports require a “RESTRICTION”?

A

Restrictions on Reports are required on:

  • Application of the Requirements of an Applicable Financial Reporting Framework
  • Regulatory/Contractual
  • Attestations where no assertion or subject matter is disclosed
  • Agreed-Upon Procedures

Auditing Flashcards (13 decks)

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