Auditors Reports Flashcards
What is association?
Association is a term used within the profession to indicate a PA’s (CPA’s) involvement with an enterprise or with information issued by that enterprise.
What are the 2 situations when a PA is classified as associated with F/S?
- You consent to the use of your name in connection with the statements
- You have prepared or performed some other service with respect to the state,ents, even if your name is not used in any written report.
Why is the association concept important?
Subjected to the rules of professional conduct, working papers must always be prepared and ready to go.
Describe the concept of association as far reaching
- How are statements produced
- Where do they result from?
- Definition of an accountant
- Statements are produced on a PA’s letterhead - The top of the paper with information about the auditor, where they work, etc.
- Statements result from computerized bookkeeping services performed by the public accountant
- A document containing F/S identifies an accountant as a public accountant or an auditor for the company.
What are the three levels of assurance and what is called and what does it mean?
- High assurance - audit - Positive Assurance (In Our opinion)
- Middle assurance - Review - Negative assurance (Nothing has come to our attention)
- No assurance - Compilation - No attempt to verify accuracy or completeness of the information.
Why is the audit report important?
How do we make reading it simpler?
It is the only information that is received directly from the auditor (financial statements and any attached annual report comes from management)
Standard wording helps the user identify exceptions.
What are the 9 components of the unqualified auditors report? (Old Standards)
- Report title
- Addressee
- Introductory statement
- Managements responsibility
- Auditors responsibility
- Opinion paragraph
- Name of the public accounting firm
- Date of the auditors report
9 Auditors address
What are the 9 components of the unqualified auditors report (New Standards)
- Report Title
- Addressee
- The opinion segment
- The basis for opinion segment
- The key audit matters segment (KAM)
- The management (or other preparer) and governance responsibility segment
- auditors responsibility segment
- Name of the public accounting firm,
- date of the auditors report,
- Auditors address.
The opinion segments consist of 2 or more paragraphs, in the first paragraph of the opinion segment, what information is included?
- Indicates that the audit was conducted
- Identifies the financial statements audited
What does the opinion segment include? - 2 Parts
The auditors conclusions on the statements like the:
- Financial statements are presented fairly in all material respects in accordance with GAAP
- Disclosure is adequate (implicit assertion)
What is the wording of the key audit matters (KAM) segment?
Key audit mattes are those mattes that, in our professional judgement, were of the most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, an in forming our opinion, thereon, we do not provide a separate opinion for these matters.
What are key audit matters? What are the four examples of the key audit matters?
Contains information about significant audit matters.
1. Valuation of goodwill and other long term assets
2. Valuation of financial instruments
3. Difficult or unique aspects of revenue recognition
4. Accounting for significant acquisition
What does KAM describe?
- Why
-How
- References
- Why the matter was determined to be a KAM
- How it was addressed in the audit
- Reference to disclosures in the financial statements.
Why do we need KAM?
Because audit is quite complex and requires the auditors assessment of RMM in the financial statements to drive the performance of the audit
How does KAM relate in todays world?
What does KAM highlight?
In today’s boilerplate auditors report, it is not possible for financial statements users to understand where the greatest risks lie in the eyes of the auditor.
KAM will highlight those matters that, in the auditors professional judgement, were of most significance in the audit.
Where is KAM placed on the auditors report, what does it explain?
Separate section of the auditors report explaining the nature and the intent of the KAM
What are the 4 things that KAM does not do?
- Disclosures for the financial statements
- Auditor to express a modified opinion (if there is a problem KAM does not remove that)
- Reporting any matters relating to the going concern
- A separate opinion on an individual matter
What is the explained in the management responsibility segment?
What is typically included?
Management is responsible for the preparation and fair presentation of these financial statements in accordance with GAAP.
Design, implementation, and maintenance of internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error.
What is explained in the auditors responsibility segment? What are the 6 points to be included?
- They are reports of the nature of the work in the audit.
- Auditors were trained and proficient
- Auditors were independent
- Due professional care was exercised
- The work was planned and supervised
- Sufficient understanding of controls was obtained
- Sufficient appropriate audit evidence was obtained.
What are the two reasons for the qualifications / reservation in the standard report? What type of opinion is provided?
- Financial statements contain a departure from GAAP and have inadequate disclosure - Qualified Opinion / Adverse Opinion
- Scope limitation (extent of audit work has been limited) inability to obtain sufficient evidence - Qualified Opinion / Disclaimer of opinion
What is the qualified opinion caused by GAAP?
What must the auditor do in this case? Where is it added on the auditors report?
What is another name for this opinion?
- A qualified report is issued the the F/S are fairly stated but there was a material failure to follow GAAP that resulted in a material, but not a pervasive, misstatement in the F/S (the departure can be isolated)
- Requires a reservation paragraph to describe the departure, after the scope paragraph.
- Except for opinion with reference to the reservation paragraph
What is an adverse opinion?
What is required in the reservation paragraph regarding this circumstance?
The auditor concludes that the overall F/S are materially misstated or misleading such that they do not fairly present the financial position or results of operations in conformity with GAAP because of a departure from GAAP or other known material error.
Describes the situation and states that the statements do not present fairly.
What is the qualified opinion of the scope?
What paragraph should be made regarding this and where is it placed?
What is another name for this qualified opinion?
A reservation paragraph is added following the scope paragraph to explain the limitation in scope of audit procedures. Scope paragraph will be modified, except for.
What is the disclaimer of opinion?
Arises because of a severe limitation on the scope off the audit examination. - Would prevent the auditor from expressing an opinion on the financial statements as a whole
