CH 1 Flashcards
What are the 5 general GAAS requirements related to the conduct of an audit?
Professional Skepticism ETHICAL Requirements Professional Judgment Sufficient and Appropriate Audit EVIDENCE COMPLIANCE with GAAS
What should be included in the intro paragraph of the unmodified audit opinion?
The entity audited
Statement that the FS were audited
Title of each FS audited
Dates or periods covered by each FS
Evidence from what auditing procedures may lead the auditor to conclude that there is significant doubt about the entity’s ability to continue as a going concern?
ADMITS Analytical procedures Debt compliance (review compliance) Minutes Inquiry of clients legal counsel Third parties (review arrangements) Subsequent events review
What conditions and events may indicate substantial doubt about an entity’s ability to continue as a going concern?
FINE Financial difficulties Internal matters Negative trends External matters (legal proceedings, new legislation, loss of main customer, natural disaster)
When there is a lack of consistency in entity’s FS due to an acceptable (justified) change in accounting principle, how does the auditor reflect this in the current year’s auditor’s report?
If JUSTIFIED changed - include emphasis of matter describing the change and reference to entity’s disclosure of the change.
if immaterial = no revision necessary
According to U.S. GAAP, when are contingencies (such as pending litigation) required to be:
accrued and disclosed?
disclosed only?
can estimate loss amount
If during the current examination of comparative FS, the auditor discovers evidence that affects the prior statements and the opinion that was expressed, what action should be taken?
Hint: DORCS
Update the opinion. If opinion differs from previous opinion, the reason(s) should be disclosed in separate emphasis of matter or other matter paragraph.
The explanatory paragraph should disclose the: Date of auditors previous report Opinion type previously issued Reason for prior opinion Changes that have occurred Statement "opinion... is different"
The predecessor auditor should take what steps before reissuing an audit report on prior period FS?
Read the statements for the current period.
Compare the previous audited statements with the current period statements.
Obtain a letter of representation from the successor auditor.
Obtain a letter of representation from mgt at or near the date of reissuance
If unrevised, use the original report date; if revised, dual date the report.
What statements should be included in the auditor’s report in an other-matter paragraph when comparative FS are presented and the prior auditor’s report is not issued? (predecessor auditor)
The other matter paragraph should include the following:
- A statement that the FS of the prior period were audited by the predecessor auditor.
- The type of opinion expressed by the predecessor auditor. If the opinion was modified, include the reason for the modification.
- The nature of any emphasis of matter or other matter paragraph included in the predecessor’s report.
- The date of the predecessor auditor’s report.
What is the effect on the audit report when the current period FS are audited and presented in comparative format with prior period FS that were not audited?
If prior FS were reviewed or compiled, add other matter paragraph that includes:
- description of the service performed in the prior period
- date of the prior report
- description of any material modifications in the report
- statement that the service was less in scope than an audit and does not provide a basis for expressing an opinion on the FS.
If prior FS weren’t audited, reviewed, or compiled, OM paragraph should indicate this and state auditor assumes no responsibility for the FS.
Define 2 types of subsequent events
Recognized - relates to condition that existed on or before BS date. Require FS adjustment
Nonrecognized - occurs after BS date may require disclosure.
What procedures should the auditor perform during the subsequent period?
PRIME:
P - review Post BS transactions
R - obtain Rep letter that describes events that occurred subsequent requiring adjustment
I - Inquire with mgt or those charged with governance about sub events that could impact FS
M - review Minutes of board and committee meetings
E- Examine current interim FS and compare to YE FS.
After the date of the auditor’s report, what actions should an auditor take regarding subsequent events?
None. Although the auditor is responsible for investigating subsequent events until the date of the auditor’s report, the auditor has no active responsibility to make inquiries or perform auditing procedures after that date.
Why is dual dating used?
To extend responsibility only for the particular event.
After the issuance of the report, what actions should an auditor take upon discovering information that materially affects the report?
DETERMINE if ppl are relying/likely to rely on FS
ADVISE client to immediately disclose new info to ppl.
ADVISE client to discuss with SEC, stock exchanges, and regulatory agency
ENSURE appropriate steps have been taken by client.
