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ACC 402 > Ch. 3: CAMs, Materiality, and Reports > Flashcards

Ch. 3: CAMs, Materiality, and Reports Flashcards

1
Q

Critical Audit Matters (Key Audit Matters)

A

Any matter arising from the audit of financial statements that was communicated or required to be communicated to the audit committee

PCAOB requires this to be communicated in the standard unmodified audit report

Not required by AICPA

If disclosed, included in a section following the Basis for Option section

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2
Q

2 Requirements of CAM

A
  1. Relates to accounts of disclosures that are material to financial statements
  2. Involved especially challenging, subjective, or complex auditor judgement
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3
Q

CAM section

A

Required for large companies of fiscal year ending on or after 6/30 and on 12/31 for all other audits to which these requirements apply

Not required, but is voluntary for audits of broker-dealer, and certain investment companies, and other emerging growth companies under the PCAOB

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4
Q

Materiality definiton

A

Knowledge that the misstatement will affect a decision of a reasonable user of the statements

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5
Q

3 Levels of Materiality

A
  1. Amounts are immaterial
  2. Amounts are material, but do not overshadow the financial statements as a whole
  3. Amounts are so material and pervasive that overall fairness of the statements is in question
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6
Q

Adverse Opinion

A

Highly material
Not fairly presented
Most user’s decision will be likely significantly affected
Rare

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7
Q

Disclaimer of Opinion

A

Auditor cannot gather enough information

Lack of independence requires disclaimer regardless of materiality

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8
Q

Qualified Opinion

A
  1. Auditors concludes that the overall financial statements are fairly presented
  2. The Scope has been materially restricted
  3. Applicable accounting standards were not followed
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9
Q

Unmodified/Unqualified opinions

A

Unmodified for private companies
Unqualified for public

The evidence proves immaterial: user’s decisions are unlikely to be affected

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10
Q

8 Parts of Unmodified Opinion Report

A
  1. Report Title
  2. Auditor report address
  3. Auditor’s opinion
  4. Basis of opinion
  5. Management’s responsibility
  6. Auditor’s responsibility
  7. Signature and address of CPA firm
  8. Audit report date
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11
Q

8 Parts of Unqualified Opinion Report

A
  1. Report Title
  2. Auditor report address - to BOD and Shareholders
  3. Auditor’s Opinion - conclusion - what does he/she say?
  4. Basis for opinion - factual statement
  5. Critical Audit Matters - items communicated with the audit committee
  6. Auditor’s responsibility
  7. Signature, TENUR and address of Audit firm
  8. Audit report date - date audit work was completed
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12
Q

Tenure

A

Disclosing within the audit report the year in which the auditor began serving the entity

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13
Q

4 Conditions for Standard Unmodified/Unqualified Opinion Audit Report

A
  1. All statements and required disclosures are included in the financial statements
  2. Sufficient appropriate evidence has been accumulated
  3. Financial statements are presented fairly in accordance with GAAP
  4. No circumstances requiring the addition of an emphasis-of-matter paragraph or modification of the wording or auditor’s opinion in the report
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14
Q

Types of Reports

A
  1. Unmodified/unqualified
  2. Unmodified Opinion with Emphasis of matter or Explanatory Paragraph or Nonstandard wording
  3. Qualified
  4. Disclaimer
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15
Q

Unmodified Opinion with Emphasis of matter or Explanatory Paragraph or Nonstandard wording

A
  1. A complete audit took place
  2. Satisfactory results
  3. Financial statements are fairly presented
  4. Auditor believes that it is important or required to provided additional information
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16
Q

Causes of addition of an emphasis-of-matter paragraph/nonstandard report wording

A
  1. Lack of consistent application of GAAP
  2. Auditor agrees with a departure from promulgated accounting principles
  3. Substantial doubt about going concern
  4. Emphasis of other matters
  5. Reports involving other auditors
17
Q

Emphasis of other matters

A

Auditor may want to emphasize specific matters regarding the financial statements under certain circumstances:

  • Material related party transaction
  • Subsequent events
  • Comparability of the financial statements
  • Material uncertainties disclosed in the footnotes
  • A major catastrophe that has had or continues to have a significant effect on the entity’s financial position
18
Q

3 Conditions requiring a modification to the opinion

A
  1. The scope of the audit has been restricted
  2. The financial statements have not been prepared in accordance with GAAP
  3. The auditor is not independent
19
Q

Scope Restriction categories

A
  1. Caused by client

2. Conditions beyond control of either client or auditor

ACC 402 (4 decks)

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