Chapter 1 - Audit Reports

Question 1

Compilation Engagement

Answer 1

Drafting fin. stmts. based on entity’s acct. system.

Question 2

Appropriate

Answer 2

Requirement for audit evidence.

Question 3

Reasonable Assurance

Answer 3

High, NOT absolute.

Question 4

AICPA guides

Answer 4

Interpretative, NOT authoritative.

Question 5

Stmt. of Auditing Standards

Answer 5

Most authoritative guidance for non-issuer.

Question 6

Professional Skepticism.

Answer 6

Attitude of audit.

Question 7

For fair fin. stmt. presentation…

Answer 7

Must include adequate description of framework.

Question 8

Paragraph name when disclaiming opinion

Answer 8

Basis for Disclaimer of Opinion.

Question 9

Mitigating factors for going concern…

Answer 9

Ownership increase, borrowing $, selling assets.

Question 10

Mitigating factors for going concern…

Answer 10

Have to look for something that indicates additional cash inflows or decrease in outflows. Postponing expenditures, etc.

Question 11

Basic element of auditor’s report.

Answer 11

An audit includes evaluating significant estimates made by management.

Question 12

Consistency in auditor’s report…

Answer 12

Does NOT have to be explicitly mentioned.

Question 13

Disclaimer of Opinion

Answer 13

GAAP

Question 14

Scope Limitation

Answer 14

GAAS

Question 15

Group Auditor/Component Auditor

Answer 15

If no mention of Component Auditor, means that GA takes responsibility and should determine what steps should be taken for verification.

Question 16

CPA’s responsibility in preparing fin. stmt., but having disclaimer of opinion…

Answer 16

Read over fin. stmts. to make sure no MATERIAL misstatements.

Question 17

Emphasis-of-matter Paragraph

Answer 17

Can be included even with an unmodified opinion.

Question 18

Mention of GAAS & GAAP

Answer 18

Auditor’s Responsibility for GAAS & Opinion Paragraph for GAAP.

Question 19

Omitting Statement of Cash Flows…

Answer 19

Typically a Qualified Opinion.

Question 20

Doubt by auditor about ability of going concern…

Answer 20

Emphasis of Matter Paragraph.

Question 21

Adverse Opinion requires a…

Answer 21

Basis for Adverse Opinion Paragraph.

Question 22

Emphasis of Matter paragraph required when…

Answer 22

There is “substantial doubt” regarding “going concern” and management discloses properly. Both “” must be included in auditor’s report.

Question 23

“Except for” Qualified Opinion

Answer 23

Issued when exceptions to GAAP or scope limitations are material but not pervasive.

Question 24

Explicitly vs. Implicitly

Answer 24

Mention of sufficient & appropriate evidence vs. Consistency.

Question 25

Basis for modification paragraph…

Answer 25

Preceeds Opinion Paragraph.

Question 26

Going Concern period…

Answer 26

GAAP - no more than 1yr & IFRS - at least 1yr.

Question 27

Compliance with Debt Agreements

Answer 27

Identify Substantial Doubt.

Question 28

Introductory Paragraph

Answer 28

Nature of engagement & fin. stmts. covered by audit.

Question 29

Subsequent events

Answer 29

Important to verify if people are relying on stmts. before reissuing.

Question 30

Working Capital

Answer 30

Can indicate Going Concern.

Question 31

Reporting on specific transaction.

Answer 31

Reporting CPA MUST consult with continuous CPA.

Question 32

Supplementary Information…

Answer 32

Limited Procedures.

Question 33

GAAS

Answer 33

Measures the quality of the auditor’s performance.