Chapter 17 -- Related Reporting Topics Flashcards
Section 17.1: Interim Financial Information
What is the objective of a review of interim financial statements?
- To determine if there are any material misstatements that should be made to the financial statements.
- It provides the auditor with a basis for reporting whether material modifications should be made in order to conform
- The review provides negative assurance
- Independence in required
Section 17.1: Interim Financial Information
What does an auditor do when reviewing interim financial statements?
The auditor is responsible for:
* Testing accounting records and the effectiveness of controls
* Obtaining corraborating evidence
* Apply certain audit procedures
* Become aware of all significant matters identified in an audit
* Obtain written representations from management
Section 17.1: Interim Financial Information
What is involved when conducting a review of interim financial statements?
- Establishing and understanding with the client
- Obtain knowledge of the business industry and controls
- Making inquiries
- Performing analytical procedures
- Obtain written representations from management
- Evaluating the results of the procedures
- Reading minutes of meetings
Section 17.1: Interim Financial Information
When would a modification of a review of interim financial information be made?
A modification of a review of interim financial information would be made if there is a departure due to inadequate disclosure, and the auditor believes that if it’s feasible, it should be included in the report.
Section 17.1: Interim Financial Information
What are the procedures in planning a review of interim financial statements?
- Reading documentation of the prior audit and prior reviews
- Reading recent annual information and prior interim financial reviews
- Consider current audit results
- Ask management about any changes in business or internal control.
- If it’s an initial review, make inquiries of the predecessor auditor and review their documentation.
- If it’s an initial review, obtain knowledge of the relevant information.
Section 17.2: The Auditor’s Responsibilities to the Annual Report
What is the responsibility of the auditor in regard to the other information included in the annual report?
- Read the other information and determine of there are any material inconsistencies with the audited statements.
- Determine that the other information is separate from the required supplementary information (RSI)
- To respond if there are statements that would undermine the credibility of the auditor’s report
Section 17.2: The Auditor’s Responsibilities to the Annual Report
What should the auditor determine when reading the Other Information of an Annual Report?
The auditor should read the Other Information section to consider if there are:
- Any material inconsistencies between the Other Information section and the financial statements
- A material misstatement of fact exists
- The information is misleading
Section 17.2: The Auditor’s Responsibilities to the Annual Report
What happens when a material consistency that relates to the financial statements is found in other information of the annual report before the release date?
The auditor should request management to revise the letter of transmittal.
If management refuses to revise the other information
* Communicate the matter to those charged with governance
* Include in the description of Other Information section of the auditor’s report
* Withhold the auditor’s report
* Withdraw from the engagement
Section 17.2: The Auditor’s Responsibilities to the Annual Report
What happens when a material consistency that does not relate to the financial statements is found in other information of the annual report before the release date?
The auditor should request management to revise the letter of transmittal.
If management refuses to revise the other information
* Communicate the matter to those charged with governance
* Withhold the auditor’s report
* Withdraw from the engagement
Section 17.2: The Auditor’s Responsibilities to the Annual Report
What is the purpose of including Other Information in the annual report?
Other information contains financial and nonfinancial information that are not reported on the audited financial statements.
Examples include
* Annual Report to Owners
* Management Report on Operations
* Selected Quarterly Data
* Financial Summaries
* CEO’s Letter in th Annual Report
Section 17.3: Required Supplementary Information (RSI)
How is the RSI reported in the auditor’s report?
The RSI is reported in a separate paragraph after the opinion section, and should be added if
* The RSI is not omitted
* Presecribed guidelines are followed
* Required audit procedures are completed
* Limited procedures are performed to report any omissions or deficiencies.
Section 17.3: Required Supplementary Information (RSI)
What is included in the RSI Section of the Auditor’s Report?
A section after the opinion paragraph is added for the RSI
* RSI reference and the applicable reporting framework.
* Statement that the RSI is the responsibility of Management
* Statement that the auditor has applied procedures in accordance with GAAS
* Statement that the auditor does not express an opinion or provide any assurance on the RSI
Section 17.3: Required Supplementary Information (RSI)
What type of procedures are performed for required supplementary information?
Limited
* Inquiry
* Comparing supplemental information to the financial statements
Report any omissions or requirements for material modifications
Section 17.3: Required Supplementary Information (RSI)
Is RSI Audited?
Since RSI is not part of the basic financial statements, it is not audited.
Section 17.3: Required Supplementary Information (RSI)
What does the auditor do if management refuses to present an RSI?
- The auditor should express an unqualified opinion on the basic financial statements.
- The auditor should revise the separate section of the RSI and need not present the omitted information.
- The auditor should describe the omission
Section 17.3: Required Supplementary Information (RSI)
What should the auditor ask management in regard to RSI?
- Inquire if RSI within the prescribed guidelines
- Whether methods of measurement or presentation have changed and the reason for the change
- Any significant assumptions or intepretations
- Compare the RSI for consistency with the basic statements
- Obtain management’s written representation to its responsibilities to the RSI and compliance with guidelines
Section 17.4: Supplementary Information to the Financial Statements
What must the auditor determine when reporting on the Supplementary Information to the Financial Statements as a whole?
- Auditor must determine that the supplementary information is based on the underlying records that are used to prepare all of the financial statements
- Information relates to the same period as the financial statements.
- Financial statements were audited
- Auditor’s report did not express an adverse or disclaimer of opinion
- Supplementary information will be presented with the audited statements or be made readily available without any additional changes made by management.
- An auditor is not required to perform subsequent event procedures on Supplementary Information.
- Materiality level used for the audit of financial statements
Section 17.4: Supplementary Information to the Financial Statements
What procedures does an auditor perform when reporting on Supplementary Information?
- Understand the methods of preparation
- Inquiring about the purpose and criteria for the supplemental information
- Inquiring about significant assumptions
Section 17.4: Supplementary Information to the Financial Statements
What type of information is included in a report of Supplemental Information?
- Additional details or explanations of items in or related to the statements
- Consolidating information
- Statistical data
- Historical summaries
Section 17.4: Supplementary Information to the Financial Statements
What are management’s responsibilities surrounding supplementary information (SI)?
- Preparing SI in accordance with applicable criteria
- Providing written representations
- Including the auditor’s report on the SI with the SI and the audited statements
Section 17.5: Engagements to Report on Summary Financial Statements
What date should be used when presenting the Report on Summary Financial Statements?
The date of the report should be no earlier than:
- The date that the auditor obtained sufficient appropriate evidence on which to base the opinion
- The date of the auditor’s report on the audited financial statements.
Section 17.5: Engagements to Report on Summary Financial Statements
What procedures are performed by an auditor in an engagement to report on supplementary financial statements?
- Determine whether the summary statements agree with the related information in the audited statements.
- Determine that information in the summary statements can be recalculated based on the related information in the audited statements
- Comparing the summary statements with the related information in the audited statements
- Evaluate whether the summary statements are prepared in accordance with the applied criteria applied by management
- Obtain a representation letter from management
Section 17.5: Engagements to Report on Summary Financial Statements
What should the auditor do if the Report on Summary Financial Statements does not accompany the audited financial statements?
- The auditor should evaluate whether the summary clearly describes where the audited statements are available.
- The auditor should evaluate whether the audited statements are readily available to the intended users of the summary statements without further action by management.
Section 17.5: Engagements to Report on Summary Financial Statements
When are the Audited Financial Statements readily available?
Audited financial statements are readily available when:
* The information is obtained by an email from the company
* On the company’s website
* Accompany the summary statements
Section 17.5: Engagements to Report on Summary Financial Statements
What is a criteria for the auditor to report on the summary of financial statements?
- The auditor audited the statements from which they are derived.
- The report expresses an opinion on whether the summary statements are consistent, in all material respects, with the audited statements, in accordance with the applied criteria.
Section 17.6: Financial Statements Prepared in Another Country
How should an auditor report on financial statements when the information is based on another country?
The reporting standards of the other country will be the applicable framework, and the other country will be identified.
If the other country’s report form and content are used:
* The report must be what would be issued by auditors in the other country in similar circumstances
* The auditor must obtain sufficient appropriate evidence to support statements in the report
* The auditor must comply with the other country’s reporting standards.
Section 17.6: Financial Statements Prepared in Another Country
What is included in the auditor’s report for financial statements prepared in accordance with a reporting framework generally accepted in another country and intended for use in the U.S.?
- An emphasis-of-matter paragraph identifying the reporting framework used in the preparation of the financial statements
- An emphasis-of-matter paragraph indicating that the framework differs from accounting principles generally accepted in the U.S.
- The auditor should report using the U.S. form of report
Section 17.7: Reports on Application of Requirements (AU-C 915)
What is included in the written Report on Application of Requirements of an Applicable Financial Reporting Framework
- A description of the appropriate application of the framework to the specific transaction or type of report and the reasons for the conclusion, if appropriate.
- A brief description of the engagement and a statement that the engagement was in accordance with AU-C 915.
- An alert in a separate paragraph that restricts the use of the report to specified and identified parties.
Section 17.7: Reports on Application of Requirements (AU-C 915)
When are the standards for AU-C 915?
- By an accountant in public practice
- Applies to an actual transaction given specific facts and circumstances of a specific entity.
- Addresses whether a reporting framework applies to a proposed transaction involving facts or circumstances of a specific entity.
- Addresses how a completed transaction of a specific entity may be accounted for under the existing reporting framework.
- Does not apply to a current, or continuing, auditor
- Independence is not required, but must disclose the lack of independence
Section 17.8: Special Purpose Frameworks Audits
How is an audit on the financial statements of a special purpose framework reported?
When auditing the financial statement of a special purpose framework, the following information is included in the Emphasis-of-Matter paragraph:
* A statement that the financial statements are prepared in accordance with the applicable framework.
* A reference to the note that describes the framework
* A statement that the framework is a basis other than GAAP
Section 17.8: Special Purpose Frameworks Audits
When issuing and audit report on a special purpose framework, what if the statements are suitably titled?
If the auditor believes that the statements are not suitably titled.
- The auditor should disclose any reservations in a basis for qualified opinion section.
- The auditor will qualify the opinion.
Section 17.9: Key Audit Matters (KAM)
What are key audit matters (KAM)?
- Key audit matters are generate for non-issuers
- Key audit matters are matters that are most significant in the current period audit.
- Key audit matters are based on the auditor’s professional judgement.
- The communication of key audit matters gives users more information to facilitate their understanding of matters that may affect the entity, the statements or the audit.
Section 17.9: Key Audit Matters (KAM)
What should an auditor consider in determining key audit matters?
- Areas of higher assessed risks of material misstatements.
- Significant risks
- Significant auditor judgements about areas involving significant management judgements.
- The audit effect of significant events or transactions during the period.