Chapter 3 - Audit Reports

Question 1

Standard Unqualified Audit Report for Non-Public Companies

Answer 1

Contains eight distinct parts: 1. Report Title 2. Audit Report Address 3. Introductory Paragraph 4. Management’s Responsibility 5. Auditor’s Responsibility 6. Opinion Paragraph 7. Name and Address of CPA Firm 8. Audit Report Date

Question 2

Report Title

Answer 2

Independent Auditor’s Report

Question 3

Audit Report Address

Answer 3

Usually addressed to the company, its stockholders, or the board of directors.

Question 4

Introductory Paragraph

Answer 4

“We performed and audit” list financial statements that were audited and their dates.

Question 5

Management’s Responsibility

Answer 5

Prepare FINS in accordance with GAAP.
Internal Controls over financial reporting.
FINS are free of material misstatements.

Question 6

Auditor’s Responsibility

Answer 6

1. Our responsibility is to express and opinion… in accordance with GAAS that requires we plan and perform and audit to obtain reasonable assurance that the FINS are free of material mistakes.
2. “Scope paragraph” Perform procedures to obtain evidence. Procedures selected depend on auditor’ judgement. Consider internal controls and evaluate policies, estimates and presentation of FINS.
3. “We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Question 7

Opinion

Answer 7

Provide an opinion on whether FINS are “presented fairly”.
In all material respects, the financial position of the company.
In accordance with GAAP.

Question 8

Name and Address of CPA firm

Answer 8

Firm’s name is used because the entire CPA firm has the legal and professional responsibility.

Question 9

Audit report date

Answer 9

the date the auditor completed the auditing procedures in the field.

Question 10

Four categories of audit reports

Answer 10

1. Unqualified
2. Unqualified with explanatory paragraph or modified wording
3. Qualified
4. Adverse or Disclaimer

Question 11

Unqualified Audit Report for Public Company

Answer 11

Contains 3 paragraphs: 1. Introductory Paragraph 2. Scope Paragraph 3. Opinion Paragraph

Question 12

Reasons for Unqualified w/ explanatory paragraph

Answer 12

1. Lack of consistent application of GAAP
2. Substantial doubt about going concern
3. Auditor agrees with a departure from accounting principles.
4. Emphasis of a matter
5. Reports involving other auditors (make no reference in the audit report, make reference in the report, qualify the opinion)

Question 13

Reasons for a qualified opinion

Answer 13

1. Scope limitation
2. GAAP departure
3. Auditor is not independent

Question 14

Disclaimer

Answer 14

When a scope limitation is highly material or pervasive.

Question 15

Adverse

Answer 15

When a GAAP issue is highly material or pervasive.

Question 16

PAJE

Answer 16

Proposed Adjusting Journal Entry

Question 17

PRJE

Answer 17

Proposed Reclassifying Journal Entry

Question 18

Qualified Report has what differences

Answer 18

“We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.”

BASIS FOR OPINION

QUALIFIED OPINION - “Except for”

Question 19

T/F An audit provides a high level of assurance, but is not a guarantee, that a material misstatement will exist in the FINS

Answer 19

TRUE

Question 20

T/F AICPA auditing standards provide uniform wording for the auditor’s report to enable users of the FINS to understand the audit report

Answer 20

TRUE

Question 21

The Introductory Paragraph states the auditor’s responsibility for the preparation, presentation, and opinion on financials.

Answer 21

FALSE - the auditor’s responsibility paragraph

Question 22

The scope paragraph of the auditor’s responsibility section should refer to GAAS.

Answer 22

FALSE - 1st paragraph of auditor’s responsibility

Question 23

The phrase generally accepted accounting principles can be found in the opinion paragraph.

Answer 23

TRUE

Question 24

Scope Restriction Disclaimer has what differences

Answer 24

AUDITOR’S RESPONSIBILITY - “Because of the matter described in the Basis for Disclaimer of Opinion paragraph…”

BASIS FOR DISCLAIMER

DISCLAIMER OF OPINION - “Because of the significance of the matter… we have not bee able to obtain sufficient evidence…”