Chapters 15 and 16 Flashcards
What is a Legal Letter?
A standard inquiry letter to the client’s attorney which is prepared by the client and signed by a company official
What should be included in the Legal Letter
A list of current litigation, a request for the attorneys’ opinion on active litigation, and a statement informing the attorneys obligations to disclose legal liabilities to the financial statements.
What is a Type 1 subsequent event
Conditions existed before the balance sheet date and affect estimates that are part of financial statements. Requires adjustment of the financial statements
What is a Type 2 subsequent event
Conditions did not exist at the balance sheet date and do not affect the accuracy of the financial statements. Requires disclosure and possibly pro forma financial statements
What happens when an auditor has a subsequent discovery of facts existing at the date of report
You must notify the client, each person relying on the financial statements, and any regulatory agency that the report can no longer be relied upon
What is dual dating
You may dual date the original report and the date of the subsequent event or change the date of the report to the subsequent even,
What is management representation letter
A representation letter that states managements responsibility for the assertions in financial statements, and to document various parts of the audit
What is emphasis of matter paragraph
Placed after the opinion paragraph in a standard unmodified report. It is required when there is substantial doubt about the going concern, a justified change in accounting principal that has a material effect on financials, subsequently discovered facts lead to a change in auditors’ opinion
What are examples of justified changes in acounting principals
Changes that affect consistency like changing from FIFO to LIFO, correction of errors, or change in reporting entities
