Exam 3 Flashcards
A client changed the depreciable life of certain assets from 10 years to 12 years the auditor concurs with the change
Standard unmodified
A client changed the depreciable life of certain assets from 10 years to 12 years the auditor does not concur with the change confined to fixed assets and accumulated depreciation is not considered pervasive
Qualified
A company has not followed gaap in the recording of its leases
Qualified or adverse
A company has not followed gaap in the recording of its leases the amounts involved are immaterial
Standard unmodified
An auditor reporting on group financial statements decides to take responsibility for the work of a component auditor who audited a 70% owned subsidiary and issued an unmodified opinion the total assets and revenues of the subsidiaries are 5% and 8% respectively of the total assets and revenues of the entity being audited
Standard unmodified
An auditor reporting on group financial statements decides not to take responsibility for the work of a component auditor who audited a 70% owned subsidiary and issued an unqualified opinion the total assets and revenues of the subsidiaries are 5% and 8% respectively of the total assets and revenues of the entity being audited
Other
Modify existing paragraphs
A client changed its a depreciation method for production equipment from the straight-line method to the units of production method based on hours of utilization auditor concurs with the change
Unmodified with an emphasis of matter paragraph
A client changed its depreciation method for production equipment from the straight line to a units of production method based on hours of utilization the auditor does not concur with the change
Qualified or adverse
A client uses the specific identification method of accounting for valuable items in inventory and Lifo for less valuable items. The auditor concurs that this is a reasonable practice
Standard unmodified
Due to recurring operating losses and working capital deficiencies in auditor and substantial doubt about an entity’s ability to continue as a going concern for a reasonable. Of time the notes to the financial statements adequately disclose the situation
Unmodified with an emphasis of matter paragraph or disclaimer
A company valued in its inventory at current replacement cost. while the auditor believes that the inventory costs to approximate replacement costs these costs to not approximate any gaap inventory valuation method
Qualified or adverse
A client’s financial statements follow gaap but the auditor wishes to emphasize in his audit report a significant related party transaction that is adequately described in the notes to the financial statements
Unmodified with an emphasis of matter paragraph
A client’s financial statements follow gaap except that they do not include a note on a significant related party transaction
Qualified or adverse
A client changed from the method that uses to calculate post employment benefits from one acceptable method to a non-gaap method that affected the changes in material this year but expected to be material in the future
Standard unmodified
A client changed the salvage value of certain assets from 5% to 10% of original cost the auditor concurs with the change
Standard unmodified
A client is issuing two years of comparative financial statements the first year was audited by another auditor who’s being asked to reissue her audit report reply as a successor Auditors report
Other
Scope limitation
Qualified or disclaimer
Disclaimer if substantial
Substantial doubt the notes in the financial statements adequately disclose the substantial doubt situation
Unmodified with an emphasis of matter paragraph or disclaimer
An auditor was hired after year-end and was unable to observe the counting of the year-end inventory she is unable to apply other procedures to determine whether ending inventory is properly stated
Qualified or disclaimer
You decide to rely upon the component Auditors work
Standard unmodified
A client omits a note disclosure related to a significant accounting policy that the auditor believes to be fundamental two users understanding of the financial statements
Adverse
Adverse
Financial statement departure from gaap
Pervasive or substantial or fundamental
Disclaimer
No opinion
significant scope limitation
Qualified
Fairly good except for there is a departure from gaap or scope of limitation
Standard unmodified
Clean opinion
Unmodified with emphasis of matter paragraph
Refers to a matter of appropriately presented in financial statements
Type 1
Conditions existed during first year but didn’t know enough information at the time
Examples lawsuit settlement or bankruptcy of client
How to handle type 1
Have clients adjust financial statements
Type 2
Conditions didn’t exist until December 31st
New information that happened in the subsequent period
Example fire or flood
How to handle type 2
Notes in financial statements to provide disclosure
PERCCV - Management assertion
Presentation Existence rights cutoff completion valuation
Voucher system
Prepared by A/P
Requires purchase order, receiving report and invoice
Are confirmations of accounts receivable required?
Yes
Concerned with existence
Are confirmations of accounts payable required?
No
Concerned with the completeness because it’s a liability
Accounts receivable confirmation
Look at largest outstanding balances at year end
Accounts payable confirmation
Look at largest total purchase amount from throughout the year
