Flashcard Becker EN
which standards provide the most authoritative U.S auditing guidance for nonisuuers and issuers, and who issues those standards?
nonissuers: statements on auditing standards (SASs), issued by the AICPA Auditing Standards Board.
Issuers:
Auditing Standards (ASs), issued by the Public Company Accounting Oversight Board ( PCAOB)
State the primary purpose of an audit
To provide financial statement users with an opinion on whether on whether the financial statements are fairly presented, in all material respects, in accordance with the applicable financial reporting framework.
what are the five general GAAS requirements related to the conduct of an audit?
S professional Skepticism
E Ethical Requirements
J Professional Judgment
E Sufficient and Appropriate Audit Evidence
C Compliance With GAAS
Identify Three inherent limitations of an audit
The nature of financial reporting
The nature of audit procedures
Timeliness of financial reporting and the balance between benefit and cost
When should an auditor’s opinion be modified?
A modification to the auditor’s report is necessary when:
- The auditor determines that the financial statements as a whole are materially misstated (GAAP issue); or
- the auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement (GAAS issue ).
List in order the primary sections of an unmodified audit opinion (nonissuer).
- Title
- Addressee
- Auditor’s Opinion
- Basis for Opinion
- Responsibilities of Management for the Financial Statements
- Auditor’s Responsabilities for the Audit of the Financial Statements
- Signature of the Auditor’s Address, and Date of the Auditor’s Report when applicable, the auditor’s report may include additional sections depending on the circumstances of the audit. Examples include Going concern, key Audit Matters, Other Information, and Other Reporting Responsibilities
What should be included in the opinion paragraph of the unmodified audit opinion (nonissuer)?
- the entity under audit
- The title of each financial Statement and reference to the notes.
- The dates or periods covered by the financial statements.
- A statement that the financial statements have been audited
- A statement that the financial statements present fairly, in all material respects, in accordance with the applicable financial framework.
- The applicable financial reporting framework and its origin.
What should be included in the management’s responsibility paragraph of unmodified opinion (nonissuer)?
- An explanation that management is responsible for the preparation and fair presentation of the financial statements.
- A statement that this responsibility includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud are free from material misstatement, whether due to fraud or error.
- When required, the evaluation of whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.
where in the standard unmodified opinion (nonissuer) does the auditor refer to (1) the applicable financial reporting framework (i.e., GAAP or IFRS) and (2) generally accepted auditing standards?
- the applicable financial reporting framework is referred to in the management’s responsibility and opinion sections.
- GAAS is referred to in the basis for opinion and auditor’s responsibility sections.
what is the definition of a key audit matther (KAM)?
Key audit matthers are those matters that were of most significance in the audit of the financial statements of the current period and are selected from the matters communicated to those charged with governance.
Key audit matters relate to the audits of nonissuers only and entities have the option of whether or not to engage the auditor to communicate such matters in the auditor’s report.
when an auditor is engaged to communicate key audit matters in the auditor’s report, what information should be included?
when the auditor is engaged to communicate key audit matters, the auditor’s report should include a sepate section with the heading “key audit matters” and the following information shoud be included:
- A description of each matter
- A description of why it was of most significance to the audit
- How the matter was addressed in the audit of the financial statements
In what circumstances would an auditor be prohibited from communicating key audit matters in the auditor’s report?
An auditor is prohibited from communicating key audit matters in the auditor’s report when the auditor expresses an adverse opinion or disclaims an opinion on the financial statements, unless such reporting is required by law or regulation.
Can an auditor that has been engaged to communicate key audit matters in the auditor’s report conclude that there are no key audit matters to communicate?
Yes, an auditor may determine, based on the facts and circumstances of the audit, that there are no key audit matters to communicate. In this circumstance, a statement to this effect should be added to the “key audit matters” section of the audito’s report.
List in order the primary sections of an unqualified audit opinion (issuer).
- Title
- Addressee
- Opinion section
- Basis for Opinion section
- Critical audit matters
- Signature, tenure, location
- Report date
What should be included in the opinion section of the unqualified audit opinion (issuer)?
The first section of the auditor’s report must include the section heading “Opinion on the Financial Statements” and the following elementos:
- The name of the company whose financial statements have been audited
- A statement identifying each financial statement and any related schedule that has been audited
- Dates or periods covered by each financial statement and related schedule
- A statement indicating that the financial statements were audted
- An opinion that the financial statements present fairly, in all material respects, the financial position of the company as of the period then ended in conformity with the applicable financial reporting framework ( e.g., GAAP).
What should be included in the first paragraph under the Basis for Opinion Section in the unqualified audit opinion (issuer)?
The second section of the auditor’s report must include the section heading “ Basis for Opinion “ and the foolowing elements:
- A statement that the financial statements are the responsibility of the company’s management;
- A statement that the auditor’s responsibility is to expresss an opinion on the financial statements based on the audit; and
- A statement that the auditor is a public accounting firm registered with the PCAOB ( Unided States) and is required to be independent with respect to the company in accordance with the U.S federal securities laws and the applicable rules and regulations of the SEC and the PCAOB.
What should be included in the second paragraph under the Basis of Opinion section in the unqualified audit opinion (issuer)?
The second paragraph under the Basis for Opinion section contains the following:
- A statement that the audit was condutect in accordance with the standars of the PCAOB;
- A statement that PCAOB standars require that the auditor plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud;
- A statement that the audit included:
* performing procedures to acessess the risks of material misstatement;
*examining, on a test basis, evidence regarding the amounts and disclosures;
*evaluating the accounting principles used and significant estimates made by management; and
* evaluating the overall presentation of the financial statements; and
- A statement that the auditor believes that the audit provides a reasonable basis for the auditor’s opinion.
Where in the standar unqualidied opinion (issuer) does the auditor refere to (1) the applicable financial reporting framework (i.e., GAAP) and (2) the standards of the Public Company Accounting Oversight Board (PCAOB)?
- The applicable financial reporting framework is referred is referred to in the opinion paragraph.
- The standards of the PCAOB are referred to in the second paragraph under the basis for Opinion section.
The auditor’s report should not be dated earlier than the date on which the auditor has obtained sufficient appropriate audit evidence. This should include evidence that what three things have occured?
Evidence that:
1. audit documentation has been reviewed;
2. financial statements have been prepared; and
3. management has taken responsibility for the financial statements.
In most audits of issuers, how many critical audit matters (CAMs) will an auditor normally identify?
It is expected that, in most audits, the auditor would identify at least one CAM.
What is the definition of a critical audit matter (CAM)?
A critical audit is defined as a matter that was communicated or required to be communicated to the audit committee and that:
- related to accounts or disclosures that are material to the financial statements; and
- involved especially challenging, subjective, or complex auditor judment.
Note: Audit reports for issuers must include any CAMs or state that the auditor determined there were no CAMs.
In determining critical audit matters (CAMs), what factors should the auditor consisder?
The auditor should consider the auditor’s assessment of the risks of material misstatement, areas of significant judgment or estimation by management, nature and timing of unusual transactions, the degree of subjectivity in applying audit procedures, and the extent of specialized skill or knowledge regarding a matter.
For each CAM identified, what should the audit report of an issuer include?
For each CAM identified, the audit report should incude:
- Identification of the CAM;
- description of the Principal considerations that led the author to determine the matter was a CAM;
- description of how the CAM was addressed in the audit; and
- reference to the relevant financial statement accounts of Disclosures.
What should the auditor of an issuer do if the auditor determines there are no CAMs?
When the auditor determines that there are no CAMs, the audit report should state:
we determined that there are no critical audit matters.
When would an auditor use professional judgment to determine whether to issue a qualified opinion or an adverse opinion?
when audit evidence indicates tha there is material misstatement of the financial statements.
A qualified opinion is issued when the auditor concludes that misstataments, individually or in the aggregate, are material but not pervasive to the finacial statements.
An adverse opinion is issued when the auditor concludes that misstataments, individually or in the aggregate, are both material and pervasive to the financial statements.
Describe the circumstances in which a material misstatement of the financial statements may arise.
Misstatements may arise in relation to:
- the appropriateness of accounting policies
- The application of accounting policies
- The appropriateness of the financial statement presentation
- The approprieateness or adequacy of disclosures in the financial statements
