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0-SFCPA-AUD > Forming Conclusions & Reporting (10-20%) > Flashcards

Forming Conclusions & Reporting (10-20%) Flashcards

1
Q

What are the Standards of Reporting?

A

GCDO (TIP, PIE, GCDO)
- GAAP: auditor states whether FS are in accordance with

  • CONSISTENCY: auditor points out what GAAP principles have not been consistently applied in relation to prior period
  • DISCLOSURES: if auditor determines disclosures in FS not adequate, auditor needs to say so in audit report
  • OPINION: whole point of audit is for auditor to render their opinion - different types of opinions
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2
Q

How does auditor use & report on comparative FS with unaudited statements alongside audited statements?

A

unaudited statements should be clearly marked

either report on unaudited statements should be re-issued OR audited statements should contain a separate paragraph describing level of responsibility assumed for the unaudited statements

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3
Q

What are the types of opinions an auditor issues with an audit report?

A
  • UNMODIFIED opinion - clean opinion (fairly stated & comply) free of any misrepresentations & in accordance with GAAP - also known as UNQUALIFIED opinion (for PCAOB public filers)
  • MODIFIED opinion - something wrong with statements - 3 types:
  • qualified
  • adverse
  • disclaimer of opinion
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4
Q

What is a qualified opinion (modified opinion)?

A
  • presentation - FS misstated (GAAP departure) - no misrepresentation identified
  • scope - unable to get sufficient appropriate audit evidence (not pervasive-not affecting multiple areas of FS - still fairly stated)

auditor is expressing reservations about FS

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5
Q

What is an adverse opinion (modified opinion)?

A

FS are both material & pervasive (affecting most areas of FS - not fairly presented) - does not confirm with GAAP

FS are misleading

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6
Q

What is a disclaimer of opinion (modified opinion)?

A
  • scope - unable to get sufficient appropriate audit evidence & the effects could be both material & pervasive

auditor is unable to give an opinion

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7
Q

What are the key areas of an audit report for non-public companies and public companies?

A
  • title
  • addressee/to
  • opinion paragraph (2 paragraphs)
  • basis for opinion paragraph (1 paragraph)
  • emphasis of matter/other matter paragraphs (if applicable)
  • managements responsibility paragraph (2 paragraphs)
  • auditors responsibility paragraph (3 paragraphs)
  • signature of auditor
  • auditors address
  • date of auditors report
  • only difference for public companies - report title, addressee, 3 paragraphs (opinion, basis for opinion, critical audit matters)
  • audit conducted in accordance with PCAOB (Public Company Accounting Oversight Board)
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8
Q

What should be within the title, to, signature of auditor, auditors address & date of auditors report?

A
  • title: labeled ‘Independent Auditor’s Report’ or ‘Report of Independent Registered Public Accounting Firm’
  • to: addressed to ‘Board of Directors’ of audit client or ‘Shareholders and the Board of Directors’
  • signature of auditor: handwritten or printed signature
  • auditors address: name the city/state where practitioner practices
  • date of auditors report: dated no later than date on which auditor obtained sufficient appropriate evidence to based auditors opinion on FS
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9
Q

x

A

x

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10
Q

What should be within the Managements Responsibility paragraph of the auditors report?

A

2 paragraphs:
- heading labeled ‘Managements Responsibility for FS’

  • describe managements responsibilities
  • explanation that management is responsible for preparation & fair presentation of FS in accordance with applicable framework - includes design, implementation & maintenance of internal control relevant to of FS - that are free from material misstatement, whether due to fraud or error
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11
Q

What should be within the Auditors Responsibility paragraph of the auditors report?

A

3 paragraphs:
- heading labeled ‘Auditors Responsibility for the audit of the FS’

1) state objectives:
- obtain reasonable assurance FS free from material misstatement, issue report including opinion
- state reasonable assurance is high level but not absolute
- state risk of not detecting material misstatement or fraud is higher than error
- state misstatements considered material if, individually or in aggregate expected to influence users

2) in performing audit, responsibilities are to:
- exercise professional judgement and maintain professional skepticism
- identify/assess risks of material misstatement & design/perform procedures responsive to those risks
- obtain understanding of internal control, no opinion expressed on such
- evaluate appropriateness of accounting policies used and reasonableness of significant estimates, evaluate overall presentation of FS
- conclude whether concern for ability to continue as going concern

3) state required to communicate: planned scope, timing, significant audit findings, certain internal control related matters identified

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12
Q

What should be within the Opinion paragraph of the auditors report? What should be within the Basis for Opinion paragraph?

A

OPINION: (2 paragraphs)

  • heading labeled ‘Opinion’
  • identify specific FS audited

BASIS FOR OPINION: (1 paragraph)

  • heading labeled ‘Basis for Opinion’
  • state that audit was conducted in accordance with GAAS (Generally Accepted Auditing Standards) & should identify U.S. as country of origin of those standards
  • refers to section of auditor’s report that further describes auditor’s responsibilities under GAAS
  • states required to be independent
  • states whether auditor believes audit evidence obtained is sufficient and appropriate to provide basis for opinion
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13
Q

x

A

x

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14
Q

What is an ‘Emphasis of Matter’ paragraph?

A

auditor adds right after the opinion paragraph to point out a matter that is crucial to user being able to understand FS

required when:

  • material change in accounting principles
  • FS prepared using special purpose framework
  • doubts in firms ability to continue as going concern (not req’d)

heading of ‘Emphasis of Matter’ must be used

can also be an ‘Other Matter’ paragraph - will go after the ‘Emphasis of Matter’ paragraph, if there is one - be about something auditor considers relevant, but not crucial to users understanding of FS

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15
Q

How should the auditor form an opinion on effectiveness of ICFR (Internal Control over Financial Reporting) by evaluating evidence obtained that is integrated with audit of FS?

A
  • auditors testing of controls for the ICFR audit
  • any additional tests of controls performed to achieve objective related to expression opinion
  • misstatements detected during audit
  • any identified deficiencies
  • review reports issued during year by internal audit function that address controls
  • evaluate effect of findings of substantive procedures performed
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16
Q

When evaluating the effect of findings of substantive procedures performed in the audit of FS on the effectiveness of ICFR (Internal Control over Financial Reporting), what should the evaluation include at a minimum?

A
  • risk assessments in connection with selection/application of substantive procedures, especially those related to fraud
  • findings with respect to noncompliance with laws/regulations
  • findings with respect to related party transactions & complex/unusual transactions
  • indications of management bias in making accounting estimates & selecting accounting principles
  • nature/extent of misstatements detected by substantive procedures
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17
Q

When evaluating managements report on effectiveness of ICFR (Internal Control over Financial Reporting), what should the auditor make sure is included?

A
  • statement regarding managements responsibility for ICFR
  • description of subject matter of audit
  • identification of criteria against which ICFR is measured
  • managements assertion about ICFR
  • description of material weaknesses, if any
  • date of which managements assessment about ICFR is made
  • if auditor determines any required element is incomplete or improperly presented, auditor should request management to revise report
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18
Q

What are the key areas of an audit report on the audit of ICFR (Internal Control over Financial Reporting)?

A
  • title
  • addressee/to
  • opinion on FS & ICFR paragraph
  • basis for opinions paragraph
  • managements responsibility for FS & ICFR paragraph
  • auditors responsibility for FS & ICFR paragraph
  • definition & inherent limitations of ICFR paragraph
  • signature
  • city/state
  • date

*report can be separate or combined with opinion on FS (if separate - will add an ‘other matter’ paragraph to both reports that references other report

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19
Q

What should be within the title, to, signature of auditor, auditors address & date of auditors report on audit of ICFR (Internal Control over Financial Reporting)?

A
  • title: labeled ‘Independent Auditors Report’ or ‘Report of Independent Registered Audit Firm’
  • to: addressed as ‘Board of Directors’ or ‘Shareholders and Board of Directors’
  • signature of auditor: no heading, manual or printed signature
  • city/state: no heading, city/state where practitioner practices
  • date: no heading, date of auditors report
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20
Q

x

A

x

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21
Q

What should be within the Managements Responsibility for Internal Control over Financial Reporting paragraph of the auditors report on audit of ICFR?

A
  • heading: labeled ‘Managements Responsibility for Internal Control over Financial Reporting’
  • statement that management is responsible for designing, implementing & maintaining effective ICFR
  • statement that management is responsible for its assessment about effectiveness of ICFR
  • reference to managements report on ICFR
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22
Q

What should be within the Auditors Responsibility for Internal Control over Financial Reporting paragraph of the auditors report on audit of ICFR?

A
  • heading: labeled ‘Auditors Responsibility for Internal Control over Financial Reporting’
  • statement that auditors responsibility is to express opinion on entity’s ICFR based on audit
  • statement that audit was conducted in accordance with GAAS in U.S.
  • statement that such standards require auditor plan & perform audit to obtain reasonable assurance about whether IFCR was maintained in all material respects
  • description of audit, by stating:
    • audit of ICFR involves performing procedures to obtain audit evidence about whether material weakness exists
    • procedures selected depend on auditors judgement, including assessment of risks that a material weakness exists
    • audit includes obtaining understanding of ICFR & testing/evaluating design & operating effectiveness of ICFR based on assessed risk
  • statement about whether auditor believes audit evidence obtained is sufficient & appropriate to provide basis for audit opinion
23
Q

What should be within the Definition & Inherent Limitations of Internal Control over Financial Reporting paragraph of the auditors report on audit of ICFR?

A
  • heading: labeled ‘Definition & Inherent Limitations of Internal Control over Financial Reporting’
  • definition of ICFR (should be same as managements in its report)
  • statement that because of inherent limitations, ICFR may not prevent, detect, or correct misstatements and that projections of any assessment of effectiveness for future periods are subject to risk that controls may become inadequate due to changes in conditions or degree of compliance with policies/procedures deteriorate
24
Q

What should be within the Opinion paragraph of the auditors report of ICFR?

A
  • heading labeled ‘Opinion on Internal Control over Financial Reporting’
  • auditors opinion on whether entity maintained, in all material respects, effective ICFR as of specified date, based on criteria
  • report can be separate or combined with opinion on FS (if separate - will add an ‘other matter’ paragraph to both reports that references other report
  • if is material weakness identified as part of audit of ICFR, adverse opinion issued - include definition of material weakness (deficiency or combination of deficiencies that produce possibility that a material misstatement of FS wont be prevented, detected or corrected on a timely basis)
25
Q

What is an Examination Report (non FS)?

A

reports needs to be in writing - opinion is whether subject matter is in accordance with criteria in all material aspects, or if assertion is fairly stated in all material respects

same opinions that would be issued for an audit - unmodified/qualified/adverse/disclaimer of opinion

26
Q

What is a Review Report (non FS)?

A

report needs to be in writing - auditor concludes whether any material modifications should be made to subject matter or responsible party’s assertions

review engagement, under attestation standards - if material, but not pervasive misstatement, results in a modified conclusion

if material & pervasive misstatements, auditor should withdraw from engagement

27
Q

What is an Agreed Upon Procedures Report?

A

should have agreed upon procedures outlined in engagement letter & the auditors report - auditors report will identify procedures performed & conclusions/findings reached (no opinion stated)

includes statement: ‘this agreed upon procedures engagement was conducted in accordance with attestation standards established by AICPA’

includes a paragraph limiting distribution of report to specified parties (if applicable - not required to be restricted now)

28
Q

What is a Service Auditor? and what reports do they issue?

A

Service auditor is an auditor that reports on controls at a Service Organization (entity provides services to user entities - payroll service: ADP)

Issued either Type 1 or Type 2 reports - auditors auditing other entities use these reports since controls of Service Organization are relevant to their clients controls

29
Q

What are the reports that Service Auditors issue?

A

TYPE 1:
contain an opinion on whether managements description is presented fairly & suitably of the design of controls at service organization

TYPE 2:
same as type 1, but also report on OPERATING EFECTIVENESS of controls at service organization - used when auditor of other entity is going to rely on operating effectiveness of controls at service organization

  • service auditor would modify their opinion if:
  • managements description is not fairly presented in all material respects
  • controls not suitably designed
  • controls did not operate effectively throughout specified period
  • could not gather sufficient appropriate evidence
30
Q

What is a Preparation of Financial Statements?

A

accountant takes information from management & prepares FS - non-attest service

accountant does not need to be independent

should be engagement letter that outlines managements & accountants responsibilities

each page of FS should include statement that no assurance is provided

31
Q

What is a Compilation? and what is a Compilation Report?

A

assisting management to draft FS without providing any level of assurance - attestation engagement, but NOT an assurance engagement - expected to understand client & its industry, no audit procedures/assurance

can be performed for prospective/proforma information in addition to historical FS

accountant does not need to be independent (if not, should disclose fact)

report - one paragraph, states, accountant performed compilation in accordance with SSARSs issued by ARSC of AICPA - includes disclaimer that FS have not been audited & not issuing opinion, nor providing any assurance

32
Q

What is a Review? and what is a Review Report?

A

assurance engagement - attestation engagement - provides limited assurance that no material modifications should be made to FS

accountant must be independent

basics of review:

  • possess knowledge of clients industry
  • apply analytical procedures
  • perform inquiries of management
  • obtain representation letter

each page of entity’s FS should include ‘See Accountant’s Review Report’

auditor not required to obtain understanding of internal controls

33
Q

What are the key areas of a review report?

A
  • title
  • addressee/to
  • introductory paragraph
  • managements responsibility paragraph
  • accountants responsibility paragraph
  • conclusion of engagement
  • signature of accountant
  • date of accountants report
34
Q

What should be within the Introductory paragraph of the Review report?

A
  • identify entity whose FS have been reviewed
  • state FS have been reviewed
  • identify the FS that have been reviewed
  • specify date/period covered by FS
  • include statement that review is substantially less in scope than audit, accountant does not express such an opinion
35
Q

What should be within the Managements Responsibility paragraph of the Review report?

A

statement that management (owners) are responsible for preparation & fair presentation of FS in accordance with applicable framework & for designing, implementing & maintaining internal control relevant to

36
Q

What should be within the Accountants Responsibility paragraph of the Review report?

A

statement that accountants responsibility is to conduct review in accordance with SSARs issued by AICPA

statement that those standards require accountant to perform procedures to obtain limited assurance there no material modifications should be made to FS

statement that accountant believes results of their procedures provide a reasonable basis for their report

37
Q

What should be within the Conclusion of Engagement paragraph of the Review report?

A

statement that based on accountants review, they are not aware of any material modifications that should be made to FS, other than those indicated in report, if any (conclusion)

  • if modified conclusion, Basis of Conclusion paragraph would be added
38
Q

What should be within the title, to, signature of accountant, & date of accounts report of a Review report?

A
  • title: labeled ‘Independent Accountants Review Report’
  • to: addressed as required by circumstances of engagement
  • signature of accountant: manual or printed signature
  • date of accountants report: should not be earlier than date on which accountant has accumulated review evidence sufficient to provide reasonable basis for concluding that accountant has obtained limited assurance that no material modifications should be made to FS
39
Q

What is involved in reporting on Compliance?

A

engaged to provide assurance on whether or not entity is in compliance with applicable laws/regulations/financial requirements of some kind

engagement can either be an EXAMINATION or an AGREED UPON PROCEDURES

  • Examination: end result is examination report - expresses opinion on whether management complied with specific requirements
  • Agreed Upon Procedures: applies procedures agreed upon by specified parties and auditor to evaluate compliance with specified requirements - report will list requirements, procedures performed & findings/results of procedures
40
Q

What are a few items that affect the consistency of FS between periods?

A
  • change in accounting principle
  • change in reporting entity
  • correction of material misstatement in previously issued FS
  • change in classification (ex: what things are called on B.S.)

*any above changed that are material would be mentioned in an ‘emphasis of matter’ paragraph in audit report

41
Q

What are some examples of changes in comparative financial information from a prior period and how the auditor would add an additional paragraph to audit report?

A
  • opinion on previously issued FS changes - emphasis of matter paragraph would describe reasons for change, date of previous report, opinion previously expressed, updated opinion differs
  • prior period FS not audited - other matter paragraph would describe service was performed in previous period (review/compilation) & statement that service was less in scope than audit - no opinion was issued on previous FS
42
Q

What are some ‘Other Information’ that can be included in audited FS?

A
  • material inconsistencies
  • material misstatements of fact
  • financial summaries or highlights
  • employment data
  • financial ratios
  • planned capital expenditures
  • names of officers/directors

*if applicable, auditor can use other matter paragraph to disclaim an opinion on the ‘other information’ included in FS

43
Q

What is a Review of Interim Financial Information? What does the report contain?

A

review, consisting of primarily analytics & inquiry

should be made clear on each page of FS - unaudited

end result - stating that no material modifications needed to be in accordance with applicable framework (states, ‘based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in accordance with applicable framework’

  • introductory paragraph
  • managements responsibility paragraph
  • auditors responsibility paragraph
  • conclusion paragraph
  • auditors signature
  • city/state
  • date of report
44
Q

What is involved if an auditor is engaged to determine if SI (Supplementary Information) is fairly stated in relation to FS?

A

phrase is: ‘supplementary information is fairly stated, in all material respects in relation to FS as a whole’

materiality levels used are same as what was used for auditing FS

RSI (required supplementary information) is information that a designated standard-setter has required to accompany the basic FS

auditor not required to ‘audit’ supplementary information but to apply ‘certain limited procedures’ to them & report any deficiencies in the information

45
Q

What do FS audits under GAO/GAGAS require? What should the report include?

A

GAO (Governmental Accountability Office) audits performed under GAGAS (Generally Accepted Government Auditing Standards) require reporting on internal controls & compliance with laws/regulations/agreements

report should describe scope of testing performed on internal controls & compliance with applicable laws/regulations/agreements - assurance over internal controls not provided - report states whether tests performed provided sufficient appropriate evidence to support opinion on internal controls & compliance

should report any significant deficiencies of material weakness in internal controls, any fraud discovered, or any non-compliance that would have a material effect on FS

CCC = controls, compliance, crime

46
Q

How is an audit report presented for Special Purpose Frameworks?

A

besides GAAP - cash basis, tax basis, regulatory basis, contractual basis

auditors report should describe purpose of FS or refer to note in FS that describe reporting framework (including why using diff framework)

done in an ‘emphasis of matter’ paragraph or an ‘other matter’ paragraph

*if titles of FS are not appropriately titled for the special purpose framework, auditor should make reservations on audit report and qualify the opinion

47
Q

What are the types of auditor reports that can be issued with a scope limitation?

A
  • UNMODIFIED - if immaterial
  • QUALIFIED - if material (‘except for’)
  • DISCAIMER OF OPINION - if pervasively material (‘do not express opinion’)
  • can be two types of SCOPE LIMITATION:
  • client imposed
  • conditions imposed (no ones fault)
48
Q

What are the types of auditor reports that can be issued with statements not in conformity with GAAP?

A
  • UNMODIFIED - if immaterial
  • QUALIFIED - if material (‘except for’)
  • ADVERSE - if pervasively material (‘FS do not present fairly’)

examples of NOT IN CONFORMITY WITH GAAP:

  • accounting principle not acceptable (MACRS = tax purposes)
  • inadequate disclosure
  • lack of justification for change in accounting principle (capitalizing costs that should be expensed)
49
Q

What are some conditions that may result in a modification of a Review Report?

A
  • departure from GAAP (emphasis of matter paragraph with description in next paragraph)
  • going concern uncertainty (other matter paragraph with description)
50
Q

ASB replaced the 10 GAAS Principles Underlying an Audit (TIP PIE GCDO) with?

A

PRPR
- (P) PURPOSE- express opinion

  • (R) RESPONSIBILITIES - competent, capable, ethical, maintain professional skepticism, exercise professional judgement
  • (P) PERFORMANCE - obtains sufficient appropriate evidence
  • (R) REPORTING - express opinion on written report
51
Q

What are non-audit services that are restricted to attest clients?

A
  • bookkeeping
  • financial information systems design & implementation
  • appraisal/valuation services
  • actuarial services
  • management functions/human resources
  • expert services
  • broker-dealer/investment advisor/investment banking services
  • legal services
  • internal audit outsourcing
52
Q

SEC requires public companies to disclose proxy statements & annual reports disclosures regarding?

A
  • audit fees
  • audit-related fees
  • tax fees
  • all other fees billed during 2 fiscal years by principal auditor of companies FS
  • pre-approval policies related to provision of above services
53
Q

What are the types of auditor reports that can be issued with a scope limitation for an ICFR (Internal Control over Financial Reporting)?

A

SCOPE LIMITATION (ICFR):

  • UNMODIFIED - minor effect
  • DISCLAIMER OF OPINION - severe limitation
  • can have differing opinion of audit reports for audit & ICFR
54
Q

What are the types of auditor reports that can be issued with a control deficiency for an ICFR (Internal Control over Financial Reporting)?

A

CONTROL DEFICIENCY (ICFR):

  • UNMODIFIED - control deficiency or significant deficiency
  • ADVERSE - material weakness
  • can have differing opinion of audit reports for audit & ICFR

0-SFCPA-AUD (4 decks)

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