Forming Conclusions & Reporting

Question 1

Emphasis-of-Matter:

Answer 1

required by GAAS, or is included at the auditor’s discretion, and that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor’s
professional judgment, is of such importance that it is fundamental to users’ understanding of the financial statements.

1) justified change in accounting principle
2) change in audit opinion
3) going concern
4) special purpose framework

Question 2

Other-Matter:

Answer 2

required by GAAS, or is included at the auditor’s discretion, and that refers to a matter other than those presented or disclosed in the financial statements that, in the auditor’s
professional judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities, or the auditor’s report.

Question 3

When should an auditor modify their opinion?

Answer 3

1) auditor concludes based on audit evidence obtained the FS as a whole are materially misstated
2) auditor is unable to obtain sufficient appropriate audit evidence to conclude FS as a whole are free from material misstatement

Question 4

GAAS - not able to get the evidence & not pervasive = qualified vs not able to get the evidence & pervasive = disclaimer

GAAP - FS are materially misstated & not pervasive = qualified vs FS are materially misstated & pervasive = adverse

Fraud, deception, misleading FS = withdraw

if the amount is quantified “except for the $$$ effects” = GAAP; if it is described as “except for the possible effects” = GAAS

“present fairly” = qualified; “do not present fairly” = adverse

“we were engaged to audit” not “we have audited” = disclaimer; we couldn’t obtain sufficient audit evidence = GAAS

Answer 4

Question 5

Departures from unmodified opinion: except for vs because of; scope limitation; fraud/misleading FS

Answer 5

Question 6

Which paragraphs change with: 1) qualified (“except for”), 2) adverse (“because of”), 3) disclaimer

Answer 6

Question 7

Qualified or adverse opinion: material misstatement may arise due to:

Answer 7

1) inappropriate accounting policies selected and/or applied
2) inappropriate FS presentation and/or inadequacy of disclosures in FS
3) IF MATERIAL ITEM IS PERVASIVE = ADVERSE
4) IF MATERIAL ITEM IS NOT PERVASIVE = QUALIFIED

Question 8

Qualified or disclaimer of opinion: (“limitation on scope” of audit) auditor’s inability to obtain sufficient appropriate audit evidence arises form following:

Answer 8

1) circumstances beyond the control of entity
2) entity’s accounting records have been destroyed
3) accounting records of a significant component have been seized
4) circumstances relating to nature or timing of auditor’s work
5) limitations imposed by mgmt
mgmt prevents auditor from observing counting of physical inventory
mgmt prevents auditor from requesting external confirmation of specific account balances
inability to perform specific procedure does NOT constitute limitation on scope if they are able to obtain sufficient appropriate audit evidence via alternative procedures
When an auditor qualifies his or her opinion because of a scope limitation, the wording in the opinion paragraph should indicate that the qualification pertains to the possible effects on the financial statements and not to the scope limitation itself.

Question 9

Modified opinion report requirements:

Answer 9

1) must include “basis for opinion” paragraph that describes circumstances
2) “basis for opinion” paragraph is placed after Opinion paragraph and must have header “Basis for Qualified Opinion, Basis for Adverse Opinion, Basis for Disclaimer of Opinion”
3) title of Opinion paragraph must also be modified to reflect the type of opinion expressed: Qualified Opinion, Adverse Opinion, Disclaimer of Opinion

Question 10

Audits of issuers (PCAOB):

Answer 10

Header: title that includes the word “independent”: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
1) address report to shareholders and Board of Directors
2) Opinion on FS in 1st section, including scope of audit (periods covered)
3) Basis of Opinion 2nd
a) mgmt’s responsibility (preparing and presenting FS, incl design/implementation/maintenance of ICs)
b) auditor’s responsibility (collect evidence and state you have obtained reasonable assurance that FS are free of material misstatement in order to issue an opinion that FS are not materially misstated)
c) firm is registered with PCAOB and follows PCAOB audit standards
d) independence is REQUIRED by SEC and PCAOB regulations
e) what an audit includes and excludes (collect evidence and issue an opinion that FS are not materially misstated)
Critical Audit Matters:
1) what is communicated or required to be communicated to the audit committee
2) relate it to material amounts or disclosures
3) involves challenging, subjective, complex judgments
4) does not involve altering opinion section
5) state if no critical matters were identified
Other elements:
1) auditor’s or audit firm’s signature
2) City/state/country of issuing office
3) audit report date
4) year that the consecutive audit began (issuer only); the year when the firm signs an initial engagement letter to audit a company’s financial statements or when the firm begins performing audit procedures, whichever is earlier.
5) may include integrated report on internal control over financial reporting
6) may include explanatory paragraphs

Question 11

audit of IC integrated with audit of FS (issuers only)

Answer 11

SOX 404a prescribes mgmt must issue annual report on ICs that evaluates/assesses the entity’s ICs, COSO IC framework, Reg S-K requires mgmt to provide annual report on internal controls over financial reporting (ICFR)
PCAOB AS No. 5 relates to auditor responsibility when performing an integrated audit of ICFR and FS

Auditor expesses opinion on effectiveness of ICFR as of point in time and taken as a whole
Auditor cannot audit ICFR without also auditing FS
Material weakness in IC = ADVERSE OPINION
DISCLAIMER or WITHDRAW for scope limitations (i.e. client refuses to provide written representation or accept responsibility for effectiveness of ICs)

Question 12

audit of IC integrated with audit of FS (issuers only):
1) controls to evaluate
2) objectives of integrated audit

Answer 12

Controls to evaluate:
1)controls over significant unusual transactions
2) controls that mitigate incentives for and pressures on mgmt to falsify or manage financial results
Objectives of integrated audit:
1) obtain sufficient evidence to support auditor’s opinion on ICFR as of year end
2) obtain sufficient evidence to support auditor’s control risk assessments for purposes of FS audit

Question 13

Reports on Internal Controls for Nonissuers:

Answer 13

Nonissuer = SSAE No. 15

Question 14

Reports on Internal Controls for Issuers:

Answer 14

Section 404(a)—Management’s Annual Report on the Effectiveness of Internal Control Over Financial Reporting. Management must evaluate and disclose any change during a fiscal quarter that materially affected, or is reasonably likely to materially affect, internal control over financial reporting
Section 404(b)—Attestation Report of the Registered Public Accounting Firm
SOX Section 404(c)—Permanently exempts “non-accelerated” filers from Section 404(b), which generally have < $75 million market capitalization worldwide.
10-K Item 9A. Controls and Procedures:
1) mgmt’s repsonsibility
2) framework used (COSO)
3) effectiveness as of year end
4) disclosure of material weakness
5) statement of auditor attestation (or lack thereof)

Question 15

Reports on Internal Controls for Issuers: 10-K Item 9A.

Answer 15

Evaluation of Disclosure Controls and Procedures

As of September 30, 2022, the Company carried out an evaluation, under the supervision and participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(e) of the Exchange Act. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within time periods specified in SEC rules and forms and were effective to ensure that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting practices in the United States of America.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2022. In making the assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 version of its Internal Control-Integrated Framework. Based on its assessment, the Company’s management believes that as of September 30, 2022, the Company’s internal control over financial reporting was effective based on this criteria.

The Company’s independent auditors, Deloitte & Touche LLP, an independent registered public accounting firm, have issued an audit report on the Company’s internal control over financial reporting, which appears in this annual report on Form 10-K.
There have been no changes in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Question 16

Objective of PCAOB AS No.5:

Answer 16

1) establishes requirements for performing exam of deisgn and operating effectiveness of ICFR
2) objective is to form an opinion by obtaining sufficient evidence providing reasonable assurance about whether material weaknesses exist as of date specified in mgmt assessment
3) integrated into FS audit to achieve both engagement objectives simultaneously

Question 17

Section 404(a)—
Section 404(b)—
SOX Section 404(c)—

Answer 17

Section 404(a)—Management’s Annual Report on the Effectiveness of Internal Control Over Financial Reporting. Management must evaluate and disclose any change during a fiscal quarter that materially affected, or is reasonably likely to materially affect, internal control over financial reporting
Section 404(b)—Attestation Report of the Registered Public Accounting Firm
SOX Section 404(c)—Permanently exempts “non-accelerated” filers from Section 404(b), which generally have < $75 million market capitalization worldwide.

Question 18

Performing integrated audit:

Answer 18

1) same risk assessment process supports both audits
2) apply more audit effort in areas where higher risk of material misstatement may exist
3) not necessary to test controls where material misstatement would not result from deficient design or operation
4) if low control risk assessment is supported through audit of IC, risk of material misstatement is also lower
Required top-down approach:
1) begin at FS level and entity-level controls
2) second, consider IC over significant accounts, classes of transactions and disclosures that present reasonable possibility of material misstatement
Other requirements of PCAOB No. 5:
1) consider using work performed by or receive assistance from IA and other 3rd parties
2) must obtain adequate written representations relevant to both audits

Question 19

elements of auditor report on IC:

Answer 19

title that includes “independent”
mgmt repsonsibility
identification of mgmt’s report over IC
auditor’s repsonsibility
definition of ICFR
statement that it was perfomed under PCAOB standards
obtaining reasonable assurance whether material misstatement exists
summary of procedures performed
auditor believes proedures provide a reasonable basis for opinion
inherent limitations in projecting conclusion to future periods
opinion
signature of firm
city/state of issuing office
date of audit report (same as FS audit date)

Question 20

elements of auditor report on IC: WAFD example

Answer 20

Question 21

general standards for attestation reports of PROSPECTIVE FS

Answer 21

1) performed by person having adequate training and proficiency
2) due professional care should be exercised in performance and prep of report
3) work should be adequately planned; assistants properly supervised
4) applicable procedures should be performed as a basis for reporting on prospective FS
5) report based on engagement of prospective FS should conform to applicable guidance

Question 22

general standards for compilation of PROSPECTIVE FS

Answer 22

1) identification of prospective FS presented by responsible party
2) statement that practitioner has complied prospective FS in accordance with AICPA standards
3) statement that compilation is limited in scope and practitioner will not be able to express an opinion or assurance
4) caveat that prospective results may not be achieved
5) statement that practitioner assumes no responsibility to update report for events and circumstances occurring after report date
6) manual or printed signature
7) city/state
8) date of report

Question 23

general standards for examination of PROSPECTIVE FS

Answer 23

1) title w/ word “independent”
2) identification of prospective FS presented, incl period of time
3) indication of criteria against which prospective financial information was measured/evaluated
4) identification of responsible party and statement that prep/presentation of prospective FS were done in accordance with AICPA guidelines
5) statement that practitioner’s responsibility is to express opinion on prospective FS based upon examination
6) statement that exam of prospective FS was conducted in accordance with AICPA attestation standards
7) statement that standards require practitioner plan and perform exam to obtain reasonable assurance about whether the forecast is presented in accordance with guidelines
8) statement that the practitioner believe that the exam provides a reasonable basis for opinion
9) description of nature of exam engagement
10) practitioner’s opinion that prospective FS are presented in conformity with AICPA presentation guidelines and whether underlying assumptions are suitably supportable and provide a reasonable basis for forecast
11) caveat that prospective results may not be achieved
12) statement that practitioner assumes no responsibility to update report after report date
13) manual or printed signature
14) city/state
15) date of report

Question 24

general standards for agreed upon procedures of PROSPECTIVE FS

Answer 24

1) practitioner is independent
2) practitioner and specified parties agreed upon procedures
3) specified parties take responsibility for sufficiency of agreed upon procedures
4) prospective FS include summary of significant assumptions
5) prospective FS to which procedures are applied are subject to reasonably consistent evaluation against criteria that are suitable and available to specified parties
6) criteria to be used in determination of findings are agreed upon between practitioner and specified parties
7) evidential matter related to prospective FS to which procedures are applied is expected to exists to provide a reasonable basis for expressing the findings in the report
8) practitioner and specified users agree on any agreed upon materiality limits for reporting purposes
9) use of report is restricted to the specified parties

Question 25

general standards for reports on PRO FORMA financial information

Answer 25

a) accountant must be independent
b) should obtain understanding of applicable framework, significant policies
c) applies expertise to assist mgmt with presentation of pro forma without providing assurance on pro forma
d) should obtain mgmt agreement that they acknowledge their additional responsibilities for prep and fair presentation of pro forma
1) mgmt must additionally agree to present FS for most recent year
2)mgmt must additionally agree to present interim historical financial information
3) if business combo, mgmt must also agree to present relevant historical financial information of combined entity
e) pro forma financial information mustr be based on historical financial information that HAS BEEN COMPILED, REVIEWED, OR AUDITED
f) mgmt must obtain accountant’s permission before including compilation report in any document containing pro forma information which indicates that a compilation has been performed on such information
1) presentation of pro forma should describe transaction(s) reflected and source of historical financial information, significant assumptions
2) indicate that the pro forma should be read in conjunction with relatd historical financial information
3) indicate that pro forma information is not necessarily indicative of future results

Question 26

Examination procedures for PRO FORMA: objective is to provide reasonable reassurance as to whether:

Answer 26

a) mgmt’s assumptions provide reasonable basis for presenting significant effects directly attributable to underlying transaction
b) related pro forma adjustments are mathematically correct and give appropriate effect to those assumptions
c) pro forma reflects proper application of those adjustments to historical FS

Question 27

Review procedures for PRO FORMA: objective is to provide negative assurance as to whether any information came to the practitioner’s attention that would cause them to believe:

Answer 27

a) mgmt’s assumptions do not provide a reasonable basis for presenting the significant effects directly attributed to the underlying transaction(s)
b) related pro forma adjustments do not give appropriate effect to those assumptions
c) pro forma does not refelct proper application of those adjustments to the historical FS

Question 28

Other procedures for PRO FORMA:

Answer 28

a) obtain understanding of underlying transaction
b) obtain level of knowledge of each part of business combo
c) discuss assumptions w/mgmt
d) evaluate whether adjustment cover all significant effects of transaction
e) obtain sufficient evidence in support of adjustments
f) evaluate whether mgmt’s assumptions are presented clearly and comprehensively
g) computations are mathematically correct and pro forma properly reflect application of those adjustments
h) obtain written representations from mgmt regarding 1) their responsibility for assumptions; 2) assertion that assumptions provide reasonable basis for presenting significant effects of transaction/pro forma properly reflects/significant effects are properly disclosed
i) read pro forma financial information and evaluate whether:
1) underlying transaction/pro forma adjustments/significant adjustments /uncertainties have bene appropriately described
2) source of historical information that pro forma is based has been appropriately identified

Question 29

examination AND review report requirements for PRO FORMA:

Answer 29

1) title that includes “independent”
2) identification of pro forma information including point/period in time to which measurement/evaluation of pro forma information relates
3) reference to pro forma adjustments included and reference to mgmt’s description of transaction to which pro forma adjustments give effect
4) identification of criteria against which the pro forma information was measured or evaluated
5) reference to FS from which historical information is derived and statement that those were audited (and which auditor if not you)
6) identify the responsible party and statement that responsible party is responsible for pro forma information and that pro forma adjustments are based on mgmt’s assumptions
7) statement that practitioner’s responsibility to express an opinion of pro forma information based on his/her examination
8) statement that examination of pro forma information was conducted in accordance with attestation standards est. by AICPA
9) statement that standards require practitioner to plan and perform the examination to obtain reasonable assurance about whether mgmgt’s assumptions provide reasonable basis for presenting the significant effects directly attributable to underlying transaction
and the related pro forma adjustments give appropriate effect to those assumptions in all material respects
10) statement that examination involves performing procedures to obtain evidence about mgmt’s assumptions, related pro forma adjustments and pro form amounts
11) statement that practitioner believes examination provides reasonable basis for his/her opinion
12) separate paragraph explaining objective of pro forma financial information and its limitations
13) practitioner’s opinion as to whether mgmt’s assumptions provide reasonable basis for presenting significant effects directly attributable to transaction, whether pro forma adjustments give appropriate effect to those assumptions, whether pro forma reflects proper application of those adjustments
14) manual or printed signature
15) city/state
16) date of examination report

Question 30

Reports for AGREED UPON PROCEDURES

Answer 30

agreed upon procedures engagement = practitioner is engaged to issue a report of findings based on specific procedures performed on underlying subject matter or subject matter information (or an assertion).
Because the needs of the specified parties may vary widely, the nature, timing, and extent of the agreed‐upon procedures may vary as well; consequently, the **specified parties assume responsibility for the sufficiency of the procedures **since they best understand their own needs.
practitioner does not perform an examination or a review and does not provide an opinion or negative assurance. Instead, the practitioner’s report on agreed‐upon procedures should be in the form of procedures and findings.
1) practitioner must be independent
2) either a) party wishing to engage the practitioner is responsible for subject matter or b) party wishing to engage practitioner is NOT repsonsible for subject matter BUT is able to provide them with evidence of a 3rd party having responsibility for subject matter
3) practitioner and specified parties agree on procedures to be performed
4) specified parties take repsonsibility for sufficiency of agreed-upon procedures
5) specific subject matter to which procedures are applied is subject to reasonably consistent measurement
6) criteria used in determination of findings are agreed upon
7) procedures to be applied are expected to result in reasonably consistent findings
8) evidential matter related to specific subject matter to which procedures are applied is expected to exist to provide a reasonable basis for expressing findings in practitioner’s report
9) use of report is restricted to specified parties
10) if agreed upon procedures are for prospective FS, the prospective FS include a summry of significant assumptions

Question 31

reporting controls at a service organization: Type 1/SOC 1

Answer 31

TYPE 1 REPORT: service auditor may also just report on management’s description of a service organization’s system and the suitability of the design of controls (also referred to as a type 1 report).
service auditor is responsible for the representations in the report and for exercising due care in the application of procedures that support those representations.
service auditor must be independent from the service organization

Question 32

reporting controls at a service organization: Type 2/SOC 2

Answer 32

TYPE 2 REPORT: report on management’s description of a service organization’s system and the suitability of the design and operating effectiveness of controls (also referred to as a type 2 report) is the service auditor’s report on a service organization’s description of its controls that may be relevant to a user entity’s internal control over financial reporting, whether such controls were suitably designed and operated effectively throughout the specified period to achieve specified control objectives, and whether the controls that were tested were operating with sufficient effectiveness to provide reasonable, but not absolute, assurance that the related control objectives were achieved during the period specified.

Question 33

Accounting and Review Engagements: considerations

Answer 33

1) has work been performed in accordance with professional standards and regulatory and legal requirements
2) significant findings and issues have been raised for further consideration
3) appropriate consultations have take place and resulting conclusions have been documented and implemented
4) nature, timing, extent of work performed is appropriate and without need for revision
5) work performed supports conclusions reached and is appropriately documented
6) evidence obtained is sufficient an appropriate to support report
7) objectives of engagement procedures have been achieved

Question 34

Objective of compilation:

Answer 34

Objective of compilation: to assist management in presenting financial information in the form of financial statements

Question 35

compilation report

Answer 35

1) state mgmt is responsible for FS
2) identify statements that have been subjected to the compilation engagement
3) identify the entity whose FS have been subjected to compilation
4) specify date or period covered
5) include statement that accountant performed compilation in accordance with SSARS promulgated by AICPA
6) include statement that accountant did NOT audit or review FS nor was accountant required to perform any procedures to verify accuracy or completeness of information provided by mgmt and accordingly does NOT express an opinion or conclusion nor provide any assurance on FS
7) signature of accountant
8) city/state
9) date of report
10) each page of FS complied by auditor MAY include “see accountant’s compilation report”
SSARS amendments:
1) expands subject matter to include pro forma and prospective
2) clarifies that accountant is not prohibited from performing compilation engagement on prospective financial information prepared and presented in accordance with other suitable criteria
3) clarifies the nature of engagement letter - oral understanding NOT sufficient
4) additional requirements with accountant issuing compilation report on prospective financial information
5) clarifies that accountant is required to disclosure known departures from applicable framework in compilation report
6) if accountant becomes aware of departure that is material and FS aren’t revised, accountant is required to consider whether modification of the standard report is adequate to disclose the departure
11) accountant may issue a compilation report on one FS and not other FS
12) FS prepared in accordance with special-purpose framework are NOT considered appropriate UNLESS:
a) include description of framework and primary differences from GAAP (effects of differences need not be quantified)
b) informative disclosures similar to those required by GAAP are included

Question 36

Objective of review:

Answer 36

Objective of review: to obtain limited assurance that there are no material modifications that should be made to the financial statements in order for the statements to be in conformity with the applicable financial reporting framework

Question 37

review report - SSARS No 21 Section 90

Answer 37

PARAGRAPH 1 “Independent Accountant’s Review”
R Reviewed (which FS, which period)
A Analytical procedures
I Inquiries of company management
S Substantially less in scope than audit
D Do not express an opinion
PARAGRAPH 2 “Management’s Responsibility for the FS”
R Responsibility of mgmt for prep/fair presentation of FS
A Accordance with accounting principles
P Preparation and fair presentation due to design/implementaiton/maintenance of Ics
PARAGRAPH 3 “Accountant’s Responsibility”
R Responsibility of accountant (conduct review)
A Accordance
S SSARS (obtain limited assurance; rsults provide reasonable basis for report)
PARAGRAPH 4 “Accountant’s Conclusion”
B Based on review
A not Aware
M Material modifications (to be in accordance with GAAP)
City/State of issuing office
signature of firm or accountant
each page of reviewed financial statements should reference review report
accountant’s city/state
date of report

Question 38

review report - material departure from applicable framework

Answer 38

Material departure from applicable framework (since this is not an audit, there can’t be a lack of evidence issue or scope limitation issue, it has to be departure from GAAP or lack of information/disclosure)
“with the exception of the matter described in the following paragraph”; “Explanatory Paragraph Added”
1) inadequate disclosure
2) inadequate accounting or disclosure of significant subsequent event
3) inadequate description of special purpose framework, summary of significant accounting policies, disclosures and how differs from GAAP

Question 39

review report - Emphasis of Matter paragraphs

Answer 39

Emphasis of Matter Paragraphs
1) draws reader’s attention to something properly presented and disclosed
2) conclusion NOT MODIFIED with respect to matter emphasized
3) appears after conclusion paragraph at discretion of accountant
4) except required reference to note discussing use of special purpose framework, when applicable
Examples:
1) properly disclosed uncertainty regarding going concern
2) uncertainty relating to litigation or regulatory action
3) material disclosed subsequent event, catastrophic disaster
4) significant related party transactions
5) inconsistency in application of accounting principles that was properly disclosed

Question 40

review report - Other Matter paragraphs

Answer 40

Other Matter Paragraphs
1) relate to the review, the review accountant’s responsibilities, or report
2) could be at discretion of accountant
3) REQUIRED by SSARS:
a) restrictions on use of report
b) degree of responsibility for supplemental information and required supplementary information
c) changed reference to a prior departure because prior FS were corrected
d) prior period attested upon by predecessor and report not reissued
e) prior period had different level of service performed by continuing accountant (prior period was compilation, this period was a review)

Question 41

preparation engagements

Answer 41

1) accountant prepares FS using records, documents, explanations provided by mgmt
2) accountant is required to ensure mgmt acknowledges responsibility to include a statement on each page of FS indicating that no assurance is provided on FS
a) if no adequate statement on each page, accountant is required to issue a disclaimer or perform a compilation engagement
3) any significant judgments that accountant assists mgmt with determining is still MGMT’s responsibility
4) if accountant becomes aware that information used to prepare FS is incomplete, inaccurate, must bring that to the attention of mgmt and request additional/corrected information
5) if accountant prepares FS that are a departure from applicable reporting framework, the accountant must disclose that fact in FS
6) if accountant prepares FS that omit substantially all disclosures required by applicable reporting framework, must disclose in FS - do not prep FS if the omission of disclosures was intent to mislead users

Question 42

Reporting on compliance audits: when is a compliance audit applicable?

Answer 42

1) applicable when auditor engaged (or requried by law or regulation) to perform compliance audit in accrodance with either Statements on Aauditing Standards SASs or Government Auditing Standards GAGAS
2) governmental audit requirement that requries an auditor to express an opinion on compliance
3) includes audits in accordance with OMB and HUD

Question 43

Reporting on compliance audits: what is an auditor’s responsibilities?

Answer 43

1) obtain reasonable but not absolute assurance about entity’s material compliance with applicable requirements
2) indentify and evaluate risk of material noncompliance, including evaluating design and implementation of relevant internal control over compliance
3) design and perform procedures to detect material noncompliance due to both fraud and error
4) communicate to those charged with governance the auditor’s responsibilities and significant findings
5) materiality is in relation to the government program as a whole; may reduce materiality to compliance requirement level for specific audit purposes
6) tests of details generally required to suport conclusions
7) tests of operating effectiveness of controls may be required by regulatory body even if not efficient
8) required to obtain response from responsible officials preferably in writing regarding findings, conclusions, and recommendations

Question 44

Reporting on compliance audits: what are mgmt’s responsibilities?

Answer 44

Management’s responsibilities:
1) identify government programs
2) understand and comply with relevant requirements
3) establish and maintant effective controls that provide reasonable assurance that the entity administers government programs in compliance with requirements
a) evaluating and monitoring entity’s complaince
b) taking corrective action with relevant

Question 45

Reducing audit risk of noncompliance to low level:

Answer 45

risk of material noncompliance RMN = inherent risk IR X control risk CR
Inherent Risk (IR) = Susceptibility to material noncompliance before considering related controls
Control Risk (CR) = Material noncompliance would not be prevented, or detected and corrected, on a timely basis
Detection Risk (DR) = Procedures will detect material noncompliance that exists

Question 46

Compliance audit report:

Answer 46

1) form opinion at level specified by governmental audit requirement
a) evaluate both known and likely questioned costs
b) evaluate other material noncompliance that do not result in questioned costs by their nature
2) may restrict use of the report to intended users
3) apply similar financial statement audit requirements for audit report modification, reissuance, referencing work of others, etc.

If a report on internal control over compliance is not required by the governmental audit requirement, must still communicate significant deficiencies and material weaknesses in writing to management and those charged with governance.

Question 47

by-product reports

Answer 47

By-Product Reports:
AU-C 806, Reporting on Compliance With Aspects of Contractual Agreements or Regulatory Requirements in Connection With Audited Financial Statements
Must relate to accounting matters in connection with audit of FS:
Examples - bond indentures, loan agreements, regulatory agency compliance, maintenance of current ratios, restrictions of dividend payments, payments to sinking funds
Elements for By-Product Report:
1) include statement that nothing came to auditor’s attention that caused auditor to believe that entity had failed to comply if following met:
a) auditor hasn’t identified instances of noncompliance
b) auditor expressed unqualified or qualified opinion on FS
c) applicable covenants or regulatory requirements related to accounting matters that were subjected to applied audit procedures
2) describe any noncompliance identified
3) if adverse or disclaimer on FS: If adverse or disclaimer on financial statements, issue report on compliance only when instances of noncompliance are identified.
Reporting considerations:
1) not precluded from issuing report on compliance as required by another set of auditing standards, such as GAGAS
2) written report may be either separate report or Other Matters paragraph included in report on FS
3) all instances of noncompliance must be described
4) restriction on use of compliance report would apply to entire auditor’s report if included with FS audit report

Question 48

comparative statements and consistency between periods

Answer 48

1) continuing auditor should update report on FS of prior periods presented on a comparative basis with current FS; all dates should be after the date upon which auditor obtained sufficient appropriate audit evidence to support opinion
2) if comparative info presented but not covered by auditor’s opinion, needs to be indicated in the report the character of the auditor’s work nd the degree of responsibility the auditor is taking
If the prior-period financials have been audited by a predecessor auditor whose report is not presented in comparative FS, the successor auditor should indicate that fact in the introductory paragraph of the audit report, along with the date and type (qualified, unmodified, etc.) and explanation of the substantive reasons for the opinion if it was any thing other than unmodified of the predecessor auditor’s report.
3) if auditor will express an opinion on all periods presented, auditor should consider whether prior period info is sufficient to conclude fair presentation in accordance with applicable framework

Question 49

reissuing reports - subsequent events

Answer 49

Reissue reports: FS in annual reports filed with SEC, regulatory reports, FS and other info in addition to basic FS submitted to client or others subsequent to the date of the original report, furnishing additional copies of a previously issued report
1) using the original date of the report implies no further action (auditor takes no responsibility for any events which may have occurred between original report date and date of release of additional reports
2) auditor who has become aware of subsequent events occurring after original date of report may make an adjustment or disclosure or choose the method of dating the reissued report
a) dual dating: 2/1/20XX except for Note X, as to which the date is 2/14/20XX; this limits auditor’s responsibility to the specific event referred to in that note X
i. if dual dating for a subsequently discovered fact, request written rep letters for mgmt as of the additional date of the report
ii. Whether any info has come to mgmt’s attention that would cause them to believe that any previous representations should be modified
iii. Whether any events have occurred subsequent to the date of the FS that would require adjustment to or disclosure in those FS
b) date report for a later date: responsibility for subsequent events extends to the date of the report, so you must extend subsequent event procedures to the new date of the report
i. if audit report changes to a late date, request written rep letters from mgmt as of new report date
3) If auditor’s opinion changes from original opinion: disclose in Other Matter paragraph: date of previous report, type of opinion previously expressed, substantive reasons for different opinion, auditor’s opinion on revised FS is different that previously expressed opinion
a) date of auditor’s previous report
b) type of opinion previously expressed
c) substantive reasons for the different opinion
d) that the auditor’s opinion on the revised FS is different from the previously expressed opinion
4) BEFORE reissuing a predecessor/previous auditor’s report in FS in comparative FS:
a) read FS of subsequent period to be presented on comparative basis
b) compare prior period FS that predecessor reported on to the FS of the subsequent period
5) representation from management:
a) request updated representations from mgmt of former client at or near date of reissuance
i. any info come to mgmt’s attention that would cause mgmt to believe any previous representations should be modified?
ii. Any events occurred subsequent to date of latest prior period FS reported on by predecessor that would require adjustment to or disclosure in FS?
6) representation from successor:
a) obtain rep letter from successor stating whether successor auditor’s audit revealed any matters that might have a material effect on or require disclosure in FS being reported on by the predecessor
7) if predecessor becomes aware of a subsequently discovered fact:
a) if mgmt revises FS and predecessor auditor plans to issue a new auditor’s report on the revised FS, auditor should express opinion ONLY ON CURRENT PERIOD
b) if mgmt revises the FS and the predecessor does NOT plan to issue a new auditor’s report on the revised FS or if mgmt DOES NOT REVISE the FS, apply requirements similar to other subsequently discovered facts known after report release
8) if FS were audited by a predecessor auditor and the predecessor auditor’s report is NOT reissued, in addition to expressing an opinion on the current FS the current auditor must also:
a) state in an Other Matter paragraph that the FS of prior periods were audited by predecessor auditor
b) type of opinion previously expressed
c) nature of the Emphasis of Matter paragraph or Other Matter paragraph included in the predecessor auditor’s report IF THERE WAS ONE
d) date of report

Question 50

Reporting on consistency - change in accounting principle

Answer 50

auditor must evaluate a change in accounting principle to determine whether:
1) new principle is in accordance with applicable reporting framework
2) method of accounting for the effect of the change is in accordance with applicable reporting framework
3) appropriate and adequate disclosures
4) entity has justified that alternative accounting principle is preferable
if above criteria is met and the change is MATERIAL, the auditor must include an Emphasis of Matter paragraph in report that describes the change and provides reference to disclosure
if above criteria is NOT met, auditor should evaluate whether change is material misstatement and therefore modify opinion

Question 51

Reporting on consistency - change in accounting estimate

Answer 51

auditor should evaluate and report on a change in accounting estimate that is inseparable from the effect of a related change in accounting principle like other changes in accounting principle
if the change results in FS that are in essence a different reporting entity, the auditor must include an Emphasis of Matter paragraph in the report that describes the change in reporting entity and provides reference to the disclosure unless change in reporting entity results from transaction or event
if change is to correct material misstatement, auditor should included Emphasis of Matter paragraph in the report that includes statement that previously issued FS have been restated and reference to dislcosure

Question 52

Reporting on consistency - change in classification

Answer 52

auditor must evalute whether change in FS classification and related disclosure is also either a change in accounting prociple or an adjustment to correct a material misstatement
Changes in classification in previously issued financial statements do not require recognition in the auditor’s report unless the change represents the correction of a material misstatement or a change in accounting principle
reclassifications of short term to long term debt on BS; change in cash flow category are corrections of prior material misstatements, thus auditor should include Emphasis of Matter paragraph in report regarding reclassification

Question 53

Reporting on consistency - change in reporting entity

Answer 53

change in reporting entity resulting from transaction or event DOES NOT require an Emphasis of Matter paragraph about consistency in the report
change in reporting entity that DOES NOT result from a transaction or event DOES require an Emphasis of Matter paragraph in the report
if prior year FS presented in comparison with current year FS and are NOT restated, a departure from applicable reporting framework has occurred which necessitates the auditor express a qualified or adverse opinion

Question 54

other information in documents with audited statements
Examples: financial summaries, employment data, planned cap expenditures, financial ratios, names of officers and directors, selected quarterly data

Answer 54

Auditor’s responsibility for other information:
1) document may contain both audited FS and other financial information - AUDITOR’S OPINION DOES NOT EXTEND TO OTHER INFORMATION
i. no auditor responsibility for determining whether other information is properly stated unless engaged to do so
ii. Must respond appropriately when aware that other information undermines the credibility of the FS and the auditor’s report
required audit procedures for other information:
1) read other information a) before report release date if possible or soon as practicable after report release date
2) separate section with the heading “Other Information” or other appropriate language must be included in the auditor’s report. The section should include identification of the other information and a statement that management is responsible for the other information
3) identify any material inconsistencies with FS
3) inform those charged with governance of auditor’s responsibility including any procedures and results
if mgmt refuses to modify for material inconsistency:
1) if material inconsistency requires revision to FS the modify the auditor’s opinion appropriately
2) if material inconsistency requires revision to other information inform those charged with governance and include Other Matter paragraph in report explaining inconsistency
3) option to withhold auditor’s report or withdraw
Material inconsistency discovered after report release:
1) audited statements require correction - see subsequent events and subsequently discovered facts in Section 3G
2) other information requires correction and mgmt agrees to revise - review the corrective actions by mgmt, including FS users are informed
3) other information requires correction and mgmt refuses to revise - notify those charged with governance and if they refuse, then go to legal counsel

Question 55

Supplementary information: consolidating information, statistical data, historical summaries of items extracted from basic FS (EXCLUDING REQUIRED SUPPLEMENTARY INFORMATION “RSI”)

Answer 55

1) information presented outside of basic FS not considered necessary for FS to be fairly presented
2) may be presented in a document containing the audited FS or separate from FS
3) auditor should report on the supplementary information in either (a) a separate Other Matter section in the auditor’s report on the financial statements with the heading ‘Supplementary Information,’ or other appropriate heading, or (b) in a separate report on the supplementary information

Question 56

report on supplementary information:

Answer 56

auditor may render opinion on whether supplementary information is:
1) fairly presented in all material respects
2) in relation to the FS as a whole
3) use same materiality threshold as FS as whole
4) add Other Matter paragraph to the report or issue a separate report with audited FS made available

Question 57

conditions for supplementary information inclusion

Answer 57

1) derived from and relates directly to underlying accounting records used to prepare FS
2) relates to same peirod as FS
3) auditor is principal auditor

Question 58

audit procedures for supplementary information- auditor should perform limited procedures:

Answer 58

1) inquire regarding purpose and criteria used for preparation
2) determine whether form and content complies with applicable criteria
3) obtain understanding of methods used to prepare and evaluate any changes from prior periods and reasons for changes
4) compare/reconcile to underlying records
5) evaluate appropriateness and completeness
6) obtain required written representations from mgmt

Question 59

report on supplementary information- elements of report:

Answer 59

1) audit conducted to form opinion on FS as whole
2) provides additional analysis and not required
3) mgmt responsible for supplementary info
4) info derived form accounting records
5) subjected to procedures used in FS audit and additional procedures required per GAAS

Question 60

report on supplementary information - reporting options

Answer 60

1) regardless whether FS opinion is unqualified or qualified and supplementary info is fairly stated, stated that supplemental info is fairly stated in all material respects in relation to FS as whole
2) when preparing a separate report:
a) reference FS report
b) report’s date
c) any report modifications
d) nature of opinion expressed

Question 61

Required supplementary information “RSI” - additional information required to be presented by other accounting standard setters (FASB, GASB)

Answer 61

1) presented along with basic FS
2) considered essential part of financial reporting
3) GAAS audits require Other Matters paragraph
4) required audit procedures for RSI:
a) obtain written representaions for mgmt acknowledging responsibility and assertion that the data was measured and presented in conformity with prescribed guidelines
b) inquire about methods of preapring RSI
c) compare for consistency with mgmt’s responses, FS and knowledge obtained during audit
5) RSI Other Matters paragraph:
a) RSI accompanies FS
b) RSI is omitted in entirety
c) RSI is partially missing
d) material departures from guidelines
e) inability to complete necessary proedures
f) unresolved doubts

Question 62

additional reporting requirements under GAO Government Auditing Standards “Yellow Book” or GAGAS (gen acc gov auditing standards)

Answer 62

1) typically impacts entities with public accountability as required by law, regulation, contract or agreement
2) GAGAS supplements Statements on Auditing Standards (SASs) when performing a FS audit
3) auditor must reference that audit was performed in accordance with both sets of standards
4) GAGAS requires report in internal control over financial reporting and on compliance with laws, regulations, and provisions of contracts or agreements
5) entity may or may not require a compliance audit of federal awards
6) audit objectives:
a) FS audit = risk of material misstatement
b) internal controls = operating effectiveness
i. may be performed in accordance with Statements on Standards for Attestation Engagements (SSAEs)
ii. May be performed in accordance with PCAOB AS (Public Company Accounting Oversight Board Auditing Standard) No. 5
7) compliance audit objectives:
a) compliance audit = risk of material noncompliance
b) laws, regulations and provisions of contracts or grant agreements that could have a direct and material effect
c) FS as a whole or each major federal program depending on scope of audit
8) internal control responsibilities - Statements on Auditing Standards (SAS)
a) understand design and implementation of controls to assess risk and design nature, timing and extent of further audit procedures
b) consider need to test operating effectiveness
c) communicate SD and MW in writing to mgmt and to those charged w/governance
9) internal control responsibilities - GAGAS
a) same as SAS
b) communicate SD and MW in Report on Internal Control
c) issue written report that includes description of the scope of the auditor’s work in obtaining an understanding of the internal control structure and in assessing control risk
10) compliance - SAS responsibilities
a) assess risk that noncompliance with laws, regulations, contracts, agreements could have direct and material effect on FS and design further audit procedures as deemed necessary
b) communicate material noncompliance matters to those charged with governance, orally or in writing
11) compliance - GAGAS responsibilities
a) same as SAS
b) communicate material noncompliance in Report on Compliance and Other Matters
12) fraud, abuse, illegal acts - SAS responsibilities
a) reasonable assurance no material misstatement due to fraud
b) no responsibility to plan audit to detect illegal acts or abuse
c) communicate to those charged with governance orally or in writing all known and potential fraud and other-than-trivial illegal acts
d)consider impact on internal control communications
13) fraud, abuse, illegal acts - GAGAS responsibilities
a) same as SAS
b) communicate material fraud and material abuse in Report on Compliance and Other Matters
c) report on any other instances that warrant attention of those charged with governance
14) abuse GAGAS definition: (may be quantitatively or qualitatively material) Behavior that is deficient or improper when compared with behavior that a prudent person would consider reasonable and necessary business practice given the facts and circumstances
15) key GAGAS reporting considerations:
a) may issue a single report: Report on Internal Control, Compliance, and Other Matters
b) may or may not opine on controls and/or compliance
c) must include written views of responsible officials within report (including corrective action plan)
16) audit results matter of public interest:
a) categorize severity of deficiencies and other findings based on prudent official test
b) audit reports are matter of public record
c) may require direct communication with 3rd parties (material fraud or noncompliance where appropriate action not taken by mgmt or governance)
d) disclose in report if certain confidential or sensitive information is omitted and reason for omission

Question 63

special-purpose and other country frameworks
reports on the application of accounting principles - for new transaction, new product

Answer 63

reports on the application of accounting principles - for new transaction, new product
may be written or oral
make sure that the entity is not “opinion shopping”, pitting you against their main FS auditors
understand the form, substance of transaction
consult with current auditors, other professionals
perform research or other procedures to ascertain and consider existence of creditable precedents an analogies
report:
brief nature of engagement
identification of entity and description of transaction (relevant facts and circumstances, assumptions
describe appropriate accounting principle, type of opnion that may be rendered, reasons for conclusion
state that responsibility for proper accounting treatment rests with FS preparers
restrictions on use of report

Question 64

special-purpose and other country frameworks
special reports - FS prepared in accordance w/special purpose framework, specified FS elements/accounts/items, engagement to Report on Summary Financial Statements

Answer 64

1) cash or modified basis
2) income tax
3) regulatory (HUD, state insurance commission)
4) contractual
5) other basis of accounting applying definite set of criteria having substantial support to all material items

Question 65

Report Modifications for Special Purpose Framework

Answer 65

1) identify applicable financial reporting framework
2) mgmt is repsonsible for prep and fair presentation of special purpose frameowkr FS
3) mgmt is responsible for determining framework is acceptable in the circumstances
4) description of purpose for which FS are prepared

Question 66

Special Purpose Framework: REQUIRED EMPHASIS OF MATTER PARAGRAPH:

Answer 66

1) FS are prepared in accordance with special purpose framework
a) refer to note that describes basis
b) alternatively, decsribe the basis
2) state that framework is a comprehensive basis of accounting other than GAAP

Question 67

Special Purpose Framework: Report modifications for contractual or regulatory basis:

Answer 67

1) add Other Matter paragraph restricting use of auditor’s report to relevant parties
DO NOT USE GAAP TERMS: instead of BS use “statement of assets, liabilities”, instead of IS use “statement of revenues and expenses”
Special purpose framework disclosures: all disclosures for fair presentation should be included (if GAAP disclosures are relevant then include, and include disclosure that discusses the basis of presentation and describe how different from GAAP)

Question 68

Special Purpose Framework: Report on specified FS element/account/item:

Answer 68

1) may be requested to express opinion on one or more specified FS element, account, item ( royalties, rentals, income tax provision)
2) issue a separate report from FS audit opinion
3) FS elements may be presented in auditor’s report or accompanying document
4) if adverse or disclaimer expressed on overall FS, cannot express unmodified opinion on element within those FS
5) include Other Matter paragraph that FS as a whole were audited including type of opinion
6) if specific element is net income or based on income, perform procedures necessary to obtain sufficient appropriate audit evidence to give an opinion about financial position and results of operations

Question 69

Special Purpose Framework: report on Summary Financial Statements:

Answer 69

1) “condensed” FS
2) auditor forms opinion about whether summary FS are consistent in all material respects with aduited FS from which they are derived (in accordance with applied criteria)
3) if adverse or disclaimer expressd on overall FS, cannot accept engagement related to summary FS
4) auditor has expressed an opinion on the complete FS
5) date of auditor’s report on complete FS
6) type of opinion on complete FS
7) whether information in summary FS is fairly stated in all material respects in relation to the complete FS from which they were derived

Question 70

Special Purpose Framework: report on Selected Financial Data

Answer 70

1) included in document that contains audited FS or incorporates a document by reference to information filed with regulatory agency
2) not required part of FS; mgmt is repsonsible for determining specific selected financial data to be presented
3) auditor’s report should be limited to data derived from audited FS
4) indicate that auditor has expressed an opinion on the complete FS
5) type of opinion expressed
6) whether information is fairly stated in all material respects in relation to the complete FS from which it was derived