Lec 18 Flashcards
what is the association framework
it is a term used to indicate that a public accountant is involved with the financial information issued by that enterprise
what are the 2 scenarios when a PA is associated with F/S
- when you consent the use of your firm’s name in connection to the statements
- you have prepared or performed some other services - even if not audit or name not on F/S, you are still associated
why is association important
it is important because it subjects you to the rules of professional conduct
what 3 things discussed in class can make a PA associated
- statements produced on PA’s letterhead
- statements result from bookkeeping services performed by PA
- documents released by company identify PA as auditor
do PAs know every time that they are associated
not necessarily
what are the 2 synonyms related to high assurance
audit assurance and positive assurance
what are the 2 synonyms related to medium assurance
review assurance and negative assurance
what is a synonym related to no assurance
complication assurance
what is done in no assurance/complication
no attempt was actually made to verify accuracy or completeness of information
why is standard wording important in reporting
because it helps users identify exceptions
what are the 5 basic segments of an unmodified auditor’s report
- opinion segment
- basis for opinion segment
- key audit matters (KAM) segment
- management and governance responsibility segment
- auditor responsibility segment
who is the traditional addressee in the report title
the shareholders
what is contained in the opinion segment and what does the first paragraph indicate and identify
- indicates that an audit report was conducted and identifies F/S audited
- state whether they have an unqualified, qualified, disclaimer or adverse opinion
what is contained in the opinion explanation segment
contains the fact that auditors believe that disclosure is adequate (implicit assertion) through obtaining SAAE
what is contained in the KAM segment and described and what is it an exception of
- why was it determined to be a KAM
- how was it addressed in the audit
- reference to disclosure in F/S
it is an exception to the fact that audit methodology should not be known or how testing was technically conducted
what are specific examples of KAM (3)
- valuation of GW and LT assets
- valuation of F/S
- management discretion of revenue recognition
why is KAM needed for users of F/S
because users do not have the sufficient knowledge to figure this out themselves and the KAM section highlights it for them
what is KAM NOT (4)
- not a substitute for disclosure in F/S
- not a substitute for auditor to express modified opinion
- not a substitute for reporting any matters relating to going concern
- not a separate opinion on an individual matter
what is contained in the management responsibility segment (3 main points)
- preparation and fair representation of F/S in accordance with GAAP
- design and implement I/C
- going concern of the company - kinda ties in with the fact that they should ensure operations are streamlined
what is contained in the wording of auditors responsibility segment
the auditors objective in obtaining sufficient reasonable assurance and the definition of materiality which is misstatements having the magnitude to influence the economic decisions of users
what are the 2 reasons for which a reservation in unqualified opinions exists
- departure from GAAP in disclosure
- scope limitation
why is a departure in GAAP bad for disclosure
because it leads to inadequate disclosure
why is a scope limitation bad for disclosure
because it leads to not enough SAAE being collected
depending on materiality of the misstatement, what opinions are issued for a GAAP departure
qualified opinion and adverse opinion
depending on materiality of the misstatement, what opinions are issued for a scope limitation
qualified opinion and disclaimer of opinion
when is a qualified opinion issued for GAAP departure
when the F/S have overall been presented fairly but one or two accounts are materially misstated due to this departure
“except for” is the beginning of a paragraph that talks about what
a qualified opinion on the departure from GAAP
when is an adverse opinion issued for GAAP departure
when the departure is so pervasive that F/S are completely materially misstated and are not fairly presented because of a departure from GAAP
“statement do not present fairly” is a sentence for what kind of GAAP departure
a pervasive departure
when is a qualified opinion given for scope limitation
when there is a lack of SAAE for one or two accounts
what is an account and issue in which a qualified opinion would be given based on scope limitation
a potential misstatement on COGS due to a scope limitation on the opening inventory
when is a disclaimer of opinion given for scope limitation
where a severe limitation arises on the scope of audit examination
what would change in the auditors responsibility section of the disclosure section if an opinion cannot be issued
it would reflect that an audit cannot be conducted
disclaimed of opinion is the same as d…….
denial of opinion
what are 2 examples that a refusal of opinion would be given based on a severe scope limitation
- all records being destroyed in some sort of natural disaster and no audit trail being left
- management refusing to sign the
client/management representation letter
what is the role that materiality plays in the issuing of an opinion
in giving an opinion an auditor considers whether the matter under consideration is immaterial, material but not pervasive, material and pervasive such that the overall fairness of the F/S is in question
what is the difference between pervasiveness when it comes to materiality
an account that is material and not pervasive is limited to one or two accounts
when an issue is material and pervasive it likely affects many accounts and will ultimately affect the ability to stay in operations
what is negative assurance and when is it used
assurance given on the accuracy on a particular set of facts due to the fact that the auditor did not find any contrary evidence
often used in review engagements and prospectuses
before relying on their work, what must auditors do when it comes to specialists’ work?
they must assess the specialist’s qualifications
who takes responsibility for the auditor’s opinion and whose name is used
the primary auditor for both
what must be considered when giving an unqualified opinion
additional information such as
- consistency
- uncertainty
- emphasis paragraphs
- going concern
what is an unqualified opinion with explanation or modification
when the wording deviates from the standard unqualified report
the audit results are still satisfactory, but the auditor believes it is necessary to provide additional information
what are 3 examples of unqualified opinion given with extra explanation or modification
- when there is non-GAAP F/S that are still in accordance with regulatory legislation or contractual obligations
- reporting differences between USA and Canada
- changes in GAAP or their applications
