MyAUDNotes Flashcards
The phrase US GAAP term refers as
necessary to define accepted acct. principle at a particular time, since it changes over time
Audit evidence should be
appropriate to determine reasonable assurance
Auditor’s Opinion
a statement that the FS present fairly, in all material respects, the financial position of the entity as of the balance sheet date and the results of operations and its cash flows for the period then ended, in accordance with the applicable financial reporting framework.
The PCAOB was established by
the Sarbanes Oxley Act in 2002, issuers=public Co.
If PY FS audited by someone else, and current year only showing PY statements and not report of prior auditor, current year auditor should indicate
- PY FS audited by someone else (without name)
- date of PY report
- type of report issued
- if other than unmodified, substantive reasons for it
if auditor reissues the audit report with no changes, auditor should use
the original report date on reissued report. use of subsequent date implies additional work has been done
Uncertainty of FS
when auditor cannot express an opinion in any of the statements. if properly disclosed, not need of emphasis paragraph if not disclosed then use emphasis paragraph
If cannot express and opinion in a statement bz it may materially affect the FS
a disclaimer of opinion for those specific statements
Dual date is use
only when subsequent event occurs after the original date and auditor wants to extend responsibility only for the one event
When reissuing the FS, the PY auditor should obtain a rep letter from
management (if any PY reps from management should be modified) and current year auditor (if new FS disclosed any matter affecting PY’s FS)
If a subsequent material event affects the audit report and the BOD cannot provide the proper AJE, auditor should
notify the creditors about subsequent event
If after report auditor finds out of matter that would have affected PY report, auditor should
- make sure that information is reliable
- determine whether other are relying on the FS
- perform alternative procedures
- request management to disclose such matters
The factor most likely to cause the auditor to apply omitted procedures if
omitting impairs the ability to support previous opinion
A reporting accountant written report on the application of framework should include
identification of specific entity, description of nature of engagement, performed in accordance to AICPA, specific transactions, relevant facts, circumstances, assumptions, and source of info, prepares are responsible of FS, separate paragraph restricting use of report and statement indicating if not independence.
If material inconsistency from other info w/ FS, auditor should
- obtain info as to whether FS requires revision,
- ask client to remove inconsistency
- communicate matter to BOD
then, - revise the other matter report
- withhold use of report
- withdraw from engagement
If FS are presented w/ client other matter info., the report
may include other matter paragraph but is not required
Management plans to mitigate the adverse effect of events are
- postponed expenditures (includes R&D)
- dispose assets
- borrow money or restructure debt
- increase ownership equity (sell stk)
(things that will improve a weak cashflow)
what can result in b/w adverse or qualified opinion
inadequate disclosure of entity to continue as going concern. (scope limitations are either qualified or disclaimer)
If substantial doubt of going concern (negative trends) or justified departure from GAAP , the auditor
can express unmodified opinion w/ emphasis of matter or disclaimer opinion. in such report should include “substantial doubt and going concern” but not include the time period in emphasis of matter
If unable to form opinion on opening balances, audit should
issue opinion in closing B/S only and disclaim (do not express) and opinion in all other statements
If uncertainty is properly disclose, auditor opinion should be
unmodified opinion since properly disclosed
If PY going concern has been removed in CY, CY report should
not include reasons for removal nor entity recovery plan and not repeat emphasis paragraph
Under US GAAP, if group partner is satisfied as to independence and professional reputation of component, auditor may
take full responsibility of the component work by not mentioning them in such report
When auditor mentions component auditor in his report, it will include such reference
it will modify his report but not add emphasis of matter
When change in principle materially affects comparability, auditor should present such matter
in emphasis of matter but could be unmodified if meets GAAS requirements
When management does not provides justification for change in principle the auditor should
express a qualified opinion
If likely that an entity operations will be discontinued, it should be disclosed in the FS, if not auditor should express
a qualified opinion since failure to disclose is a departure from GAAP
A report of a public Co. (issuer) should refer to engagement being performed in accordance to
PCAOB in scope paragraph and GAAP in the opinion
going concern period by GAAS and IAS covers
GAAS is no more than 1 yr, IAS at least 1 yr
The introductory paragraph indicates
nature of engagement, FS covered, name of entity and dates covered by audit
If unaudited FS are presented w/ audited FS, auditor should
either reissued unaudited FS or include separate paragraph indicating responsibility assumed for unaudited FS (for public, should mark “unaudited” but not referred to)
For compiled FS that omits PY disclosures by GAAP are
not comparable to FS that includes disclosures
If comparative FS and PY opinion was qualified, CY separate paragraph should include
reasons for PY qualified opinion
letters for underwriters
provides negative assurance on unaudited interim FS
Comfort letter
letter from independent AUDITOR to underwriter of securities. expresses an opinion w/ pertinent requirements/compliance w/ the SEC. Contains negative assurance(not provided in compilations) from CPA to underwriter before the registration of securities
If auditor disclaims an opinion on FS as a whole, auditor may express an opinion of
other reports that’s presented separately of the disclaimer of opinion
Single FS (B/S only) can be performed under GAAS
it involves special considerations of in the application of GAAS, materiality should be determine for single FS as separate engagement or w/ audit of complete FS
Are piecemeal opinion appropriate?
No. bz they may overshadow the disclaimer. it should be a separate element.
If FS are not appropriately titled requires to express a
qualified opinion w/ basis for modification paragraph
An OCBOA reports should include
emphasis of matter w/ basis, footnote that describes it and indicating is not GAAP. provides positive assurance (negative assurance on reports on compliance)
Restrictions as to use of the FS (only for BOD/others) will apply to
compliance report w/ regulatory requirement assuming is prepared based on audited FS
Statement of standard review (SSARS) applies to
nonissuers (private Co.). for public Co. PCAOB applies for reviews
A review of interim FS does not provides info about
entity’s ability on going concern
The objective for review of interim FS are
to provide basis to whether material changes should be made to conform w/ GAAP
If report on review of interim FS, auditor is
responsible to update events after date of report
If quarterly data is not presented as required
auditor report must state company has not presented data
When are modifications made for a review report
only when there is a departure from GAAP
Are auditors reports required by SSARS (nonpublic/nonissuers) for compiled FS?
Yes. it is required by SSARS for compiled FS to include auditors report. if lacks independence it should be disclosed
An accountant w/ a direct interest
is not independent and should not issue a report. It may only issue a compilation report if complies w/ such standards
SSARS (statement on standard acct & review) is
for services for private Co. (nonisuer) not seeking audited statements and is not required to file FS w/ regulatory agencies. does not applies to personal plans/tax authorities/litigation service/valuation services
knowledge of industry is required to perform special compilation or review before signing engagement?
No but in order to perform such engagement it does
When auditor performs more than one level of service for a private Co. the report should be on the
highest level of service
SSAE (statement of standard for attestation engagements) is
the guidance that provides w/ respect to compilation of financial projection. may result in reports related w/ laws and regulations
WebTrust engagement is
attest designed to measure transaction integrity, info proctection, and disclosure of business practices for e-commerce
EDIFACT refers to
standards developed electronic data interchange, commerce and transport in order to facilitate info flow among partners in dif industries
Examination of financial forecast involves
- evaluating the preparation of future FS
- evaluating the underlying assumptions
- evaluating the presentation of future FS in conformity w/ AICPA
- issuing examination report
also, states no responsibility on subsequent events and forecast and actual reports may differ
partial presentations are
presentations of future FS that omits one or more essential elements
When engaged in future FS the auditor must
inquire about principle used in future FS
What are the general purpose framework and the special purpose?
GAAP & IFRS are general and any other is special
A private Co. auditor should design test of details in order to ensure sufficient audit evidence to support
the planned level of assurance at the relevant assertion level
Test of control would support
the planned level of control risk and evaluate mgmt. assertion of effective controls
AICPA accounting trends and techniques is
annual survey of acct practices
Auditor of a private Co. may refer to specialist used in report if
the results of specialist causes auditor to modify its opinion
Does the auditor shares FS responsibility w/ internal auditor and/or specialist?
No. only responsible for the FS is the external auditor
Total misstatements includes
factual, judgmental, projected misstatements. equals control risk and inherent risk which affects detection risk
Opinion express by the auditor depends on
auditor estimate and unknown misstatements not by CAJE’s
SEC assertions are
- existence
- completeness
- rights and obligations
- valuation, allocations and accuracy
- understandability and classification
- cutoff
materiality
smallest aggregate level of misstatement that could be material to any one FS. uses both quantitative and qualitative factors. info that changes view of users
Objectivity of internal auditor is
reflected by the organizational level to which the internal auditor reports
Competence of internal auditor is reflected by
certifications, consistency of work performed, appropriate conclusions
detection risk
risk audit procedures wont detect misstatement. opposite effect from substantive test and audit risk (material mistatement) that can be change to auditors discretion.
Audit risk
risk of auditor failure to express free of material misstatement (control risk and inherent risk) opinion
control risk
risk that entity’s controls wont detect errors in time. exist independently of FS audit. affect detection risk but not inherent risk
When acquiring a new client, the written report should state that
any changes from the info provided may cause the report to change
What reflects the attitude, awareness and actions of the BOD on the entity’s internal controls that includes management operating style, organizational structure, participation of BOD, assigning authority and HR policies and practices?
Control environment, consider the foundation of other controls
Elements of internal controls
control environment, monitoring, info and communication sys, risk assessment and control activities
Service organization of entity info system affects:
initiation, processing and reporting of entity’s transactions
If controls are good but management can override is an example of
inherent risk limitations. includes collusion, human error and management override
Reliance of data is affected by the
internal controls established. does not matter if e-file or manual files as long as good controls are in place
Relevance of audit evidence depends on
timing of procedure, whether design to test for under/over statements and directly to test assertion
Assertions to be tested for understatement of sales and for overstatement of sales
completeness for under and existence for over
segregation of duties tested by
auditor personal knowledge by inquiries and observation procedures
What statement is more predictable?
I/S is more predictable than B/S accounts
understatement and overstatement assertions
understatement test completeness and overstatement test existence
if engage in derivatives should examine
risk exposure and possible losses
management opposing to confirmations auditor should
qualify the opinion as its a departure
related party transactions
important on disclosures. ex. executives are always related party
auditing accounting estimate, consider 4 elements:
- understanding estimate 2.review process for mgmt. estimate 3. develop expectation 4. subsequent events
Should auditor communicate disagreements w/ BOD?
Yes. whether resolved or not
What should be included in the rep letter that doesn’t includes materiality?
- mgmt responsibility of FS
- available evidence and complete minutes
- knowledge of mgmt. fraud
significant deficiency
likelihood & magnitude of potential misstatement whether material or not should be communicated to both mgmt and BOD during or after audit
significant and material deficiencies are reported to
mgtm and BOD. deficiencies are communicated to mgtm
internal control scope limitation, material weakness and significant deficiency are given which opinion
limitation- disclaim or withdraw, material weak- adverse, significant- communicate w/ mgmt and BOD
Does # of items on population affects sample size?
No, dollar amt on population has an effect
understanding the client generally includes who’s responsibility?
auditors responsibility
audit documentation indicates
work performed, who performed it and evidence obtained
documentation completion dates
GAAS, 60 days after release/5 yrs retention
PCAOB, 45 days after release/7 yrs retention
elements of quality control
1) performance 2)HR 3)client acceptance 4)responsibility 5)monitoring 6)ethical requirements
embedded modules are
program that collects data & requires auditor to be involve in the design
test data contains
invalid info. (tested by “dry run” client system in client computer under auditor control)
parallel simulation is
when auditor reprocess the client data on his program and compares it w/ client
what are audit sensitive positions that could affect independence?
cashier, internal auditor, supervisor, purchasing agent,
lead partners must rotate after
5yrs and other partners after 7yrs (lead needs 5yr time out b4 getting back and others 2yrs. also, one year cool off before being hired at an important position by client
tax services permitted if preapproved are
tax compliance, tax planning, tax advice (under IFAC internal audit service may be provided but not under US)
member class that impairs independence
spouse, children, relative
does consulting services and compilation need to be independent?
No.
For IFAC must be independent for which periods?
period of FS being covered and time of engagement
single audits
use risk base approach, materiality determine for each separate major fund
if single audit material noncompliance is identified
express qualified or adverse opinion (like a departure)
GAGAS (gvt standards)
responsibilities are expanded for 3 engagements:
- financial audit
- attestation
- performance audit
