Reporting

Question 1

What are the four assertions for MD&A assertions?

Answer 1

1) Occurence, 2) Consistency of FS, 3) Completeness, 4) Presentation and Disclosure

Question 2

What are the five systemTrust service principles?

Answer 2

They are Security, Availability, Processing Integrity, Online Privacy, and Confidentiality.

POSAC!

Question 3

For trust service principles, what are the 4 criteria?

Answer 3

four criteria are policies, communications, procedures, and monitoring.

Question 4

Which body makes the the standards for financial assistance to receipients?

Answer 4

The General Accounting Office.

Question 5

Suitable criteria should have an appropriate combination of the following characteristics:

Answer 5

objective, measurable, complete, and relevant.

Question 6

suitable criteria should be available in one or more of the following ways:

Answer 6

(1) publicly, (2) included with the subject matter or in the assertion, (3) included in the CPA’s report, (4) well understood by most users (e.g., the distance between A and B is twenty feet) or (5) available only to specified parties.

Question 7

What are the diferences between a nonissuer comapny and an issuer company reporting?

Answer 7

• The title “Report of Indepdent REGISTERED public accounting firm.”
• referral to the standards of the PCAOB rathre than generally accepted auditing standards.
• Less detailed discussions of management and auditor responsibilities.
• A paragraph referring to the auditor’s report on IC. (This reference is obviously only required when the reports on the FS and IC are separte.

Question 8

When do you use an unmodified opinion with emphasis-of-matter paragraphs?

Answer 8

1) background
2) substantial dbout about ability to continue as a going concern
3) Inconsistency in Application of accounting principles
4) Uncertainties
5) Other circumstances at the discretion of the auditor

Question 9

Where should emphasis of matter be included?

Answer 9

• It should be AFTER the opinion paragraph
• Use the heading “Emphasis-of-matter.”
• Include in the paragraph a clear reference to the matter emphasized and where the matter is in the FS.
• Indicate that the auditor’s opinion is not modified with respect tothe matter emphasized.

Question 10

Events that will make you think there is substantial doubt about ability to cotinue as a going concern?

Answer 10

A substantial doubt that a company can’t operate more than a year. Consider:

• Negative trends
• Other indication of possible financial difficulties
• Internal matters. (e.g., work stppages, uneconomic long-term commitments.
• external matters (e.g., legal proceedings, legislation, loss of prin. customer.

Question 11

Procedures that may identify conditions for substantial dobut about ability to continue as a going concern?

Answer 11

-analytical procedures
-review of subsequent events
overview of complaicne with debt agreements
-reading of minutes of stockholders, BOD and other important board committees.
-Inquiy of legal counsel.
-Conciermation with related and thid parties of details.

Question 12

what are management plans to mitigate as a going concern?

Answer 12

-Plans to dispose of assets
-plans to borrow money or restructure debt
plans to reduce or delay expenditures
-plans to increase ownership equity.

Question 13

If management plans to mitigate the problem of going concern?

Answer 13

Consider the adequacy of FS disclosures and add emphais of matter paragraph to unqualified audit report (or disclaimer).

Question 14

Inconsistency in application of GAAP, when the auditors believe that the new principle meet the tests:

Answer 14

1) newly adopted principle is generally accepted
2) method of accounting for the effect of the change is in conformity with GAAP,
3) Disclosures related to the change are adequate,
4) Management has justified that the new accounting princple is preferable.

If if doesn’t pass this test, issue either a qualified or an adverse opinion.

Question 15

Client’s correction of a material missatemnt in previously issued FS?

Answer 15

also results in addition of an emphasis-of-matter paragraph to the audit report.

Question 16

When multiple ncertainties cause the auditor to conldue that it is not possible to form an opinon on the FS as a whole, due to the intenraciton and cumulative possible efefects

Answer 16

a disclaimer may be approrpirate.

Question 17

Other circusmtances at he disrection of the auditor:

Answer 17

auditors may incldue an emphasis of matter paragraph for:

1) A major catastrophe that affects the entity’s financial position.
2) signficant transactions with related parties
3) Unusualy important subsequent events.

Question 18

What results in a qualified opinion?

Answer 18

1) materially misstated FS

2) inability to obtain sufficient appropriate audit evidence.

Question 19

What results in an adverse opinon?

Answer 19

when FS sare materially missated and the ffects of the missatements are both mateiral and and pervasive.

Question 20

Disclaimer of opinon?

Answer 20

when inability to obtain sufficient appropriate audit evidence has occured and the possible effects are both mateiral nad pervasive. a DISCLAIMER STATES THAT HTE AUDITOR DOES NOT EXPRESS AN OPNION ON THE fs.

Question 21

the modified opinon is placed where?

Answer 21

it is placed immediately before hte opinon paragraph. it has the word “Basis for ____ opinon”. then the opinion paragraph becomes “______ opinon.”

Question 22

Other circumstnaces resulting in disclaimer of opinon

Answer 22

1) substantial doubt about going concern

2) uncertnatines. whene there are multiple uncerntainties.

Question 23

Group auditing. When no reference to the component auditors:

Answer 23

group auditor assume full responsibility for the entire audit. elect to make no reference, they will issue the standard auditors’ report with no additonal wording.

Question 24

Group auditing. make reference ot he component auditors:

Answer 24

divides the responsibilty for hte engagement among the participating CPA firms. shared resonsiblity opinon, even though it is signed only bh the group aditors. usually issued when other autiros were engaged by the client with no guidance from the group auditors.

Give appropriate $ audited by other auditor.

Question 25

Unmodified opinions with other-matter paragrpahs

Answer 25

They differ from emphasis of matter paragraphs in that they refer to a matter not in the audited FS. Include other matter when:

1) prior period financial statemnets not audited. (that is they are reviewed, complied, or there isn oCPA assoc.)
2) Opinon on prior period statements different from opinion previously issued.
3) prior period financail statements audited by a predecessor auditor.

Question 26

The predcessor auditr should perform:

Answer 26

1) limited procedures such as reading hte current FS, comparing them to the prior period FS and obtaining representation letters from bot hthe client’s management and the sucessor auditor.

Question 27

If the predecessor auditor’s report is not reissued, an other matter paragraph is added to the sucessor auditor’s report

Answer 27

• That the FS of hte prior period were audited by a predecessor auditor
• the type of opinion expressed by the predecessor and, if the opinon was modified, the reasons therefor.
• the nature of an emphasis of matter paragraph or other matter paragraph include int he predecessor auditro’s report.
• the date of that report.

Question 28

Other matter - alert as to the report inteded use

Answer 28

Restricting the use of an auditor’s report.
An auditor may be requried to or may choose to alert readers of FS that the report is intended for only certain users:
1) the report is inteded solely for the info and use of the specified parties
2) identify the specifeid parties
3) indicate that the report is not intended to be used by anoyone other than sepcified parties.

The other matter shoud be placed after emphasis of matter. that should also be placed after opinon section.

Question 29

In a comfort letter:

Answer 29

CPAs will provide positive assurance that hey are independent and that their audit followeed SEC standards. They will provide negative assurance or a summary of findings on various types of accounting related matters such as the following: unaudited condensed and summarized interim info, pro forma fin. info, change subsequent to the BS date, and on various stables.

Question 30

What is an assertion?

Answer 30

IT is a declaration about whether hte subject matter is presented in accordance with certain criteria.

Question 31

The criteria used in an attestation engagement should:

Answer 31

be suitable and available to the users. Suitable criteria should have an appropriate combination of the following characteristics: objective, measurable, complete, and relevant.

criteria are standards or benchmarks that are used to evaluate the subject matter of the engagement.

Question 32

What is a subject matter?

Answer 32

takes many forms, including

• historical or prospective performance or condition (e.g., historical prospective financial info)
• physical characteristics
• historical events
• analyses
• sytems or processes
• behavior

Question 33

Agreed-upon procedures engagements

Answer 33

reports incldue a list of procedures performed and the related findings.
Because specified parties have agreed upon the nature of the procedures, the reports for such engagement are intended only for those parties. Consequently, reports on restricted use only. contrasted to general use reports. This is the only report that require you to make notice to its restriction.

Question 34

Service organization control (SOC) reports

Answer 34

ex. data centers, flexible spending account servicers, and medical claim processers. 3 types of examination services that result in the following three types of CPA reports.
1) Restricted use reports on controls at a service organization relevant to a user entity’s internal control over financial reporting.
2) Restricted use reports on controls at a service organization related to security, availability, processing integrity, confdientiality, and/or privacy.
3) general use Systrust reports related to security, availabilty, procesing intgerity.

Question 35

Compliance auditing:

Answer 35

to provide assurance that requiremnets of various federal programs:
1) compliance with contractual agreements based on having performed a FS audit.

ojective is to provide negative assurance.

2) complaince attestation engagements,
3) compliance auditing of federal financial assitance programs.

Question 36

FS may issue a report on complaince:

Answer 36

1) when the covenants relate t othe FS
2) those covenants have been subjected to audit procedures
3) the auditor’s audit repot on the FS has other than an adverse opinon or a disclaimr of opinon.

Question 37

Compliance auditing, Government auditing standards

Answer 37

• GAAS
• Standards for FS under Government Auditing Standards
• A governmental audit requirement that requires an auditor to express an opinion on compliance.

Provides waht ti refers to as “generally accepted govenrment adutiing stndards. (GAGAS)

Question 38

Audits conduted in accordance with GAAS

Answer 38

1) performed for governmental entities for which no law requires either a GAS or single audit.
2) audit scope - responbility to deisng all audits to provide reasonable assurance
3) standard audit report is normally issued.

Question 39

Audits conducted in acordance with generally accepted gonverment auditing standards (GAGAS)

Answer 39

1) Applicability 0 these audits are required for certain org. that receive federal financial assitance. whether a governmental org is required to depends on the programs and whether it is required to have a single audit.

audit scope - in addition to GAAS requirements, depdneidng upon the nature of hte netity being audited, additonal auditor responsibilites may exist.
reporting - require reporting on the FS, internal control, and complaince with laws and reg., other govenrment audits may not require a report on IC.

Question 40

Audits conducted in accordance with the single audit act.

Answer 40

Passed by Congrass, is implemented by the Office of Management and Budget. Relates to Compliance Supplement. These audits require supplement the GAS audit procedures. auditr’s report may be presented in a form of either comibned or separate reports

Question 41

Single audit act report should include

Answer 41

1) opinon (or disclaimer) on whether FS conform to GAAP.
2) opinion on schedule of expenditures of federal wards. the schedule summarized program expenditures for all programs. opinion on whether the info presented fairly, in all mateiral respects, in relaiton to the FS taken as a whole.
3) Report on IC related to the FS and major programs. Under the single audit requirements, auditors are responbile for understanding IC over major porgrams.

Question 42

For agreed upon procedures, there is something special about their assertions:

Answer 42

A written assertion is not always required for an agreed-upon procedures engagement.

Question 43

AICIP Professional Standards define assurance services as:

Answer 43

AICIP Professional Standards define assurance services as independent professional services that improve the quality of information or its context for decision makers.

Question 44

Segment disclosures

Answer 44

Inaccurate (or omitted) segment disclosures constitute a departure from GAAP and lead to a qualified opinion or an adverse opinion. When a client changes operating segments from one year to the next for acceptable reasons, no consistency modification or other report modification is necessary.

An auditor considers segment disclosures (as other disclosures) in relation to the financial statements taken as a whole. Accordingly, the auditor is not required to apply procedures as extensive as would be necessary to express an opinion on the segment information itself.

Question 45

The objective of a review of interim financial information is to provide the CPA with a basis for

Answer 45

Reporting whether material modifications should be made to such information to make it conform with generally accepted accounting principles

Question 46

Governmental auditing often extends beyond examinations leading to the expression of opinion on the fairness of financial presentation and includes audits of:

Answer 46

efficiency, economy, effectiveness, and compliance.

Question 47

Tests of controls show that the entity’s internal control structure is so poor that it cannot be relied upon.

Answer 47

internal control weaknesses will cause the auditor to perform additional substantive procedures to obtain the required evidential matter. If the substantive procedures cannot provide the required evidential matter, a disclaimer of opinion is required.

Question 48

If management chooses to place supplementary information required by the FASB in footnotes attached to the financial statements, this information:

Answer 48

the professional standards require that the information be clearly marked “unaudited.”

Question 49

The AICPA Assurance Services Executive Committee’s (ASEC) mission is to

Answer 49

identify, develop, and communicate new assurance service opportunities for CPAs.

Question 50

When performing an audit of a city that is subject to the requirements of the Uniform Single Audit Act of 1984, an auditor should adhere to

Answer 50

General Accounting Office Standards for Audit of Governmental Organizations, Programs, Activities, and Functions.

Question 51

SEC reporting on interim statements:

Answer 51

Certain SEC reporting companies are required to include unaudited quarterly information in their annual reports or other documents filed with the SEC that contain audited financial statements. Auditors are engaged to perform review procedures either at the conclusion of each quarter, or at the end of the year when the information is included with the annual information. When dealing with the annual financial statements, omission, misstatement, or auditor inability to review the quarterly information all lead to inclusion of an emphasis-of-matter paragraph in the annual audit report. Be aware that the information is to be reviewed, not audited. Therefore, its misstatement will not lead to a qualified or an adverse opinion.

Question 52

What is a compnay level control?

Answer 52

• Controls within the control environment, including tone at the top, assignment of authority and responsibility, consistent policies and procedures, and company-wide programs such as codes of conduct and fraud prevention
• Management’s risk assessment process
• Centralized processing and controls
• Controls to monitor results of operations
• Controls to monitor other controls, such as internal audit, the audit committee and self-assessment programs
• The period-end financial reporting process is always considered significant and includes: the consolidation procedures, use of spreadsheets, journal entries, significant nonroutine, nonsystematic transactions, and selection and application of accounting policies
• Drafting of the financial statements and disclosures
• Board of director approved policies that address business control and risk management
NOTE: Testing company-level controls alone is not sufficient for the purpose of expressing an opinion on internal control.

Question 53

CPA should not agree to perform procedures so overly subjective and possibly open to varying interpretations; examples are

Answer 53

(1)
Reading work performed by others solely to describe their findings
(2)
Evaluating competency or objectivity of another party
(3)
Obtaining understanding about a particular subject
(4)
Interpreting documents outside scope of CPA’s expertise

Question 54

when an audit is performed, negative assurance is:

Answer 54

not to be provided, regardless of whether the financial statements are for a fiscal or interim period.

Question 55

In an audit in accordance with Government Auditing Standards an auditor provides what level of assurance?

Answer 55

Reasonable assurance of detecting misstatements that are material to the financial statements.

Question 56

Suitable criteria & Written assertion:

Answer 56

while an attestation engagement will always have subject matter, it sometimes will not have a written assertion. For example, consider a situation in which the CPA’s client is not responsible for the subject matter; in such a circumstance it may not be possible to obtain a written assertion from the individual who is the responsible party.

Question 57

When auditing a public entity’s financial statements that include segment information, the auditor should

Answer 57

Audit the segment information, and, if the information is adequate and in conformity with GAAP, do not make reference to the segment information in the auditor’s report.

Question 58

suitable criteria should be available in one or more of the following ways:

Answer 58

(1) publicly, (2) included with the subject matter or in the assertion, (3) included in the CPA’s report, (4) well understood by most users (e.g., the distance between A and B is twenty feet) or (5) available only to specified parties.

Question 59

When third-party use of prospective financial statements is expected, an accountant may not accept an engagement to

Answer 59

Financial forecasts and projections. The attestation standards present three forms of accountant association with forecasts or projections—compilation, examination, and application of agreed-upon procedures.

Question 60

financial projections are .

Answer 60

prospective financial statements that include one or more hypothetical assumptions

Question 61

When performing more than one level of service, for example a compilation and a review for a nonissuer entity, the accountant generally shoudl issue the report that is appropriate for

Answer 61

1) the highest level of service rendered.

Question 62

When a CPA audit a company that is not his or her client, you should address it to the

Answer 62

client that hired you.

Question 63

For a nonpublic company, which seciton of the audit report includes a statment that the auditor believes that the audit evidence obtained is sufficient?

Answer 63

opening.

Question 64

when subsequent event requiring adjustments for FS without disclosure to event, come sto he auditor’s atteniotn?

Answer 64

the professional standards state that the date sufficent appropriate audit evdience has been collected should be usd in such circumstances.

Question 65

“taken as a whole,” the PCAOB meant it to be:

Answer 65

a complete set of FS and each individual FS.

Question 66

f the presentation departs from the presentation guidelines because it fails to disclose assumptions that appear to be significant,

Answer 66

the practitioner should express an adverse opinion.

Question 67

When an independent U.S. auditor is engaged to report on financial statements prepared for use in another country, the auditor should perform audit procedures that are necessary to comply with the general and fieldwork standards of:

Answer 67

both U.S. GAAS and the auditing standards of the other country when specifically requested to do so.

Question 68

The objective of a review of interim financial information of an issuer is to provide an accountant with a basis for reporting whether:

Answer 68

The objective of a review of interim financial information of an issuer is to provide the CPA with a basis for reporting whether material modifications should be made to the interim information to comply with the applicable financial reporting framework.

Question 69

Weak internal control will not in general result in an adverse opinion; if controls are so weak that an audit cannot effectively be completed,

Answer 69

a disclaimer of opinon or withdrawal may be appropriate.

Question 70

An auditor who qualifies an opinion because of an insffucienciency in auditevidence should describe the limitations in a basis for modication paragraph. Auditor hsould also refer to the limitation in the

Answer 70

1) auditor’s responsibility section AND opinon paragraph.

Question 71

on condensed financial statement report,

Answer 71

you must issue a modified report.

Question 72

If management declines to present supplementary infomraiotn required by the Governmental Accounting Standards Board (GASB), the aduitor should issue

Answer 72

Unmodified opinion with an addiotnal other-matter paragraph!

Question 73

Letters for underwriter.

Answer 73

Remember! Letter the letters typically give negative assurance on unaudited interim finanical infomation.

Question 74

AT 301 state when significant assumptions are not disclosed, an:

Answer 74

adverse opinion should be issued.

Question 75

Which of the following statements represents a quality control requirement under Government Auditing Standards?

Answer 75

A CPA seeking to enter into a contract to perform an audit should provide the CPA’s most recent external quality control review report to the party contracting for the audit.

Question 76

In the first audit of a client, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles between the current and the prior year, as well as the amounts of assets or liabilities at the beginning of the current year. This was due to the client’s record retention policies. If the amounts in question could materially affect current operating results, the auditor would:

Answer 76

If an auditor is unable to apply all necessary audit procedures he or she considers necessary, regardless of the reason, a scope limitation has occurred. In the case where an auditor is unable to verify beginning balances because he was hired at some point during the year being audited, then those accounts which are measured over a period of time (such as revenues and expenses) cannot be verified. The auditor may not issue an opinion on the income statement and statement of cash flows for this period. However, the auditor would be able to express an opinion on the balance sheet since it is dated on the last day of the period.