Reporting on Audit Engagements Flashcards
unmodified audit opinion
-no scope limitation that is fairly stated
-auditor believes based on sufficient appropriate evidence, an estimate of the total likely misstatements is less than a material amount
-disputes over significant accounting issues has been settled to the auditor’s satisfaction
qualified audit opinion
scope limitation if material and not pervasive OR GAAP departure if material not pervasive
adverse audit opinion
GAAP departure that is material and pervasive
disclaimer of opinion
scope limitation that is material and pervasive
management acknowledges responsibility for the F/S twice
before the audit begins (engagement letter)
and at the end of the audit (in management representation letter)
if management refuses to accept responsibility for the F/S during the engagement stage
auditor should not accept engagement
if management refuses to accept responsibility for the F/S at the end of the audit in the representation letter
auditor should withdraw or disclaim opinion
emphasis of matter paragraph
used to draw attention to a matter properly presented in F/S but is fundamental for a user to fully understand the F/S
exs. F/S prepared using special purpose framework; change in accounting principle that affects consistency significant transactions with related parties
auditor issues unmodified opinion with reference to the disclosure when there is…
substantial doubt about the entity’s ability to continue as a going concern
STANDARD UNQUALIFIED AUDIT REPORT ON ISSUERS ICFR
opinion on F/S
basis for opinion section (ICFR)
critical audit matters section (CAM)
STANDARD UNQUALIFIED AUDIT REPORT ON ISSUERS ICFR: opinion on F/S
-identifies entity
-identifies F/S and dates that were audited
-state auditors opinoin
-identify applicable finanical reporting framework
-states auditor audited I/C
STANDARD UNQUALIFIED AUDIT REPORT ON ISSUERS ICFR: basis for opinion section (ICFR)
-states responsibilities of the auditor and management
1. management: I/C is their responsibility; mention their report on I/C
2. auditor: responsible for expressing opinion on I/C
-describes basic elements of PCAOB
1. auditor obtained reasonable assurance
2. is registered with PCAOB
3. is independent
-states audit provided reasonable basis for opinion
-describes audit
1. understanding ICFR
2. assessing RMM exists
3. tests and evaluate the design and operating effectiveness of ICFR
-describes reason for modified opinion if applicable
-title reflects opinion if modified
-states auditor believe evidence is sufficient and appropriate
STANDARD UNQUALIFIED AUDIT REPORT ON ISSUERS ICFR: critical audit matters section (CAM)
-describes challenging or subjective issues that relate to material accounts or disclosures and were discussed with audit committee
**required section for qualified or unqualified opinion even if no CAMs identified
**not allowed for adverse or disclaimer of opinion issued
1. identify the CAM
2. describe the main factors that led the auditor to determine the matter was a CAM
3. describe how the CAM was addressed in the audit
4. reference the relevant F/S assertions or disclosures
STANDARD UNQUALIFIED AUDIT REPORT ON ISSUERS F/S: basis for opinion section (F/S)
-F/S are responsibility of mgmt
-auditor responsible for expressing opinion
-audit employed PCAOB standards
-PCAOB requires the auditor to plan and perform the audit to obtain reasonable assurance”
“-Audit included:
1. assessing RMM
2. procedures to respond to those risks
3. examining, on a test basis, evidence regarding amounts and disclosures
4. evaluating overall presentation of F/S
-auditor believes that the audit provides a reasonable basis for the opinion
financial statements and ICFR statement
have the same date
ISSUER REPORTS DO NOT INCLUDE SECTIONS DEDICATED TO
LISTING THE RESPONSIBILITIES OF MANAGEMENT OR THE AUDITOR
if management refuses to revise information with material inconsistencies
-include other-matter paragraph
-withhold audit report
-withdraw from engagement
other matter paragraph
used to communicate matters other than those already included in F/S
key audit matters (KAM)
are issues that were discussed with those charged with governance and were of most significance in the audit
KAM not included in
adverse opinion or disclaimer of opinion unless required by law because it may overshadow or distract from opinion
in a qualified opinion, KAM refers to
basis of opinion section NOT describe the issue
causing the modification
in an unmodified opinion with going concern section, KAM refers to
going concern section NOT describe the going
concern issue
basic F/S is omitted, auditor issues
qualified opinion
change in estimate is
not mentioned unless they are so unreasonable as to constitute a material misstatement
justified change in principle…unjustified change
results in an unmodified opinion with an emphasis of matter paragraph which references disclosure, but does not provide explanation
EOM does not exist: qualified or adverse opinion section
NONISSUER’S AUDIT REPORT: DISCLAIMER OF OPINION
disclaimer of opinion
basis for disclaimer opinion
responsibilities of mgmt for F/S
auditors responsibilities for the audit of F/S
NONISSUER’S AUDIT REPORT: DISCLAIMER OF OPINION: disclaimer of opinion
first paragraph
1. identify entity
2. state auditor was engaged to audit the F/S
3. state title of each stmt (including dates)
4. refer to notes to F/S
second paragraph
1. state bc matters disclosed in the basis for
disclaimer of opinion section, no opinion is expressed
NONISSUER’S AUDIT REPORT: DISCLAIMER OF OPINION: basis for disclaimer opinion
-describes scope limitation and any known
material misstatements
NONISSUER’S AUDIT REPORT: DISCLAIMER OF OPINION: responsibilities of mgmt for F/S
-not altered
NONISSUER’S AUDIT REPORT: DISCLAIMER OF OPINION: auditors responsibilities for the audit of F/S
-narrowed to avoid giving impression that a full audit was performed
-performed audit report in accordance with GAAS
-mentions requirement for independence
-unable to obtain sufficient appropriate evidence
