Reporting on Audit Engagements Part 2

Question 1

emphasis of matter paragraph mandatory when

Answer 1

-the auditor’s opinion on revised F/S differs from opinion previously expressed
-justified change in accounting principle affecting consistency
-F/S prepared using special purpose framework
-F/S prepared using a regulatory basis intended for general use

Question 2

emphasis of matter paragraph optional when

Answer 2

-significant related party transactions
-material uncertanties (unresolved lawsuit)
-important subsequent events
-lack of consistent application of accounting principles

Question 3

if management decides not to make an auditors proposed adjustments and those adjustments
are immaterial in the aggregate

Answer 3

no disclosure is necessary and an unmodified opinion is appropriate

Question 4

ADVERSE AUDIT REPORT FOR NONISSUERS

Answer 4

adverse opinion
basis for adverse opinion
responsibilities of management for F/S
auditor’s responsibilities for the audit of the F/S

Question 5

ADVERSE AUDIT REPORT FOR NONISSUERS: adverse opinion

Answer 5

first paragraph
-identify entity
-state F/S have been audited
-state title of each statement (including dates)
-refer to footnotes to F/S
second paragraph
-state auditor’s opinion: “do not present fairly”
-refer to basis for adverse opinion section

Question 6

broad objectives of ICFR

Answer 6

1. render reasonable assurance that assets are safeguarded from unauthorized use or disposition
2. financial records are sufficiently reliable to permit the preparation of F/S

Question 7

only adverse opinion includes the phrase:

Answer 7

“do not present fairly”

Question 8

qualified opinion indicates F/S are fairly presented with one or more exceptions, it uses the phrase

Answer 8

“except for” to emphasize that the exceptions are GAAP departures

Question 9

STANDARD UNMODIFIED AUDIT REPORT FOR NONISSUERS

Answer 9

GAAP opinion
GAAS basis for opinion (or type of opinion)
GAAP responsibilities of management for the F/S
auditors responsibilities for the audit of F/S
KAM (key audit matters)

Question 10

STANDARD UNMODIFIED AUDIT REPORT FOR NONISSUERS: opinion

Answer 10

first paragraph
-identify the entity
-state that F/S have been audited
-state the title of each statement including dates
-refer to notes to F/S
second paragraph
state auditors opinion: “present fairly in all material respects in accordance with GAAP (or other reporting framework”

Question 11

STANDARD UNMODIFIED AUDIT REPORT FOR NONISSUERS: basis for opinion (or type of opinion)

Answer 11

-the reasons for the opinion provided
-states audit complied with GAAS (unless disclaiming)
-refers to auditors responsibilities section
-states auditor must be independent
-states auditor believes evidence is sufficient and appropriate (unless disclaiming)
-describes reason for modified opinion, if applicable

Question 12

STANDARD UNMODIFIED AUDIT REPORT FOR NONISSUERS: responsibilities of management for the F/S

Answer 12

-management is responsible for design, implementation and maintenance of I/C
-references GAAP
-evaluation of entity’s ability to continue as a going concern
-preparation and the fair presentation of F/S

Question 12

STANDARD UNMODIFIED AUDIT REPORT FOR NONISSUERS: auditors responsibilities for the audit of F/S

Answer 12

-to express an opinion on F/S (not I/C)
-describes the key requirements of GAAS (understand I/C)
-includes reference to amounts and disclosures
-description of audit: “examining, on a test basis, evidence regarding the amounts and disclosures”
resonableness of significant estimates, overall presentation of F/S and appropriateness of management’s acocunitng policies

Question 13

STANDARD UNMODIFIED AUDIT REPORT FOR NONISSUERS: KAM (key audit matters)

Answer 13

-subjects most significant in the audit of nonissuer
-address significant RMM
-areas requring a high degree of professional judgment
-significant events during the period

Question 14

for an integrated audit, you can have

Answer 14

separate reports
REPORT ON I/C + REPORT ON F/S
OR
one report
REPORT ON I/C & F/S

Question 15

audit report states:

Answer 15

1. audit followed appropriate auditing standards (PCAOB & GAAS)
2. provided reasonable assurance the F/S are fairly stated in accordance with GAAP
3. the date sufficient appropriate evidence obtained to support opinion
   generally the last day of fieldwork

Question 16

consistency is explicitly mentioned in the an audit report only if

Answer 16

it is lacking:

because consistent application of accounting principles is implicit in the claim that the F/S are in accordance with GAAP

Question 17

lack of consistency is justified and properly disclosed

Answer 17

discussed in emphasis of matter paragraph
leads to unmodified opinion

Question 18

lack of consistency is not justified or properly disclosed

Answer 18

discussed in the basis for opinion paragraph
leads to adverse or qualified opinion

Question 19

top down approach to evaluating ICFR

Answer 19

1. start with risk assessment at F/S level
2. direct attention to significant classes of transactions, accounts, disclosures
3. evalute operating effectiveness of key controls

Question 20

internal control deficiency

Answer 20

design or operation of a control does not prevent or detect financial misstatements

Question 21

material weakness

Answer 21

-reasonable possibility of material financial misstatement
-indicators:
1. ineffective governance
2. prior year financial restatements due to error or fraud
3. material misstatements not detected by controls
4. fraud by senior management, material or immaterial

Question 22

significant deficiency

Answer 22

-less severe than material weakness
-merits attention by those charged with governance

Question 23

KAM do not refer to the issue causing the qualified opinion because the issue is described in the basis for opinion section making it confusing and redundant to describe it again in the KAM section, SO

Answer 23

KAM refers to the basis of opinion section
similarily, the KAM section will reference the going concern section of an audit report instead of explaining the issue

Question 24

AUDITS OF ICFR CANNOT RESULT IN

Answer 24

A QUALIFIED OPINION

Question 24

management’s responsibility

Answer 24

-fair presentation of the F/S
-ICFR

Question 25

auditor’s responsibility

Answer 25

-obtain reasonable assurance
-express opinion on F/S
-assess RMM
-follow appropriate standards (PCAOB, GAAS)

Question 26

an audit evaluates

Answer 26

-amounts
-disclosures
-appropriateness of accounting policies
-reasonableness of significant estimates
-overall presentation

Question 27

accounting principles utilized in the preparation of the F/S should

Answer 27

1. be prepared in accordance with the identified financial reporting framework
2. be appropriate in the circumstances
3. provide information about matters that may affect the use, understanding and interpretation of the F/S
4. classify and summarize information in a reasonable manner
5. reflect transactions in a manner that presents the financial position, results of operations, and cash flows stated within
   a range of reasonable and practicable limits

Question 28

_______ requires integrated audits of all issuers

Answer 28

SOX