Reports on Audit Engagements Flashcards
Reporting when evidence is unavailable (scope limitation)
Elements common to standard audit reports for issuers and nonissuers
Date of audit report
CAM section needed?
KAM - Key audit matters by report
If an auditor does not possess and understanding of the clients business and industry, the auditor should ?
Review industry trade journals. It should research and obtain an understanding
What is Integrated Audit
Internal Control Deficiencies
Disclaimer of opinion
Due to scope limitation
Unmodified opinion with emphasis of matter paragraph
Where in the standard report for nonissuers does the auditor disclaim an opinion on internal control?
Opinion portion of unmodified report nonissuer
Reporting when there is substantial doubt about going concern
Which section of the standard unmodified audit report for a nonissuer references GAAS
The type of opinion issued (ei qualified/unqualified) never requires a change to the 1___________ responsibilities. Only a _______ requires a change to the ____________
1- Management responsibilities
2 - Disclaimer of opinion
3 - Auditors responsibilities
Auditors & managers responsibilities sections
What are KAMs?
Modified Audit Opinions
An adverse opinion is issued when the F/S contains ______ that are _____ and _____
F/S contain misstatements that are material and pervasive departures from GAAP
Substantial doubt about the entitys ability to continue as a going concern
Include this paragraph when managements plans do not alleviate substantial doubt about the entities ability to continue as a going concern and disclosures are adequate.
What are Kams
Kams are for nonissuers, discussed with management, included in separate section of audit report.
KAMS ONLY in regular audit repots, no disclaimer/adverse op
-Risk of fraud,
-Significant event (ie. potential merger)
-Estimates (ie depreciation)
Emphasis of matter paragraph (EOM)
Also a footnote disclosure. (i.e. substantial doubt about going concern has been disclosed and alleviated.)
If theres a significant deficiency but no material weakness in internal control, what opinion do you issue?
unqualified, qualified, adverse, or disclaimor of opinion
unqualified
EOMS mandatory vs optional
When do you issue a adverse opinion, and what section directly references the Basis for adverse opinion section
When there’s misstatements that are material and pervasive. The opinion section directly references the basis for adverse opinion section.
Where is the basis for opinion located in an audit report?
EOM use and example
Reporting when evidence is unavailable (scope limitation)
Audit opinions, example situations
And auditor includes KAM only when __________
Engaged to do so. (for Unmodified or qualified opinions).
KAMS should not be included on adverse or disclaimers unless required by law
What is RSI
Required supplementary information: (ie MD&A) is required by a FAST but not part of FS. RSI does not affect an opinion but specifies if its been included and respected or not.
RSI and CPA repot (issuer vs nonissuer)
Scope limitations can be either disclaimers or qualified opinions. Why which?
Qualified if material but not perverse
Disclaimer if material AND perverse.
Include emphasis of matter paragraph if change in accounting principle (ie depreciation method) has a ____________________
Material effect on the financial statements in the current year
When an auditor decides to issue a separate report for issuers IC, the auditor includes __ in the report on F/S
Includes immediately following the opinion a paragraph stating date of I/C audit, adult standards (PCAOB), control criteria (COSO) used, and opinion expressed
If a issuer company omits cash flow statement, what type of opinion do you report
qualified opinion. Omitting cash flow isnt pervasive to be disclaimer
What is Audit risk
Audit risk is the possibility that an auditor will issue an unmodified opinion on the fair representation of financial statements when an undetected material misstatement exists.
Material weakness vs significant deficiency
A material weakness is when its reasonably possible a material misstatement would go undetected/corrected by I/C’s in a timely manner. A significant deficiency is les severe than a material weakness but important enough to warrant the attention of those charged with governance.
When an auditor decides to issue a separate report for issuers IC, the auditor includes __ in the report on F/S and I/C
Includes immediately following the opinion a paragraph stating date of I/C audit, adult standards (PCAOB), control criteria (COSO) used, and opinion expressed.
Managements responsibility for ICFR is stated in I/C and not F/S
Standard Unqualified Audit report on Issuers F/S - Basis for opinion notes
An adverse opinion is issued only when _____
the auditor has obtained sufficient appropriate evidence to determine that the F/S contain material and pervasive misstatements.
What elements should be included in the auditors report of an issuers internal controls
Sections that indicate the auditors opinion, define internal control, and explain inherent limitations of internal control.
EOM things to remember
EOMs should have:
- appropriate title
- reference to matter being emphasized
- Indicate where addressed in FS
- State opinion is not modified
A justified and properly disclosed change in accounting principle results in an
Unmodified opinion with an emphasis of matter paragraph.
There are no CAMS in adverse or disclaimer opinions, however CAM section is ____________
Always required in an unqualified or qualified opinion even if no CAMs are identified.
Departures from GAAP are justified when following gap would cause FS presentation to be ______
Misleading.
If departure from gaap is justified, include in EOM in unmodified opinion.
Because the audit reports on the representations (claims) of management, the report is not addressed to management. Instead it is addressed to the ____________
BOD, shareholders, or whoever engaged the auditor.
Modified Audit Opinions
When are Kams refering to a basis of opinion or going concern section
Top Down Approach to evaluating internal controls over financial reporting
When is a KAM a KAM?
In a qualified opinion due to scope limit - what does the opinion section state vs the the basis for opinion section
The opinion section indications the qualification is due to the possible effects on the financial statements. The BASIS for opinion section explains what the scope limitation was.
If management doesn’t want to make an auditors proposed AJE that are immaterial in the aggregate, than what happens to the audit report ______
no disclosure is necessary and an unmodified opinion is appropriate.
What section of an unqualified audit report identifies the applicable financial reporting framework.
Opinion on the financial statements.
The PCAOB requires _______________ not _________ to state the year that the audit firm began serving consecutively as the company’s auditor
Issuers, (not non-issuers)
“Our responsibility is to express an opinion on ABCs, Incs F/S based on our audits” - is from which section ?
1Opinion on FS?
2Basis for opinion?
3Auditors responsibility for audits of FS?
4Responsibilities of management for FS
2Basis for Opinion
When client tries to present prior period FS with CY FS which only we audited CY, we need to include a _____
Paragraph stating the auditor is not expressing any form of assurance or opinion on the prior period unaudited F/S
for repeating engagement in which the prior year reported a qualified opinion, the CY report needs to _____
Indicate the substantive reasons for the PYs qualified opinion.
What section of nonissuers audit report indicates the titles of the FS audited?
Opinion
When an auditor qualifies an opinion in an audit of an issuer because of a a scope limitation, the auditor should modify the ________________ section and _________ paragraph
Basis for opinion section and opinion paragraph
The overall objective of submitting a unmodified opinion on IC over financial reporting is to render ______
reasonable assurance that financial records are sufficiently reliable to permit the preparation of financial statements.
In what section of an unmodified report for nonoissuers does the include the nature of the audit procedures performed?
1Auditors responsibilities
2Basis for opinion
3Managements responsibilities
4Opinion
1Auditors responsibilities
