Reports on Audited Financial Statements Flashcards
MR DIM REPPORTS CRAME
Management’s Responsibility
Design, Implementation and Maintenance of internal controls
(Auditors Responsibility:)
Responsibility
Express
Plan & Perform (the audit)
Performing (procedures)
Obtain (audit evidence)
Risk (assessment of material misstatement of f/s)
Test (considers internal controls - this is a stretch “test”)
Statements (i.e. fair presentation of F/S)
Control (effectiveness of Internal Control)
Reasonableness (of)
Accounting (estimates made by)
Management as well as
Evaluating the overall presentation of the F/S.
Definition of Pervasive
Very material (professional judgement call)
Add ons to a Clean Opinion are
Emphasis-of Matters Paragraph
or
Other Matters Paragraph
Emphasis-of-Matter Paragraph
Use when you want to emphasize something that is already appropriately presented or disclosed in the F/S
but it is of such importance that it is fundamental to the users understanding of the F/S.
It DOES NOT AFFECT the auditors opinion-STILL CLEAN!
Emphasis-of-Matter order
Comes immediately after the Opinion Paragraph
Use the Heading “Emphasis-of-Matter”
Describe matter being emphasized & location of disclosures in the F/S.
Indicate auditors opinion is NOT modified with respect to the matter emphasized.
Emphasis-Of-Matter is REQUIRED
When auditor concludes there’s substantial doubt about the entity’s ability to continue as a GOING CONCERN for a reasonable period of time
To describe a JUSTIFIED change in accounting principle that has a material effect on the entity’s F/S.
Substantial discovered facts lead to a CHANGE IN PRIOR AUDIT OPINION (use either e-of-m or other-matter Paragraph
The F/S are prepared in accordance w. an applicable special purpose framework.
Order of Auditor’s Report
Report on the F/S's Management's responsibily for the F/S's Auditor's responsibility Opinion Emphasis-of-Matter Other-Matter
Emphasis-of-Matter could be used for:
things fundamental to the users understanding of F/S:
Uncertainty of outcome of unusually important litigation or regulatory action
A major catastrophe having an effect on entity’s financial position
Significant related party transactions
Unusually important subsequent events
Other-Matter Paragraphs
Other matters that are not disclosed in the F/S that you want to tell people about.
Comes immediately after both the Opinion Paragraph and after any Emphasis-of-Matter Paragraphs.
Use Heading “Other-Matter”
Other Matter Paragraph REQUIRED
If audit report includes an alert that RESTRICTS THE USE of the audit report.
Subsequent discovered facts lead to a change in audit opinion (may use E-of-M or Other Matter).
If F/S of the prior period were AUDITED BY A PREDECESSOR and they were NOT REISSUED
Current period F/S are AUDITED and presented in comparative form with COMPILED or REVIEWED f/s for prior period(s) or w. those NOT AUDITED, COMPILED OR REVIEWED F/S.
Prior to the audit report date, a material inconsistency in other info is identified & mgmt refuses to make a revision
Auditor chooses to report on Supplementary Info presented with the f/s in the auditor’s report, rather than in a separate report
To refer to a required supp. info. that a designated accounting standards setter requires
To restrict the use of the auditor’s report when special purpose financials are prepared
When a report on compliance is included in the auditor’s report on the F/S.
Auditor’s Consideration of Entity’s Ability to Continue as a Going Concern
This concerns VALUATION and CLASSIFICATION
If you become insolvent - inventory would be sold for pennies on the dollar, not what you paid for it.
If you default on loans, they become immediately due and are reclassified from LT debt to Curr Debt.
If become insolvent, AR will probably not be collected.
CPA “ADMITS” there’s a going concern problem
Procedures to evaluate Going Concern Problems
Analytic procedures
Debt compliance -review debt terms & loan agreements
Minutes of the stockholders and board shd be reviewed
Inquiry of client’s legal counsel
Third parties should confirm details of financial support arrangements.
Subsequent events are reviewed
ISA states
The auditor should consider the Going Concern assumptions throughout the audit!
ISA requires a statement from management regarding ability to continue as a going concern.
Conditions and Events that might indicate Problems
FINE
Financial difficulties
Internal matters-labor difficulties,dependence on a particular project
Negative trends-recurrent losses, working capital deficiencies, negative cash flows, bad financial ratios
External matters-legal proceedings, new legislation, loss of key franchise license or patent, etc.
UNMODIFIED OPINION DOES NOT MEAN ITS A GOOD INVESTMENT
JUST MEANS THE F/S’s are presented fairly.
