Section Four - Forming Conclusions and Reporting Flashcards
What is an Integrated Audit?
Audit of Internal Control over Financial Reporting integrated with Audit of Financial Statements.
During an Integrated Audit, Practitioner should include paragraph that includes the following regarding Internal Control?
Inherent Limitations of Any Internal Control.
What is a Qualified Opinion?
Qualification that states “Except for the effects of a certain matter, the Financial Statements are presented fairly in all material aspects, in conformity with GAAP.
When is a Qualified Opinion Warranted?
When the matter is material enough to prevent an unmodified opinion, but not sufficiently material to require an adverse opinion or disclaimer of opinion.
What 3 occurrences merit a Qualified Opinion?
1.) Lack of Sufficient appropriate evidence that does not warrant a Disclaimer of Opinion.
2.) Restriction of scope that does not warrant Disclaimer of Opinion.
3.) Departure from GAAP that does not warrant Adverse Opinion.
What must you disclose in a Qualified Opinion is issued?
Requires disclosure of all substantive reason for the qualification in one or more separate emphasis-of-matter or other-matter Paragraphs preceding the opinion paragraph.
The words “Except For” and a reference to Emphasis-of-Matter or other-matter paragraphs should appear in opinion paragraph.
What is Scope Limitation?
When the Auditor is unable to obtain sufficient appropriate audit evidence about a significant item in the financial statements, he has a scope limitation. Scope limitations result in the issuance of Qualified Opinion or Disclaimer of Opinion.
What is the difference between a Qualified and Adverse Opinion?
Qualified opinion: The financials generally represent the company’s performance and position, with one or more exceptions.
Adverse opinion: The financial statements are misleading or do not follow generally accepted accounting principles (GAAP).
What must you disclose when issuing a Adverse Opinion?
Auditor must disclose all substantive reasons for the Adverse Opinion and the principal effects of the inconsistency on the financial statements, if known, or a statement in a separate emphasis-of-matter or other-matter paragraph preceding the opinion paragraph that the effects are not reasonably determinable.
What does it mean when a Business Entity is a “Going Concern”?
Business entity that is expected to continue in operation indefinitely. An enterprise that is no longer considered a going concern is assumed to be approaching, or in the process of, dissolution.
What is the Auditor’s objective in performing an Audit of Internal Controls over Financial Reporting?
Express an opinion of the effectiveness of the internal controls over financial reporting.
When drafting an Audit Report for an issuer, what should be the first two sections of the report?
1.) Opinion on the Financial Statements
2.) Basis for Opinion
What is the process of identifying, assessing, and responding to risk of Material Misstatement on Financial Statements?
Cumulative and Iterative Process. Auditor performs planned audit procedures, audit evidence is obtained and may cause auditor to modify the nature, timing, or extent of other planned audit procedures. Based on that, Auditor should evaluate whether the assessment of risks of material misstatement at the relevant assertion level are appropriate.
When is the the earliest an Audit Report can be dated?
Should not be dated before the Auditor has obtained sufficient appropriate audit evidence to support opinion.
What is opinion must be issued if there is a material weakness in internal control?
Adverse Opinion
When is a disclaimer of opinion warranted?
Disclaimer of Opinion is no opinion. This is warranted when restrictions on the scope of the audit are so severe, whether client imposed or due to other reasons, that the auditors are unable to obtain sufficient appropriate audit evidence to enable them to form an opinion.
What is a Subsequent Event?
Event occurring after the balance sheet date but prior to the issuance of an auditor’s report, which has a material effect on the financial statements and therefore requires adjustment or disclosure in the statements.
What four statements must be included in an issuer’s integrated audit report?
1.) Auditor believes audit provides reasonable basis for the issued opinion.
2.) Mgmt. is responsible to maintaining effective internal control.
3.) Internal Control over Financial Reporting included polices and procedures regarding ability to report financial data consistent with mgmt. assertions.
4.) Audit was conducted in accordance with standards of the PCAOB.
Agreed-Upon Procedures Engagement
Attestation engagement in which a practitioner performs specific procedures on subject matter or an assertion and reports the findings WITHOUT providing an opinion or conclusion.
What is a practitioner?
Person that conducts the attestation engagement.
What is a compilatation?
Service to assist Mgmt. in presenting financial information in the form of Financial Statements w/o undertaking to obtain or provide any assurance.
Financial Projection
Based on the responsible party’s assumptions reflecting conditions it expects would be taken, given one or more hypothetical assumptions. Projection, like a forecast, may contain a range.
What is the objective of Pro Forma Financial Information?
Show what the significant effects on historical financial information might have been had a consummated or proposed transaction (or event) occurred at earlier date.
Quality Control Standards
CPA firm’s system of specified standards that are required to be developed to assure that firm is in compliance with the professional standards for services they provide.
Services include:
1.) Auditing, Accounting, and Review
2.) Consulting Practices
3.) Tax Practices
