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Audit > SU 11 Audit Reports > Flashcards

SU 11 Audit Reports Flashcards

1
Q

Report types

A

Unmodified (aka unqualified or standard)
Qualified
Adverse
Disclaimed

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2
Q

Unmodified opinion AICPA structure

A

Title: Independent auditor’s report
Addressed: those who commissioned the report (BoD/Shareholders)

1) intro
2) management’s responsibility
3) auditor’s responsibility
4) Opinion

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3
Q

Unmodified Opinion PCAOB format

A

Title: Independent Auditor’s Report
Address: to BoD/ shareholders

1) Opinion on the financial statements
2) Explanatory Paragraphs
3) Critical audit matters

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4
Q

Emphasis of matter or other matter paragraphs

A

presented to emphasize items in unmodified report- does not change nature of report

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5
Q

Where would the ethics statement be included an opinion for an issuer

A

in the explanatory paragraphs

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6
Q

Where is an opinion on an audit ICFR included

A

for issuers - to the opinion paragraph

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7
Q

Possible reasons for qualified opinions

A

1) scope limitations due to insufficient evidence (if severe/ pervasive may require a disclaimed opinion)
2) Material but NON-PERVASIVE misstatements

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8
Q

What may result in scope limitations

A

Limited timing
limited access
lack of access to records

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9
Q

what may result in material but non-pervasive misstatement

A
  • inappropriate selection/ application of accounting principles
  • unjustified change in accounting principles
  • inadequate disclosures
  • omitted financial statement (statement of cash flows)
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10
Q

What is required for conformity with the reporting framework

A
  • the framework is appropriate to the circumstances
  • information is classified and summarized properly
  • information reflects actual events & transactions
  • framework used is identified
  • includes any SEC reporting requirements
  • ## there are no MATERIAL departures from the framework
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11
Q

What if a departure from the reporting framework more accurately represents reality

A

Okay, requires a separate paragraph to describe details and a disclosure note

must have SEC approval

then may have an unmodified opinion with a material departure

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12
Q

Emphasis of matter paragraphs

A

Regarding something in the financial statements

used to draw users attention to a matter appropriately presented or disclosed that is of fundamental importance to user’s understanding of the financial statements

does not alter the opinion

included after the opinion paragraph

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13
Q

Items that require a emphasis of the matter paragraph

A
  • subsequent events and subsequently discovered facts
  • consistency of financial statements
  • special considerations - audits fo financial statements prepared in accordance with special purpose frameworks
  • Substantial doubt about the entity’s ability to continue as a going concern
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14
Q

How a going concern issue is communicated

A

Opinion may still be unmodified (statements still presented fairly)

Auditor adds emphasis-of-matter paragraph after the opinion paragraph

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15
Q

Procedure if there is a major change in accounting method

A

Must include an emphasis of matter paragraph describing
- new principle adopted (does it conform to framework)
- are there adequate disclosures in the notes
- does the new principal improve reporting accuracy or is it required

does not require a modified opinion unless it violates the accounting framework

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16
Q

Consistency

A

internal conformity from period to period/ over multiple time periods

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17
Q

Comparability

A

ability to compare statements between entities for the same time period

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18
Q

Accounting treatment: change in accounting principal

A

RETROSPECTIVE

Earliest statement must show cumulative effects as if principle was used from the beginning

19
Q

Accounting treatment: change in accounting estimate

A

PROSPECTIVE

change in estimate related to a change in principle (depreciation method) is treated as a change in estimate

20
Q

Optional emphasis paragraphs

A

about items with material effects on financial statements
- uncertainties around litigation/ regulations
- major disasters impacting firm’s financials
- material related party transactions
- significant subsequent events

21
Q

Dual dating option

A

Date 1: original end of field work date
Date 2: date of subsequent event that required revisions (these matters only are assigned the later date)

22
Q

if material fact requiring revision is discovered after the report release date

A

notify the audit committee, statement users, and the SEC

23
Q

Other matter paragraphs

A

issues that are not presented or disclosed in the statements (and not supposed to be) that are relevant to the users’ understanding of the audit, auditor’s responsibilities, or the audit report

included after the opinion paragraph, does not alter the opinion

24
Q

Situations where other-matter paragraphs are required

A
  • subsequent events and subsequently discovered facts
  • forming an opinion and reporting on financial statements (prior period statements)
    -material inconsistencies with other information presented along with financial statements
  • required supplementary consideration
    Special considerations (special frameworks)
  • Reporting on compliance with aspects of contractual agreements or regulatory requirements
25
Q

Responsibilities of the group engagement partner

A
  • the engagement
  • performance of the audit
  • report on the group’s financial
  • any work contributed by the component auditor
26
Q

When does the auditor NOT refer to a component auditor’s work

A
  • if the auditor will accept responsibility for the component auditor’s work
  • if the auditor is satisfied with the component auditor’s independence and professional reputation
27
Q

What does an auditor do if they do not accept responsibility for a component auditor’s work

A
  • report refers to the work of the other auditor and indicates the division of responsibility

Auditor’s responsibility and opinion paragraphs are altered

dollar amounts or percentages of account balances must be used to describe amount of audit performed by component auditor

28
Q

When does the auditor name a component auditor in their report

A
  • they do not accept responsibility for the other auditor’s work
  • the component auditor gives permission
  • the other auditor’s report is presented along with the main report
29
Q

What should be done if the auditor can’t rely on the other auditor’s report AND will not accept responsibility

A

requires a qualified or disclaimed opinion

30
Q

where does the reference to another auditor’s work go in a report

A

in the auditor’s responsibility section and then the opinion is altered “based on our audit and the report of other auditors”

31
Q

Key Audit Maters

A

areas of complexity and significant management/ auditor judgements

OPTIONAL in non-issuer reports - included if the auditor is engaged by the client to include them

NOT allowed in adverse or disclaimed opinions

32
Q

Key Audit Matters - structure

A
  • why the matter is significant
  • how it was addressed
  • if there were no KAMs
33
Q

Critical Audit Matters

A

Now required in issuer audit reports

Areas of complexity and significant
mgmt./auditor judgments

34
Q

Purpose of internal control report (ICFR)

A

to express an opinion on the effectiveness of the company’s internal control

35
Q

Required components of ICFR report

A

Significant deficiencies
Material weaknesses

36
Q

What should be done about deficiencies found in ICFR audit

A

communicated in writing to the audit committee, but not as part of the audit report

37
Q

Required ICFR report date

A

The audit report date or no more than 60 days after

38
Q

If no material weaknesses is found in an ICFR audit

A

Report should not say “no material weaknesses found” rather than “did not identify deficiencies that might be material weakness but they may still exist”

39
Q

Internal control deficiency

A

internal control does not prevent, detect, or correct misstatements on a timely basis

40
Q

What may create deficiencies in internal control

A
  • poor design
  • operational failures
41
Q

Significant deficiency in internal control

A

Deficiency that merits action but does not rise to the level of a material weakness

42
Q

Material weakness in internal control

A

Deficiencies resulting in a reasonable possibility that a material misstatement will not be prevented, detected, or corrected on a timely basis

43
Q

Indicators of material weakness

A
  • fraud by senior management
  • restatements of financial statements due to material errors or fraud
  • discovery of a material misstatement that internal control would not have detected
  • ineffective oversight by company board or audit committee
44
Q

Mixed report

A

audit report + internal control report

Audit (13 decks)

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