SU 16 Reports-Other Modifications Flashcards
Criteria for evaluating a change in accounting principle
For a nonissuer, an emphasis of matter paragraph is required if the following IS MET:
1) The new principle and the method of accounting are in accordance w the app framework
2) The disclosures are adequate
3) The entity has justified that the alternative principle is preferable
For an ISSUER, an explanatory paragraph IS REQUIRED
What is required in the emphasis of matter or explanatory paragraph?
The paragraph DESCRIBES the CHANGE, refers to the entity’s disclosures, and FOLLOWS the opinion paragraph
What procedures should the auditor perform when relying on the audit work of another firm?
Review the other firm’s workpapers and reperform a subset of audit testing to validate the firm’s conclusions
What is an other-matter paragraph?
It is used to draw user’s attention to information relevant to their understanding of the auditor’s report, responsibilities, and audit. The other-matter is NOT required to be presented or disclosed in the fin state.
What does a reference to a component auditor indicate?
The group auditor DOES NOT assume responsibility for the audit of the component auditor.
If there is substantial doubt about an entity’s going concern, what opinions can be used?
Unmodified or DISCLAIMER of opinion
How is a change in the useful life used to calculate deprecation expense accounted for?
A change in estimate; It is NOT a change in principle or a correction of a material misstatement. DOES NOT require a modification of the opinion
Explain the rules for a material change in estimate that is inseparable from a change in accounting principle
Should be EVALUATED as a change in PRINCIPLE, The auditor should report on CONSISTENCY, but is ACCOUNTED for PROSPECTIVELY as a change in ESTIMATE, include EMPHASIS of MATTER paragraph
Situations in which an auditor will express an unmodified opinion and NOT add additional language
Remote likelihood of a material loss resulting from an uncertainty
A group auditor decides to refer to the report of a component auditor: means that the group auditor does not assume responsibility for the audit of the component auditor
A change in the depreciation method is:
A change in ESTIMATE inseparable from a change in PRINCIPLE. If MATERIAL, the change requires a separate paragraph
If comparative financial statements include prior year statements that were audited by a predecessor auditor whose QUALIFIED opinion is NOT presented, what should the auditor do?
Indicate the reasons for the qualification. The additional paragraph in the auditor’s report when the predecessor’s report is not presented would also include: the OPINION expressed, the DATE of the report, and a statement that the financial statements of the prior period were audited by another auditor
What is a justification for a group auditor NOT to refer to another CPA who audited a client’s subsidiary?
If the group auditor is satisfied as to the INDEPENDENCE and professional REPUTATION of the other CPA
What is included in the auditor’s report regarding consistency?
The auditor’s report is SILENT regarding consistency unless the comparability of FS has been materially affected by a change in accounting PRINCIPLE or by correction of a material misstatement in previous statements
Can an unmodified opinion be expressed when referring to a component auditor?
Yes.
Financial statements are compiled or reviewed from a prior period by a predecessor whose report is NOT presented. What should the auditor include in the report?
An other matter paragraph including:
the service performed in the prior period, the DATE of the predecessor’s report, MATERIAL modifications noted in that report and the service was SMALLER in scope than an audit.
