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ACC-423: Auditing > Test 4 > Flashcards

Test 4 Flashcards

1
Q

PROBLEM 1.1 (SHORT ESSAY) (4pts)

Describe the 2 types of subsequent events

A

TYPE 1: Events that provide additional evidence about conditions that existed AT THE balance sheet date, which requires an adjustment to the financial statements if material

TYPE 2: Events that provide additional evidence about conditions that arose SUBSEQUENT (i.e. following) to the balance sheet date, which requires a disclosure in the financial statements if material

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2
Q

PROBLEM 1.2 (SHORT ESSAY) (1pt)

Describe length of time to search for subsequent events

A

At the year end date, procedures are performed related to subsequent events. These are performed until the Date of the Auditor’s Report, where the auditors may then form their opinions on the f/s and IC over financial reporting

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3
Q

PROBLEM 1.3 (SHORT ESSAY (5pts)

Describe procedures to search for subsequent events (go for 5)

A
  1. Review the minutes of BOD, Stockholder’s, and/or Audit Committee meetings
  2. Search for unrecorded liabilities
  3. Obtain a letter from the client’s attorney(s)
  4. Make inquiries of management/officers
  5. Obtain a letter of representation from management
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4
Q

PROBLEM 2 (MATCHING)

Written Representation Letter
(know the characteristics)

A

-REQUIRED AUDIT EVIDENCE!
-Provided by Management to Auditors
-Impress upon management its primary responsibility for the fairness of the financial statements, and absence of fraud activity by client and its personnel
-Dated using SAME DATE as audit report
-Signed by CEO and CFO

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5
Q

PROBLEM 2 (MATCHING)

Management Letter
(know the characteristics)

A

-NOT REQUIRED UNDER GAAS
-From Auditors to Client
-Reports auditor recommendations to client
-Assists client in improving its operations (effectiveness and efficiency for non-material items)
-Develops rapport with client
-Typically prepared AFTER the audit report release date

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6
Q

PROBLEM 2 (MATCHING)

Attorney Letter
(know the characteristics)

A

-REQUIRED AUDIT EVIDENCE!
-Auditor requests client to prepare and sign
-sent by auditor to attorney
-attorney’s response sent directly back to auditor
-looks for loss contingencies

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7
Q

PROBLEM 3 (MATCHING) - Types of Audit Report Opinions

Qualified Opinion

A

“except for” some matter, financial statements in accordance with GAAP
-GAAP Departure: Material, not Pervasive
-Scope Limitation: Material, not Pervasive
-Circumstance-imposed or Client-imposed

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8
Q

PROBLEM 3 (MATCHING) - Types of Audit Report Opinions

Adverse Opinion

A

financial statements “do not present fairly” the financial condition in accordance with GAAP
-GAAP Departure: Material and Pervasive

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9
Q

PROBLEM 3 (MATCHING) - Types of Audit Report Opinions

Disclaimer of Opinion

A

UNABLE to form an opinion or NO opinion is issued by the auditor
-Scope Limitation (GAAS): Material and Pervasive
EX: client lacks independence

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10
Q

PROBLEM 3 (MATCHING) - Types of Audit Report Opinions

Unmodified (“Unqualified”) Opinion

A

“clean”
Look at other questions for the four types of unmodified opinions:
1. standard report
2. emphasis of matter paragraph
3. with an other matter paragraph
4. Unmodified Opinion on group financial statements

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11
Q

What is performed at the Beginning of the Year date within the Audit Timeline?

A

Interim testing
Test of Controls
Substantive Procedures

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12
Q

When looking at Substantive Procedures, what are Rollforward Procedures?

A

audit procedures performed to EXTEND the conclusions from an interim date to the date of the financial statements

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13
Q

When looking at Substantive Procedures, what are Analytical Procedures?

A

study of relationships between financial and non-financial data

*REQUIRED during the planning and near the end of the audit

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14
Q

Why is it important to review accounts for “miscellaneous,” “other,” and “clearing” accounts?

A

May have manipulation and may relate to earning management

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15
Q

What does an Attorney Letter look for regarding contingencies?

A

if there are any loss contingencies

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16
Q

MULTIPLE CHOICE:

What are some of the Procedures for Litigation, Claims, and Contingencies (6)

A

-Inquiry of Clients
-Review minutes of meetings of stockholders, directors, and committees
-Review contracts, loan agreements, and correspondence from taxing and governmental agencies
-Obtain information concerning guarantees from bank confirmations
-Review documentation related to legal services
-Attorney letters

17
Q

Within a Written Representation, what does the management provide?

A

Responsibilities “opinion” related to:
-their financial statements and disclosures
-effectiveness of IC over financial reporting

18
Q

What is Going Concern?

A

auditors requested to consider whether evidence obtained during audit RAISES QUESTIONS about ability of entity to continue less than one year

19
Q

In audit documentation, what are the three questions that the audit supervisor must answer?

A
  1. Have all steps in audit plan been performed?
  2. Is referencing among documentation clear?
  3. Are explanations understandable?
20
Q

TRUE OR FALSE:

Auditors have a responsibility to evaluate whether financial statements properly reflect all known events through the audit report release date.

A

True

21
Q

What is the difference between the (1) Date of Auditors’ Report and the (2) Audit Report Release Date?

A

(1) date on which the auditors have gathered SUFFICIENT APPROPRIATE EVIDENCE to form their opinions on the financial statements and internal control over financial reporting

(2) date on which auditors ALLOW the client to use the audit report in connection with the financial statements

22
Q

Between the Attorney Letter, the Management Letter, and the Written Representation Letter, which are required and not required by GAAS?

A

Attorney Letter = REQ
Management Letter = NOT REQ
Written Representation Letter = REQ

23
Q

What opinion is expressed in public companies but not private companies?

A

effectiveness of internal control over financial reporting (“integrated” audit)

24
Q

MULTIPLE CHOICE:

In a standard report, what are the differences between Non-public and Public companies?

(HINT: in title, scope, and length)

A

Non-public:
-Independent Auditor’s Report
-in accordance with GAAS
-longer length

Public:
-Report of Independent Registered Public Accounting Firm
-in accordance with the standards of the PCAOB
-shorter length

25
Q

What is an Unmodified Opinion - Standard Report?

A

may only be issued when the auditors have obtained sufficient appropriate audit evidence to conclude the financial statements present fairly, in all material respects

26
Q

What is an Unmodified Opinion - With an emphasis of matter paragraph?

A

to emphasize a matter other than those presented or disclosed in the financial statements
- related to users’ understanding of the financial statements

EX: change in accounting principles, going concern

27
Q

What is an Unmodified Opinion - With an other matter paragraph?

A

to emphasize a matter other than those presented or disclosed in the financial statements
-related to users’ understanding of audit, auditors’ responsibility, or auditors’ report

EX: other information in documents containing audited financial statements

28
Q

What is an Unmodified Opinion on Group Financial Statements?

A

when two or more CPA firms are involved in an audit and the group auditor (firm that does most of the work) does not wish to take RESPONSIBILITY for the work of the component auditors, so refers to the OTHER auditors’ work

29
Q

If group auditors make no reference to component auditors’ work for which they have relied on as part of the basis of their report, what does this mean?

A

they are assuming responsibility for the work of the component auditors.

30
Q

Is the emphasis of matter paragraph in an Unmodified Opinion (if applicable) added before the opinion paragraph or following it?

A

following the opinion paragraph

31
Q

Is the basis for modification paragraph in a Modified Opinion added before the opinion paragraph or following it?

A

before the opinion paragraph

-to explain reasons for qualification

32
Q

What is the Going Concern opinion usually? If there is serious uncertainty, what type of opinion may it be?

A

ordinarily an UNMODIFIED OPINION with an EMPHASIS OF MATTER paragraph

if serious = may issue DISCLAIMER OF OPINION

33
Q

For reports on comparative statements, what timeframe should be covered?

A

cover CURRENT YEAR as well as PRIOR PERIOD audited by their firm

34
Q

Can different opinions be expressed on different years, when referring to comparative statements?

A

Yes

35
Q

What is the Audit Report date?

A

date that auditors have gathered sufficient appropriate audit evidence (usually last day of fieldwork)

36
Q

What is the Release date?

A

date the auditor grants the client permission to use the audit report in connection with the financial statements

ACC-423: Auditing (6 decks)

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