Terms in this set (81)
Three inherent limitations of an audit.
Nature of financial reporting, nature of audit procedures, timeliness of financial reporting (cost v benefit)
Non Issuers (accounting standards)
SASs, AICPA Auditing Standards Board
Statements on Auditing Standards
American Institute of Certified Public Accountants
Issuers (accounting standards)
Public Accounting Oversight Board
International Auditing and Assurance Standards Boar
International Standards on Auditing
How is IAASB used?
Standard setting board for international federation of accountants that establishes ISAs.
Does ISAs override national standards?
GAAS requirements (abbreviation)
Skepticism, ethical requirements, judgement, evidence, compliance with GAAS
Unmodified audit opinion
Presented when the auditor concludes that the F/S are presented fairly in all material respects in accordance with FR
Unmodified audit opinion (order)
Title, address, introduction, management responsibility for the f/s, auditor's responsibility, opinion, report on other legal/regulatory requirements
Unmod Audit: Title
Independent Auditor's Report
Unmod Audit: Introduction
client name, statement that the f/s were audited, title of each f/s, dates covered.
Unmod Audit: Management Responsibility for the F/S
Management is responsible for the fair presentation of the f/s., responsibility includes: design, implementation, and maintenance of internal control.
Unmod Audit: Auditor's Responsibility
form an opinion on the f/s, state audit was performed in accordance with standards generally accepted in the United States, a description of the audit.
Unmod Audidt: Opinion (required sentences)
f/s present fairly in all material respects, identify financial reportable framework and its origin.
Unmod Audit: Legal/regulatory requirement
Where in the unmodified opinion does the auditor refer to the applicable financial reporting framework (i.e. GAAp or IFRS)?
Management's responsibility paragraph and opinion.
Where in the unmodified opinion does the auditor refer to the generally accepted auditing standardss?
Auditor's responsibility paragraph.
Requirements under ISAs but not GAAS
Intro paragraph refers to the summary of significant policies, report may refer to the "preparation and fair presentation of the financial statements" (consistent with GAAS) or "the preparation of financial statements that give a true and fair view" (not allowed under GAAS), auditor's responsibility paragraph must include a statement that the auditing standards require that the auditor comply with ethical requirements.
Requirements under GAAS but not ISAs
Sufficient appropriate audit evidence should include evidence that the audit documentation has been reviewed, description of management responsibilities for the f/s in the auditor's report should not be referenced to a separate statement by management if such a statement is included in a document containing the auditor's report.
the auditor who audits divisions, subsidiaries, or components that are included in the group financial statements
To requirements to be able to reference a component auditor in the auditor's report.
Component auditor has performed an audit in accordance with GAAS (or when required PCAOB), component auditor report is not restricted to use.
What are the responsibilities of a group engagement partner (team) when it assumes responsibility for the work of a component auditor?
Don't reference the component auditor, if the component auditor performs a significant portion the group engagement team should audit the component.
If the component auditor section is deemed significant due to significant risk of material misstatement to the group financial statements, should the group or component auditor perform additional procedures pertaining to the risks identified.
When should an auditor's opinion be modified?
Material misstatement to f/s as a whole (GAAP issues), auditor is unable to obtain sufficient audit evidence to conclude fairness.
Emphasis of matter paragraph
Call out that the F/S are prepared in accordance with the applicable purpose framework
Reporting requirements: Emphasis of Matter Paragraph
Placing paragraph right after opinion paragraph, "Emphasis of matter" heading, describe the matter being emphasized, indicate the auditor's opinion is not modified with respect to what was emphasized.
When is a emphasis of matter paragraph required?
substantial doubt regarding the entity's ability to continue as a going-concern, describe a justified change in accounting principle, subsequent facts that change the auditor's opinion, f/s are prepared in accordance with a applicable special purpose framework (other than regulatory basis financial statements intended for general use.
What evidence shows there is significant doubt of an entity's ability to continue as a going concern (abbreviation) .
Analytical procedures, debt compliance, minutes, inquiry of client's legal counsel, third parties, subsequent events review.
What conditions or events indicate substantial doubt about an entity's ability to continue as going concern.? (abbreviation)
Financial difficulties, internal matters, negative trends, external matters.
According to the US Auditing Standards, what phrases must be included in a going concern emphasis-of-matter paragraph?
Substantial doubt, going concern
What is a going concern period for US GAAS?
Not to exceed one year
What is a going concern period for ISAs?
May be greater than or equal to one year
When there is a year-to-year lack of comparability, consistency, in an entity's f/s due to an acceptable change in accounting principle, how does the auditor reflect this in the current year's auditor report?
Once concluded the change is justified, include an emphasis-of-matter paragraph. Describe the change and provide a reference to the disclosure of change. If immaterial, no change is necessary.
How is an alert that restricts the use of the auditor's written communication reflected in the auditor's report?
Other-matter paragraph when required by GAAS or deemed necessary.
What items should be included in an alert?
A statement that the auditor's written communication is intended solely for the information and use of the specified parties, identification of the specified parties, statement that information should not be used by any other parties.
When would you need to determine to use a qualified opinion or an adverse opinion?
When there is indication of a material misstatement.
Qualified opinion is issued when (versus adverse)
Misstatements are material but no pervasive to the financial statements.
Adverse opinion is issued when (versus Qualified)
Misstatements individually or in the aggregate are both material and pervasive to the financial statements.
Circumstances when material misstatements may arise.
Appropriateness and application of accounting policies, appropriateness of the financial statement presentation, appropriateness or adequacy of disclosures in the financial statements.
When would an auditor choose between a qualified opinion or a disclaimer of opinion?
When there is a limitation of scope on the audit.
Qualified opinion is issued when (vs a disclaimer of opinion)
Auditor is unable to obtain sufficient evidence on which to base an opinion and the auditor possible effects could be material but not pervasive.
Disclaimer of opinion is issued when (vs a qualified opinion)
not enough evidence and the effects could be material and pervasive
If an opinion is modified, where does the paragraph explaining the modification appear?
Before the opinion paragraph
Titles for paragraph when opinion is modified.
Basis of qualified opinion, basis for adverse opinion, basis for disclaimer of opinion.
Causes of scope limitations
circumstances, management, inability to observe inventory, inability to confirm receivables, refusal of the lawyer to respond to inquiries, refusal of management to provide a representation letter.
The auditor can add the report date when what things have occurred, signifying sufficient evidence has occurred.
Audit documentation reviewed, financial statements prepared, management taken responsibility for the financial statements.
What situations may result in a disclaimer of opinion?
Pervasive lack of audit evidence, lack of independence, going concern uncertainty.
Does lack of independence always result in a disclaimer of opinion?
What changes when a report goes from an unmodified opinion to a qualified opinion.
Auditor responsibility: name type of modified opinion, basis of opinion: add, opinion: except for.
What changes when a report goes from an unmodified opinion to a adverse opinion?
Auditor responsibility: Name type of modified opinion, basis for opinion: add, opinion: do not present fairly.
What changes when a report goes from an unmodified opinion to a disclaimer?
Intro: engaged to audit, auditor responsibility: not able to obtain, opinion: disclaimer
Uncertainty: Management's analysis of uncertainty is supported and properly reported or disclosed.
Unmodified opinion with no reference to uncertainty. (emphasis of matter paragraph may be added if auditor deems it necessary).
Uncertainty: Unable to obtain sufficient evidence involving uncertainty.
Qualified opinion or disclaim an opinion.
Uncertainty: Financial statements are materially misstated due to departure from GAAP.
Qualified opinion or adverse opinion
According to GAAP when are contingencies (such as pending litigation) required to be accrued and disclosed or disclosed only. Probably!
Can estimate loss amount: accrue and disclose. Cannot estimate loss amount: Disclose.
According to GAAP when are contingencies (such as pending litigation) required to be accrued and disclosed or disclosed only. Reasonably possible!
Can estimate loss amount: Disclose, cannot estimate loss amount: Disclose.
According to GAAP when are contingencies (such as pending litigation) required to be accrued and disclosed or disclosed only. Remote!
Can estimate loss amount/cannot estimate loss amount: May ignore unless guarantee type contingency.
What happens when the auditor discovers evidence that affects the prior statements and the opinion? (Abbreviation)
DORCS (only change their mind)
Date of the auditor's previous report, opinion type previously issued, reason for prior opinion, changes that have occurred, statement "opinion...is different."
What happens when the auditor discovers evidence that affects the prior statements and the opinion?
Auditor should update the opinion in the current year's report. If current year opinion differs from previous opinion, the reason should be disclosed in a emphasis-of-matter paragraph.
Predecessor auditor should take what steps before reissuing an audit report on prior period financial statements?
Read the statements for the current period, compare previous audited statements with the current period statements, obtain a letter of presentation from the successor auditor, obtain a letter or representation from management near the date of re issuance.
When reissuing an audit report, what dates do you use if it is unrevised if ti is revised.
Unrevised: original report date, revised: dual report date.
What statements should be included in the auditor's report in an other-matter paragraph when comparative financial statements are presented and the prior auditor's reports not reissued.
Statement that the financial statements of prior period were audited by the predecessor auditor; type of opinion expressed by the predecessor auditor. if the opinion was modified, include the reasons for the modification; nature of any emphasis-of-matter or other-matter paragraph included in the predecessors report; date of predecessor auditor report.
Define two types of subsequent events.
Recognized subsequent event, non-recognized subsequent event.
What is a recognized subsequent event?
Condition that existed =< the balance sheet date.
Non-recognized subsequent event
Occurs after the balance sheet date, generally do not require financial statement adjustment, but may require footnote disclosure.
After the date of the auditor's report, what actions should an auditor take regarding subsequent events.
None. (No responsibility after the date).
When is dual dating used.
Used when subsequent events require financial statement adjustment or disclosure comes to the auditor's attention after the original date of the report.
Why id dual dating used?
It extends the responsiblity only to the particular subsequent event. The original date is retained for the rest of the financial statements.
What actions should an auditor take upon discovering omitted audit procedures?
determine whether other procedures were adequate to compensate for the omitted procedures, if not and if there are people likely to be relying on the report apply the omitted procedures, if facts emerge that support a different opinion advise the client to make appropriate disclosure and notification.
What is the auditor's responsibility with respect to info accompanying the basis financial statement in a client-prepared document?
The auditor should read the other information to determine that it is consistent with the audited financial statements and that there are no material inconsistencies or material misstatements of fact.
What are the two objectives of engagements to report on supplementary information?
Evaluate the presentation of the supplementary info in relation to the financial statements as a whole, to report on whether the supplementary info is fairly stated in all material respects in relation to the financial statements as a whole.
What must happen when a recognized subsequent event occurs.
A financial statement adjustment.
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