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34 Cards in this Set

  • Front
  • Back
A lawyer's refusal to furnish the info requested in an inquiry letter, either in writing or orally is limitation on audit scope to preclude an unqualifiied opinion
The auditor ordinarily disclaim an opinion
Subsequent events that require disclsure but not adjustments
1. Sale of bond or stock issue
2. Purchase of business
3. Settlement of litigation (claim arose after bs)
4.Loss of plant or inventories as result of fire or flood
5. Losses on receivables from conditions (major casualty)
When mgt refuses to disclose events after the date of the report, the auditor should do the following
1. notify client report must no longer be associated with fs
2. Notify regulatory report should no longer be relied upon
3. Notify each person known to be relying on statements
Unqualified Opinion
o Reasonable Assurance about Material
Misstatements was obtained
o F/S and disclosures supported by evidence
o Management estimates evaluated
o Accounting principles evaluated
o F/S Presentation evaluated
o Reasonable basis exists for opinion
Qualified Opinion
 Creates reduced assurances
 Results from Scope Limitations
 Results from major inconsistencies
 Material problems
Adverse Opinion
 Includes very material GAAP and Disclosure issues
Disclaimer of Opinion
 Creates negative assurances
 Includes severe Scope limitation
Auditor's explanatory paragraph should include terms for going concern
Substantial doubt
Going Concern
Reason for Qualifying the Opinion
1. Lack of sufficient evidence
2. Restrictions on audit's scope
3. Material departure from GAAP
If prior period is inconsistent - what type of opinion
o If inconsistent, but Unqualified Opinion is ok
 Explanatory paragraph after Opinion
 Otherwise, Qualified Opinion issued
Consistency is not violated with
 Accounting Errors
 Reclassifications
 Prospective treatment of a new principle
 Accounting Estimate Change
Unqualified Opinion with emphasis
o Immaterial GAAP issues
o Going Concern worries
o Auditor shares responsibility
o Emphasizing a particular aspect of F/S

Explanatory paragraph after opinion
Qualified opinion resulting from scope limitation
o Scope paragraph modified
o Explanatory paragraph between Scope and
Opinion paragraphs
o Opinion paragraph points out scope limitation
Qualified opinion resulting from major inconsistencies
o Scope paragraph remains unchanged
o Explanatory paragraph between Scope and
Opinion paragraphs
o Opinion paragraph points out inconsistency
Special Reports may be issued on
a. Regulatory agency
b. Tax purpose
c. cash basis
2. Specified elements, accounts, or item on FS
3. Contractual agreements or regulatory requirements
Auditor decides to serve as principal auditor, he must
Assume responsibility for other's work; no reference is made
Auditor decides NOT to serve as principal auditor, he must
refer to the audit of other auditor and clearly indicate the division of responsibility
Characteristics of Compilation Services
 Governed by SSARS (Statements on Standards for
Accounting and Review Services)
 Non-SEC (public) registrants only
 Accountant puts together F/S
o Information provided by management
 Disclosures not necessary – must state that they are
not included

(No Opinion, Assurance, Independence)
Characteristics of Review Services
 Governed by SSARS (Statements on Standards for
Accounting and Review Services)
 Gives negative assurances
 Analytical Procedures required
o Compare actuals to documented predictions

(No opinion, limited assurance, independence required)
o Uses normal circumstances
o General & Limited use allowed
o Uses hypothetical situations
o Only Limited use by client allowed
Agreed Upon Procedure
o Independence required
o Only Limited use by client allowed
Uncertainties & Likelihood of Loss
Remote - • No explanatory
Probable - • Accrue if estimable: • Explanatory paragraph if not estimable
Reasonably Possible -
• Auditor assesses need for
explanatory paragraph based
on loss likelihood
Going Concern Issues
After Opinion
Governmental Audits
General Standards
1. Independence
2. Professional judgment
3. Competence
4. Quality control & assurance
Governmental Audits
Field Work Standards
1. Auditor Communication
2. Considering results of previous engagements
3. Detecting material misstatements results from grant violations or from abuse
4. Developing elements of finding
5. Audit documentation
Government Audits
Report Standards
1. Auditors communication
2. Compliance with GAGS
3. Detection of material misstatements
4. Internal control & compliance with laws, regulations
5. Deficiencies in internal control, fraud, illegal acts, violations of contracts
6. views of responsible officals
7. Privileged & confidential info
8. Report issuance & distribution
Standard Audit Report
(1st paragraph)
We have audited the accompanying balance sheets of X Company as of December 31, Year 2 and 1, and the related statements of income, retained earnings, and cash flows for the years then ended. These financial statements based on our audits.
Standard Audit Report
(2nd paragraph)
We conducted our audits in accordance with auditing standards generally accepted in the USA. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
Standard Audit Report
(3rd paragraph)
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of X Company as of December 31, Year 2 and Year 1, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the USA.
Procedures should be performed at or near completion of field work
1. Reading lastest interim financial statements & compare them with financial statements being roported on
2. Interim statements were prepared on same basis
3. any substantial contingent liabilities or commitments exist
4. significant change occurred in CS, NC Debt, Working Cap
5. Unusual adjustments
6. Current status of itmes that wee accounted for on basis of tentative, preliminary or incolnclusive data
7. Read minutes
8. Obtain letter from legal counsel on LCA
9. Obtain letter of representations
10. Make inquiries or performing any procedures auditor deems necessary
Auditor should obtain evidence for litigation, claims, assessments (LCA)
1. Circumstances indicating an uncertainty as possible loss from LCA
2.Period in which underlying cause for legal action occured
3. probability of unfavorable outcome
4. amount or range of postential loss
Auditors procedures regarding LCA
1. Inqure with mgt regarding policies & procedures for indentifying, evaluating and accounting for LCA
2. Obtain description & evaluation of LCA at period end
3. Examine documents in client's possession
4. Obtain assurance from mgt (writing) that it has disclosed all unasserted claims
5. Apply related procedures (read board minutes, contracts, loan agreements)
6. Request client's mgt to send letter of audit inquiry