Aud - Standards ,reports, Opinions

Front 1

What are the 7 steps in the audit process?

Back 1

1. Plan the audit (Understand the client, engagement letter)
2. Review the Internal Control
3. Evaluate the Internal Control
4. Evidence
5. Determine the Final Assessed Level of Control Risk
6. Substantive Tests
7. Audit Report

Front 2

What are the 10 Generally Accepted Auditing Standards?

Back 2

Training, Independence, Performance
Supervision and Planning, Internal Control, Evidence
Accounting=US GAAP, Consistency, Disclosure, Expressing an Opinion

Front 3

What is the difference between Auditing Procedures and Auditing Standards?

Back 3

Procedures relate to the acts to be performed, and standards deal with measures of the quality of performance of the auditing procedures and the objectives the procedures are to attain

Front 4

What are the 4 elements of Quality Control for Personnel Management?

Back 4

Hiring
Assignment of Personnel to Engagements
Advancement
Professional Development

Front 5

What are the 6 necessary conditions for an Unqualified Opinion?

Back 5

1. No departures from GAAP
2. Disclosures in financial statements are adequate and complete
3. No unusual uncertainties (contingencies surrounding the FS)
4. No scope limitations
5. GAAP must be consistently followed between periods
6. Independent auditor

Front 6

When would explanatory language be added to an unqualified report?

Back 6

- performed by other auditors
- change in consistency
- material uncertainty
- going concern exists
- emphasis of a matter

Front 7

How is a remote likelihood of a material loss handled?

Back 7

no explanatory paragraph

Front 8

How is a probable chance of material loss handled?

Back 8

if mgmt cannot provide a reasonable estimate -> consider adding an explanatory paragraph

if mgmt makes reasonable accrual, auditor can decide whether or not to add one

Front 9

How is a "reasonable possibility of material loss" handled?
(more than remote, less than probable)

Back 9

consider the magnitude by which the amount of the potential loss exceeds the auditor’s judgment about materiality and the likelihood of its occurrence.

Front 10

When expressing a Qualified opinion:
1) Where does the explanatory paragraph go?
2) "Except for"? "Subject to?" "with the foregoing explanation?"

Back 10

1) preceding the opinion paragraph
2) yes, no, no

Front 11

What goes in the explanatory paragraph of an adverse opinion, and where is it placed?

Back 11

-precedes the opinion paragraph
-all substantive reasons for the adverse opinion
-principal effects of the subject matter on financial position, results of ops, CF (or state that not reas. determ)

Front 12

When does a scope limitation warrant a disclaimer of opinion?

Back 12

- scope of audit was not sufficient to warrant the expression of an opinion
- do not identify procedures performed
- do not include scope paragraph

Front 13

Reason for modification: GAAP Departure
1. Opinion expressed
2. Explanatory Paragraph
3. Opinion Paragraph

Back 13

1. Qualified or adverse
2. Before opinion to explain departure(s) and amounts
3. Modified to provide qualifying language and refer to explanatory paragraph.

Front 14

Reason for modification: Inadequate disclosure
1. Opinion expressed
2. Explanatory Paragraph
3. Opinion Paragraph

Back 14

1. Qualified or Adverse
2. Before opinion paragraph to explain missing disclosure
3. Modified to provide qualifying language and refer to explanatory paragraph

Front 15

Reason for modification: Uncertainty
1. Opinion expressed
2. Explanatory Paragraph
3. Opinion Paragraph

Back 15

1. Unqualified (disclaimer is allowed)
2. After opinion paragraph to explain uncertainty and refer reader to footnote
3. Not modified

Front 16

Reason for modification: Scope Limitation
1. Opinion expressed
2. Explanatory Paragraph
3. Opinion Paragraph

Back 16

1. Qualified or Disclaimer
2. Before opinion paragraph to explain scope limitation and possible monetary effects
3. Modified to provide qualifying language or to provide disclaimer

Front 17

Reason for modification: Going concern uncertainty
1. Opinion expressed
2. Explanatory Paragraph
3. Opinion Paragraph

Back 17

1. Unqualified (disclaimer is allowed)
2. After opinion paragraph to describe going concern using wording "substantial doubt" about entity's ability to continue as a GC and refer to FS footnote
3. Not modified

Front 18

Reason for modification: Emphasis of a matter1
1. Opinion expressed
2. Explanatory Paragraph
3. Opinion Paragraph

Back 18

1. Unqualified
2. After opinion paragraph describing matter and refer to FS footnote
3. Not modified

Front 19

Reason for modification: Reliance on another auditor
1. Opinion expressed
2. Explanatory Paragraph
3. Opinion Paragraph

Back 19

1. Unqualified
2. Division of responsibility indicated in Intro P, including significance of portion done by other auditor
3. Modified to include other auditor

Front 20

Reason for modification: Changed opinion on prior period information
1. Opinion expressed
2. Explanatory Paragraph
3. Opinion Paragraph

Back 20

1. Unqualified
2. After opinion, to describe reason for different opinion
3. Not modified

Front 21

Four main reasons for a Qualified Opinion

Back 21

1. Scope limitation (not significant)
2. Material departure from GAAP (if very material, adverse)
3. Inadequate disclosure (if very material, adverse)
4. Innappropriate accounting changes (if very material, adverse)

Front 22

When is the Opinion dated?

Back 22

Date that fieldwork is completed.

Front 23

Describe the management plans that an auditor should consider that could mitigate the adverse effects of a client's financial difficulties if they identified conditions and events that indicated a potential going concern problem.

Back 23

-should consider any management plans to increase sales, reduce costs, or dispose of assets
-availability of financing, the possibility of restructuring or subordinating debt, the effects of existing borrowing restrictions, and the sufficiency of collateral
-evaluate any management plans to reduce or delay expenditures
consider any plans to increase ownership equity and raise capital.

Front 24

What are the 3 general standards?

Back 24

Training
Independence
Professional Care

Front 25

What are the three standards of field work?

Back 25

Planning
Internal Control
Evidential Matter

Front 26

When is an explanatory paragraph added to an unqualified opinion?

Back 26

-division of responsibility
-necessary and justified departure from GAAP
-going concern
-emphasize a matter
-justified lack of consistency

Front 27

How is lack of consistency handled in an auditors report?

Back 27

-explanatory paragraph added following the opinion paragraph describing the change and referring the reader to the appropriate note in the FS
-if GAAP is followed = unqualified.
-if GAAP is not followed = qualified or adverse, depending on materiality

Front 28

What audit procedures should the auditor perform regarding going concern?

Back 28

ADMITS!
-analytical procedures
-debt compliance (review compliance)
-minutes (read and review)
-inquiry of client's legal counsel
-thrid parties (rev. fin support arrangements)
-subsequent events review

Front 29

What conditions and events may indicate substantial doubt about an entity's ability to continue as a going concern?

Back 29

(FINE)
-Financial difficulties
-Internall matters (labor difficulties, substantial dependence on a part. project)
-Negative trends
-External matters (legal proceeding, new legislation, loss of a principal customer, natural disasters)

Front 30

Identify some causes of scope limitation.

Back 30

Restrictions on the use of auditing procedures due to:
- time constraints
- lack of sufficient competence evidence or unavailability of pertinent records

Front 31

Examples of scope limitations?

Back 31

-inability to obvserve inventory
-inability to confirm receivables
-refusal of mgmt to allow inquiry of attorney
-refusal of mgmt to provide rep letter

Front 32

What is the format of a report issuing a qualified opinion due to scope?

Back 32

-Same 1st P
-Same 2nd, except insert, "Except as stated in the following P" at the beg.
-Explanatory P before Opinion, describing the scope limitation
-Opinion: In our opinion, except for the effects of such adjustment, if any, as might have been disclosed had we been able to [describe scope limitation], the FS referred to above...

Front 33

What is the format of a report issuing a qualified opinion due to nonconformity with GAAP?

Back 33

Same 1st and 2nd P's

The reasons for the qualified opinion and the related financial impact should be set forth in an explanatory P preceding the opinion P

OP: "in our opinion, except for the effects of the matters discussed in the preceding P, the FS referred to..."

Front 34

What is the format of the report when a disclaimer of opinion is issued?

Back 34

-no reference to auditor's responsibilty in the IP
-use terms "we were engaged to audit"
-no scope paragarph
-an explanatory P descr. why the examination was not in accordance w/GAAS
-a statement that the auditor was unable to perform the auditing procedures necessary to render an opinion, and consequently no opinion is expressed

Front 35

What is the format of a report issuing an adverse opinion?

Back 35

Same 1st and 2nd Ps
-The reasons for the adverse opinion and the related financial impact should be set forth in an explan P preceding the OP
-OP: "In our opinion, b/c of the effects of the matters discusses in the preceding paragraph, the FS referred to..."

Front 36

What is a piecemeal opinion?

Back 36

A qualified or adverse opinion or disclaimer of opinion is given on f/s taken as a whole, but a favorable opinion is given on part of the f/s

Front 37

Who is the Independent Auditors Report addressed to?

Back 37

Board of Directors or shareholders, not management

Front 38

What are the five types of special reports?

Back 38

1. OCBOA - general use
2. Specified elements, accounts, or items - restricted use
3. Compliance with contract or regulatory provisions - restricted use
4. Incomplete presentation - restricted use
5. Financial information in prescribed forms or schedules - restricted use

Front 39

What are the four types of OCBOAs

Back 39

1. Cash basis
2. Income tax basis
3. Price level basis
4. Regulatory basis

Front 40

Name the 2 standards of reporting that are explicit in the opinion

Back 40

accounting principles and express opinion

Front 41

What is an auditors first action if omitted audit procedures are discovered

Back 41

Determine whether other audit procedures compensated for it

Front 42

When the principal auditor decides to mention the work done by another auditor, the report will express a division of responsibility. Which P mentions it?

Back 42

All 3 paragraphs

Front 43

In a qualified opinion due to a scope limitation, name the Ps included and state if each one is changed due to the scope limitation.

Back 43

Intro - not changed
Scope - yes
Explanatory - changed
Opinion - changed

Front 44

What changes in the intro paragraph in an OCBOA special report?

Back 44

statements of assets and liabilities, statements of revenue, no statement or RE or OE (cant use terms BS or IS)
- no GAAP terms

Front 45

What changes in scope paragraph in an OCBOA special report?

Back 45

Nothing changes.

Front 46

Where does the explanatory paragraph go in an OCBOA special report, and what do you put in it?

Back 46

-Before opinion paragraph
-say what the OCBOA is
-state that it is an OCBOA other than GAAP

Front 47

What changes in the opinion paragraph of an OCBOA special report?

Back 47

-cant use GAAP terms (BS/IS)
-on the basis of acctng described in note X (not on the basis of GAAP)

Front 48

Of the 5 special reports, which are general or restricted use?

Back 48

OCBOA is general, the other four are restricted

Front 49

What is negative assurance?

Back 49

Nothing came to our attention that would cause us to believe there is a problem

Front 50

What is the objective of a letter to underwriter (comfort letter)?

Back 50

To obtain negative assurance
- nothing came to our attention that would cause us to believe the f/s were not in conformity with GAAP

Front 51

After considering an entity's negative trends and financial difficulties, an auditor has substantial doubt about the entity's ability to continue as a going concern. The auditor's considerations relating to management's plans for dealing with the adverse effects of these conditions most likely would include management's plans to

Back 51

an auditor's consideration of management's plans may include plans to dispose of assets, restructure debt, reduce expenditures, and increase ownership equity.

Front 52

Green, CPA, concludes that there is substantial doubt about JKL Co.'s ability to continue as a going concern. If JKL's financial statements adequately disclose its financial difficulties, Green's auditor's report should specifically use the words:

Back 52

going concern and substantial doubt