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41 Cards in this Set

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  • Back
What should be included in the introductory paragraph of the auditor's standard report?
Statements that:
• The financial statements identified in the report were audited
• The financial statements are the responsibility of management
• The auditor's responsibility is to express an opinion based on the audit.
What are the three standards of fieldwork?
The auditor must adequately PLAN the work and must properly supervise and assistants.
The auditor must obtain a sufficient understanding of the entity and its environment, including its INTERNAL CONTROL, t
Explain the difference between auditing standards and auditing procedures.
Auditing standards measure the quality of the performance of the audit.
Auditing procedures are the acts to be performed during the audit.
What types of problems would warrant a qualified opinion due to lack of adherence to GAAS?
Scope limitation
What types of problems would warrant a qualified opinion due to nonconformity with GAAP?
Non-GAAP change in accounting principle
Inadequate disclosure
Unjustified departure from GAAP
Unreasonable accounting estimate
What auditing procedures should the auditor perform regarding going concern?
The auditor should perform the following procedures:
Analytical Procedures
Debt Compliance (Review Compliance)
Minutes (read a
How is a justified departure from GAAP communicated in the report?
The auditor issues a modified unqualified opinion.
An explanatory paragraph should be added which contains a description of the departure, its approximate effect, and the reasons why adherence to the generally accepted accounting principle would
When does an auditor mention the work done by other auditors?
When the principal auditor does not assume responsibility for the work of other auditors and instead indicates a division of responsibility.
Note that other auditors may be named only with their express permission and provided their report is pre
What standards provide the most authoritative auditing guidance and who issues them?
Statements on Auditing Standards (SASs, issued by the AICPA Auditing Standards Board.
What are the four standards of reporting?
1. The report shall state whether the financial statements are presented in accordance with generaly accepted ACCOUNTING PRINCIPLES.
2. The report shall identify those circumstances in which such principles have not been
What are the three general standards?
1. Audit must be performed by a person(s) having adequate technical TRAINING and proficiency as an auditor.
In all matters relating to the assignment, an INDEPENDENCE in mental attitude is to be maintai
What is the objective of an independent audit?
To express an opinion stating whether the financial statements, taken as a whole, are fairly presented in all material respects in conformity with accounting principles generally accepted in the US.
If an auditor chooses to mention the work done by other auditors, how is the information reported?
All three paragraphs of the report should mention the division of responsibility. The introductory paragraph should express the work done by the other auditors in terms of percentages, total assets, total revenues, or other appropriate criteria.<
What should be included in the scope paragraph of the auditor's standard report?
Statements that:
• The audit was conducted in accordance with auditing standards generally accepted in the US
• The audit was planned and performed to obtain reasonable assurance that the financial statements are free of material misstat
What is the content and format of the standard auditor's report?
To:the Stockholders and Board of Directors of X Company:
We have audited the accompanying balance shee tof X Company as of Dec 31, Year 1, and the related statements of income, retained earnings, and cash flows fo the year ende
How is lack of consistency handled in the auditor's report?
An explanatory paragraph is added (following the opinion paragraph) describing the change and referring the reader to the appropriate note in the financial statements.
If GAAP is followed, the opinion is unqualified. If GAAP is not followed
When is an explanatory paragraph added to an unqualified opinion?
• Necessary and justified departure from GAAP
• Going Concern
• To emphasize a matter regarding the financial statements
• A justified lack of consistency caused by a material change in GAAP
• Required SEC regulation S-K quar
What should be included in the opinion paragraph of the auditor's standard report?
A statement that:
• In the auditor's opinion, the financial statements identified in the introductory paragraph are presented fairly in all material respects.
• The financial statements are in conformity with accounting principles ge
How do uncertainties affect the auditor's report?
• If management's analysis is supported and properly reported or disclosed, the auditor issues an unqualified opinion with no reference to the uncertainty in the audit report.
• If the auditor is unable to obtain sufficient evidential matt
What conditions and events may indicate substantial doubt about an entity's ability to continue as a going concern?
The following conditions and events may be indicative of substantial doubt:
• Financial Difficulties
• Internal matters labor difficulties, substantial dependence on a particular project, etc)
• <
What are three things are necessary to constitute sufficient appropriate audit evidence?
Evidence that:
1. Audit documentation has been reviewed,
2. Financial statements have been prepared, AND
3. Management has taken responsibility for the financial statements
List several features of a report on the application of accounting principles.
• Description of engagement, entity, and transaction
• Reference to professional standards
• Description of appropriate accounting principles OR the type of opinion that may be rendered
• Preparers are responsible for proper account
In what situations will an auditor issue an adverse opinion?
Unjustified departure from GAAP.
Inadequate disclosure
Unreasonable accounting estimate
Non-GAAP change in accounting principle
What is the format of a report issuing a qualified opinion due to nonconformity with GAAP?
[Same 1st and 2nd paragraph]
The reasons for the qualified opinion and the related financial impact should be set forth in an explanatory paragraph preceding the opinion paragraph.
The opinion paragraph should state, "In our opinion, e
What is the format of a report issuing an adverse opinion?
[fill in]
If, during the current examination, the auditor discovers evidence that affects the prior statements and the opinion that was expressed, what action should be taken?
[fill in]
What is the format of the report when a disclaimer of opinion is issued?
A disclaimer of opinion contains:
• No reference to auditor's responsibility in the introductory paragraph
• Use of the phrase "we were engaged to audit" in the introductory paragraph
• No scope paragraph
• An e
What is the format of a report issuing a qualified opinion due to scope?
[Same 1st paragraph]
[Same 2nd paragraph, except insert the phrase "Except as stated in the following paragraph" at the beginning]
An explanatory should be inserted before the opinion paragraph describing the scope limitation.
Identify some causes of scope limitations.
Restrictions on the use of auditing procedures due to:
• Time constraints
• Lack of sufficient competent evidence or unavailability of pertinent records
Examples include:
• Inability to observe inventory
• Inab
After the date of the auditor's report, what actions should an auditor take regarding subsequent events?
None! While the auditor is responsible for investigating subsequent events until the date of the auditor's report, the auditor has no active responsibility to make inquiries or perform auditing procedures after that date.
After issuance of the report, what actions should an auditor take upon discovering information that materially affects the report?
[fill in]
What procedures would an auditor perform related to supplementary information that is required by GAAP and accompanies the financial statements?
[fill in]
What is the auditor's responsibility with respect to an auditor submitted document containing audited financial statements?
The auditor is responsible for reporting on all information in the document, and he/she must indicate whether such information is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.
When reporting on condensed financial statements or selected financial data, what must the auditor indicate in the report?
The auditor must indicate whether the information is fairly stated, in all material respects, in relation to the financial statements from which it has been derived.
What are the reporting options when financial statements are prepared for use in other countries will be distributed outside the US only? What if there will be more than a limited distribution within the US?
Distributed outside the US only:
• Report form of other country; OR
• US style report modified slightly to refer to the other country
Distributed within the US
• Standard US report modified for a departure from GAAP
What is the auditor's responsibility with respect to information accompanying the basic financial statements 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 misstatements of fact.
The auditor may (but is not required to) report on the other information.
How does an auditor test and report on segment information?
Since segment information is a required part of the financial statements, the auditor would apply standard auditing procedures and would not generally refer to the information in the auditor's report, unless there was a problem.
What actions should an auditor take upon discovering omitted audit procedures?
1. Determine whether other procedures tended to compensate
2. If not, apply the omitted (or alternative) procedures
3. If facts emerge that support a different opinion, advise the client to make appropriate disclosure and notification.
When and why is dual dating used?
[fill in]
What is an "issuer", and what group establishes standards for audit reports of issuers?
An issuer is an entity subject to the rules of the SEC (this would include primarily public companies).
The Public Company Accounting Oversight Board (PCAOB) establishes standards for audit reports of issuers
What types of problems would warrant a disclaimer of opinion?
Scope limitation
Lack of independence
Unaudited financial statements