Audit Exam 1

Front 1

Attestation services are .....

Back 1

..only a small part of assurance services making it an actual assurance service, where an attestation service is a WRITTEN REPORT about the assurance of a third party. The issue is on reliability.

Front 2

WebTrust-

Back 2

primarily Electronic for 3rd party users

Front 3

CIST TRUST

Back 3

effectiveness of information system at the benefit of management or Board of Directors.

Front 4

What did the study in 1973 of a condition for an audit discover was the determinant of the demand?

Back 4

1) Inherent conflict between preps and users
2) Information’s economic consequences
3) Expertise required to verify information
4) Users are usually prohibited from directly seeing financials

Front 5

What assurance services are not attestation services?

Back 5

Tax services, Acct. and Bookkeeping, and management consulting services.

Front 6

Most states do not allow firms to incorporate so the most widely used form is ..

Back 6

..the LLP No double tax, some protection, and personal assets at risk only for their own acts, those directly under them, and business obligations of the firm.

Front 7

April 16, 2003

Back 7

1) Auditing Standards from the start have been doing this..but today it only applies to non-public because the power was taken away with SOX. The PCAOB makes the auditing standards for the audits of public companies. However, they took on everything of the AICPA that existed as of April 16, 2003 for the interim standards. 5 New standards thus far.

Front 8

CODE of Professional Conduct

Back 8

AICPA

Front 9

AICPA-GAAS

Back 9

10 broad objectives to be achieved on every audit

Front 10

SAS’s are..

Back 10

..interpretations of GAAS..the “how do you do it”s” or the detailed guidance.

Front 11

AU 120-Defining Professional Requirements in SAS’s

Back 11

Clears up the terminology in the SAS’s
1) Unconditional Requirements- Required in all cases “MUST”, “REQUIRED”
2) Presumptively Mandatory- “SHOULD”
3) Explanatory material-No prof. requirement-“may, could, or might.”

Front 12

AUDIT

Back 12

examination following GAAS to determine whether they followed GAAP.

Front 13

Do Audits of Public companies follow GAAS?

Back 13

NO! They follow the PCAOB

Front 14

AU 161 Quality Control

Back 14

CPA firms must have a quality control system in place and refer to statements on quality control standards by the AICPA.

Front 15

GAAS applies to...?
Quality Control Applies to..?

Back 15

Every Audit

The Firm

Front 16

GAAS General Standards

Back 16

TIC
1. T- Adequate technical training and proficiency to perform the audit

2. I- Must maintain Independence in mental attitude in all matters relating to the audit

3. C- exercise Due professional care in the performance of the audit and the preperation of the report.

Front 17

GASS Standards of Field Work

Back 17

Plan, Understand, have evidence

1) adequately plan the work and must properly supervise any assistans.

2) must obtain a sufficient understanding of the entity and its environment, including its internal control, to asses the risk of material misstatement of the f.s. whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures.
3) obtain sufficient evidence by perf. aud. proc. to afford a reasonable basis for an opinion regarding the F.S. under the audit.

Front 18

GAAS Standards of Reporting

Back 18

GAAP, Where GAAP was not used, Resonably adaquate disclosures, Express Opinion

1) must state in the report whether the FS are presented in accordance with GAAP.

2) Identify in the report those circumstances which such principles have not been consistently observed in the current period in relation to the preceding period.

3) When the auditor determines that the informative disclosures are not reasonably adaquate, the auditor must state so in the auditors report.

4) Must give the Appropriate report for the appropriate opinuion.

Front 19

Operational Audits..

Back 19

..a measure of management performance in meeting organizational goals.

Front 20

Compliance Auditing goes beyond opinions on fairness of financial presentation and includes audits of efficiency, economy, as well as..

Back 20

... adherence to specific rules or procedures.

Front 21

Which best describes what is meant by GAAS?

Back 21

Measures of the quality of the auditor's performance.

Front 22

What is the general character of the three GAAS classified as standards of field work?

Back 22

The criteria of audit planning and evidence gathering

Front 23

The nature and extent of a CPA firms quality control policies and procedures depends on ..

Back 23

1-CPA firms size, 2-the nature of the firms practice, and 3-cost-benifit

Front 24

Which of the following is an element of a CPA firms QC system that should be considered in establishing its QC policies and procedures?

Back 24

MAnaging Personnel

Front 25

Standard UNQUALIFIED

Back 25

Clean bill of health-3 paragraphs
1. Intro-which statements being audited?
2. Scope-Responsibilities/follows GAAS/ free from material misstatement-
3. Opinion- where the type is revealed. The statements are fair.

Front 26

What about the Report?

Back 26

-“Independent” in the Title
-Addressed to whomever hires you as appose to mgmt
-Date on bottom represents (not the B/s) date, but the day no earlier than the date on which the auditor receives sufficient evidence (including work papers being reviewed) to back up opinion AND mgmt has accepted responsibility for the financial statements

Front 27

QUALIFIED

Back 27

1. Intro
2. Scope
3. Explanatory
4. Opinion

“except for” in opinion paragraph.-usually because of GAAP violations or scope issues. If it’s a scope issues, mention it in the scope paragraph. If it isn’t, don’t mention it. It has an extra explanatory paragraph from the standard unqualified.

Front 28

DISCLAIMER

Back 28

More extreme-no audit opinion given at all-could be because of:
1) Very Material Scope restrictions. Either client imposed or inpractable/impossible-
2) Auditor is not independent-one paragraph disclaimer
3) Major uncertainties (including going concern)

-No scope paragraph
1. Intro
2. Explanatory (explains scope restriction)
3. Opinion (Disclaimer term “unable to express opinion)

Front 29

Difference Between Disclaimer and Qualified?

Back 29

Basically, if you feel comfortable giving an opinion, then Qualify it. If not, then use the disclaimer because the disclaimer expresses no opinion.

Front 30

ADVERSE

Back 30

Given for super material GAAP Violations

1. Intro
2. Scope
3. Explanatory
4. Opinion (Not FAIR F.S.!)

Front 31

How do you decide between a qualified and an adverse when there are GAAP Violations?

Back 31

If materiality does not cause the overall statements to be misleading or unfair, then you can Qualify it. If they are misleading or unfair then you give it an ADVERSE opinion.

Front 32

Can you give an opinion on inventory?

Back 32

NOPE! Your job is to give an opinion on the F.S.

Front 33

Describe the little flow chart Engle showed us to decide on which report to use.

Back 33

It asks 4 Questions. 1-What is wrong? 2-Are you independent? If no, then you need a 1 paragraph disclaimer. If yes, Question 3) Is the matter material? If no, Unqualified Opnion. If yes, question 4) Do I Have the necessary evidence? If no, Qualified or disclaimer depending on the size of the gap in evidence where Qualified is if the gap isn’t too big. If Yes, between Adverse and qualified based on the materiality of the GAAP Violation where qualified if it isn’t as bad.

Front 34

Do you ever decide between an adverse and a disclaimer?

Back 34

Never between advers and disclaimer. Its an evidence issue. Disclaimer is if you have not enough evidense and adverse is if you do. Both are up against the Qualified.

Front 35

What are the words used for Qualified?

Back 35

"except for" used to be "subject to"

Front 36

Unqualified opinion only applies to what type of assertions?

Back 36

positive ones *remeber this for test. Lookn in the audit report for "nothingcame to my attention"

Front 37

What type of report issued if you use another firms audit report (subsidary) and totally rely on it?

Back 37

St. Unqualified with no mention

Front 38

What kind of report if you accept work of another firm with shared responsibility?

Back 38

Standard unqualified with modified wording.

Front 39

if you dont accept another firms work, what kind of opinion?

Back 39

probably a disclaimer or qualified because of a lack of evidence

Front 40

In an unqua with modified wording, what are th requiremnts? (shared responsibility)

Back 40

1-modified wording in all three paragraphs
2-do not have to mention cpa name
3-provide some sort of indication of what was audited by the other guy

Front 41

What kind of report-emphasis of a matter?

Back 41

Unqualified with an emphasis-usually add an extra paragraph before or after opinion.

Front 42

A rule 203 matter?

Back 42

Relates to AICPA's prof. code of conduct. About reporting consequences

In unusual circumstances GAAP may produce misleading statements. If you depart from GAAP- You have to disclose the departure. You can give an unqualified opinion with an extra paragrah to explain it.

Front 43

Inconsistant Application of GAAP rules?

Back 43

GAAP says clients should not change willy nilly! Unqualified report with a 4th disclosure paragraph telling the reader about the inconsistancy. MANDATED AFTER THE OPINION PARAGRAPH

*note
This is ONLY for inconsitstancy. In order to give an unualified opinion, three things must be satisfyed
1-New Method is GAAP
2-Accounting for the change is in accordance w/GAAP
3-Clients reason is acceptable. (So, the controler can't tell you it was to smooth profits.) If you aren't satisfyed with these then ask yourself WHAT WENT WRONG and follow engle's flow chart. Report between the ADVERSE OR QUALIFIED. Dealing with GAAP VIOLATION/ Based on materiality.

Front 44

UNCERTAINTIES rules?

Back 44

Example is Loss contingencies. Think of impact. Prob/Impact Book it/Footnote it. Client needs to follow GAAP.

QUALIFIED NOT ALLOWED for uncertainties.It used to in the 80's and the wording was "subject to" but that was outlawed.

Unqualified with a disclosure or Disclaimer (where any opinion is meaningless.)

Front 45

OMMITTING Statement of CAsh Flows is always what kind of report?

Back 45

Qualified opinion

Front 46

Going Concern.

How long is a resonable amount of time?

Back 46

at least a year from the B/S date

Front 47

Are there procedures for going concern?

Back 47

No, we come accross it indirectly

Front 48

What are the reporting options for substantial doubt of going concern?

Back 48

UNQUALIFIED with explanitory (MANDAED AFTER OPINION PARAGRAPH) or

a DISCLAIMER (REmember no QUALIFIED for uncertainties)

Front 49

Compartive Reports-
Wording?

Back 49

"In my opinion, the 2006,2007, and 2008 reports are fair"

Front 50

Compartive Reports-
What if there is a change in a previously issued opnion?

Back 50

Ex. Case won..
Change report to appropriate report but inform the reader of the change.
Placement mandated before the opinion Paragraph.

Front 51

Compartive Reports-
What about the old guy reisuing for comparison? What if they do, and what if they don't?

Back 51

If they do (most common) then there will be two seperate reports.
If they don't, Must disclose in the intro paragrapgh that the current report just discloses, that they do not redue the report and that last years was done by the other guy.

Front 52

What are the mandated placement rules?

Back 52

Emphasis that you change an opinion MUST go before the opinion paragraph. Where adverse, disclaimer, and qualified are being issued.


2 situations where it goes AFTER the opinion-
1-Going concerns and
2-Inconsistencies.

where unqualified reports are issued.

All others are at your discretion.

Front 53

What about the supplementary info?

Back 53

superficial review. No opinions on things that are not being audited. If there are problems, you can mention it as a disclosure placed where you want. It is now allowed to audit this info-but not mandatory.