1
Q
Can financial statements deviate from standards in order to better present things in a fair manner?
A
Yes
2
Q
Management’s Responsibilities
A
financial statements & internal controls
3
Q
3 Inherent Limitations of an Audit
A
- nature of financial reporting
- nature of audit procedures
- timeliness of financial reporting and cost/benefit
4
Q
Auditing Standards that will apply for certain clients
A
public company issuers: PCAOB
private company: ASB
5
Q
Three Levels of Auditing Guidance
A
- AICPA’s SAS and PCAOB Auditing Standards
- interpretive publications (no authoritative power)
- other auditing publications
6
Q
Two Overall Objectives of the Auditor and the Conduct of the Audit
A
- obtain reasonable assurance
2. report on the financial statements
7
Q
Conduct of the Audit Requirements
A
- professional skepticism
- ethical requirements
- professional judgment (nature, extent, timing)
- sufficient appropriate evidence and audit risk
- compliance with GAAS
8
Q
Do weak internal controls mean that an adverse opinion should be given?
A
Not necessarily; it is used in audit planning
9
Q
Introductory Paragraph for Unmodified Opinion
A
- identify the entity
- state that the financial statements have been audited
- identify the title of each financial statement
specify the date or period covered by each financial statement
10
Q
Overall Framework for Unmodified Opinion
A
M anagement's R esponsibility D esign I mplementation M aintenance R esponsibility of Auditor E xpress an opinion P lan and perform the audit P erforming procedures to O btain audit evidence R isks of mm due to fraud or error (taken into account) T inTernal control consideration S tatements C internal Controls will not have an opinion expressed R easonableness (evaluating reasonableness) A ccounting estimates made by M anagement E valuating overall presentation of the financial statements
11
Q
Where are references to GAAS and GAAP in the audit report?
A
GAAS - scope (auditor’s responsibility)
GAAP - opinion
12
Q
What to report if the client is audited in accordance with both GAAS and another set of standards?
A
report that the audit was conducted with X and Y
13
Q
Differences between US GAAS and ISA
A
- ISA refers to a true and fair view
- I/C
- *ISA: necessary to enable the preparation
- *GAAP: D I M
14
Q
Making Reference to the Component Auditor - Requirements
A
- component auditor has performed an audit in accordance with GAAS or PCAOB
- component auditor’s report is not restricted use
15
Q
Making Reference to the Component Auditor - different financial reporting framework
A
- must be similar
2. group engagement team has obtained sufficient appropriate evidence to evaluate the appropriateness of the adjustments
16
Q
What to do if the component auditor issues a modified opinion?
A
*group auditor should determine the effect on the auditor’s report on the group financial statements
17
Q
Assumption of Responsibility for Component Auditor
A
- no reference should be made
- group engagement team should determine the type of work to be performed on the financial information of the components
- a significant group or area of higher RMM should be audited by the group
- not significant portion should have analytical procedures applied
18
Q
Except for (GAAP Reasons)
A
- accounting policy
- presentation
- disclosure
- estimates
19
Q
Adverse (GAAP)
A
- accounting policy
- presentation
- disclosures
- estimates
20
Q
Except for (GAAS Reasons)
A
- insufficient evidence
21
Q
Disclaimer (GAAS)
A
- insufficient evidence
- significant going concern uncertainty
- lack of independence
22
Q
Emphasis-of-Matter Paragraphs
A
- includes items that are appropriately presented or disclosed
- does not change the auditor’s opinion
- after the opinion paragraph
- indicate that the auditor’s opinion is not modified
23
Q
Reasons to use Emphasis-of-Matter Paragraphs
A
- going concern
- consistency
- changing prior opinion (or other-matter paragraph)
- special purpose framework
*professional judgment for other reasons when they are disclosed
24
Q
Other-Matter Paragraphs
A
- items other than those presented or disclosed
- after opinion and after emphasis-of-matter
- make reference to the location of relevant disclosures
25
Required Use of Other-Matter Paragraph
* restricted use
* change in opinion (or emphasis-of-matter)
* audited by a predecessor and not reissued
* comparative form with compiled or reviewed financials or comparative form that were not audited, reviewed, or compiled
* material inconsistencies
* report on supplementary information
* refer to required supplementary information
* report on compliance
26
Going Concern
* ISA: use the same period that was used by management
* SUBSTANTIAL DOUBT
* GOING CONCERN
* DO NOT SAY 1 YEAR
27
Procedures & Conditions for Going Concern
```
A nalytical procedures
D ebt compliance
M inutes
I nquiry of legal counsel
T hird parties
S ubsequent events review
```
F inancial difficulties
I nternal matters
N egative trends
E xternal matters
28
Does an unmodified opinion mean this company is a good investment?
No
29
Mitigating Factors for Going Concern
1. plans to borrow money or restructure debt
2. plans to sell assets
3. plans to delay or reduce expenditures
4. plans to increase ownership equity
30
Can an auditor disclaim an opinion rather than report an emphasis-of-matter?
Yes
31
What happens if disclosures about going concern are inadequate?
a departure from GAAP exists
32
Lack of Consistency
* ACCEPTABLE/JUSTIFIED changes in accounting principle
* included until all statements present the consistent application
* depreciation method goes in emphasis-of-matter paragraph
33
Is consistency of the financial statements explicitly stated or implied?
implied
34
Where is a change in depreciation method reported?
emphasis-of-matter paragraph
35
Are changes in estimates and corrections of errors reported in emphasis-of-matter paragraphs?
No
36
Alert that restricts use
* written communication is intended solely for the information and use of the specified parties
* list the parties
* should not be used by anyone else
37
Form/Outline of Qualified or Adverse Report
* no change to:
* *introduction
* *management responsibility
Auditor's Responsibility
*evidence obtained is sufficient and appropriate to provide basis for modified opinion
Basis for Modification Paragraph
* *quantification
* *required footnote
* *description of omitted information
38
What happens if an omission or scope limitation makes the F/S false, fraudulent, deceptive, or misleading?
withdraw from the engagement
39
Opinion Paragraph - Qualified
except for
40
Opinion Paragraph - Adverse
because of
41
If alternative procedures can be performed in order to obtain sufficient appropriate evidence, is there a scope limitation?
No
42
If there are undetected misstatements that could be both material and pervasive, then the auditor should:
disclaim an opinion or withdraw
43
Form/Outline of a Disclaimer
* no change to
* *management's responsibility
*introduction is changed to say that the auditor was engaged
* disclaimer of opinion paragraph
* *because of
* *does not express an opinion
44
Updating (Changing) Prior Opinions
```
D ate of the auditor's previous report
O pinion previously issued
R eason for the prior opinion
C hanges that have occurred
S tatement that the "opinion is different"
```
45
If different opinions are expressed on comparative financial statements...
*it is possible to disclaim one set or portion of the financials
46
Prior Period Financial Statements Audited by Predecessor
* report of the predecessor auditor can be:
1. presented
2. not reissued
47
Prior Period Financial Statements Audited by Predecessor: Report is Presented
* old auditor should
1. read the statements for the current period
2. compare the statements audited with the current period
3. obtain a letter from the successor auditor
4. inquire of and obtain a letter of representation from management
Unrevised: original date
Revised: dual date
48
Prior Period Financial Statements Audited by Predecessor: Report not Reissued
*use an other-matter paragraph
successor should:
1. predecessor auditors should not be named
2. type of opinion expressed
3. nature of any emphasis-of-matter or other-matter paragraph
4. date of previous report
49
Prior Period Financial Statements Not Audited
Reviewed or Compiled
* other-matter paragraph
* service performed
* date of the prior period report
* description of any material modifications
* statement that the service was less in scope
* not audited, reviewed, or compiled
* other-matter paragraph and express no responsibility
50
Subsequent Events: Event Types
Type I: existed at the balance sheet date (adjustment)
| Type II: conditions existing after the balance sheet (disclosure)
51
Auditor's Responsibility for Subsequent Events
*active duty up to date of report
P ost balance sheet transactions
R epresentation letter
I nquiry
M inutes of stockholders, directors, etc.
E xamine latest available interim financial statements
52
Auditor's Responsibility after the Original Date of the Auditor's Report
*no active responsibility but should consider things when brought to their attention
53
Report Date for Subsequent events
*dual dating is a possibility or extend the date of the auditor's report
54
Actions auditor should take following a subsequent discovery of facts after the report release date
*advise client to reissue, make necessary disclosures and revisions, possibly notify that the report should not be relied upon
55
If client refuses to follow procedures following subsequent discovery, the auditor should
D isassociate
A lert agencies
R elying parties
56
Omitted Audit Procedures Discovered
1. determine whether other audit procedures were adequate
2. promptly undertake to apply the omitted procedures
3. D A R (if deemed necessary)
57
Reporting on Other Information in Documents Containing Audited Financial Statements
GR: no responsibility
read over
look for material inconsistencies
possibly include an other-matters paragraph
*may disclaim an opinion in an other-matters paragraph
58
Reporting on Supplementary Information in Relation to the Financial Statements Audited
* two objectives
* *evaluate the presentation of the supplementary information in relation to the financial statements
* *report on whether it is fairly stated in material respects
* OBTAIN WRITTEN REPRESENTATIONS FROM MANAGEMENT
* other-matter or separate report
59
Required Supplementary Information
* limited procedures and other-matters paragraph
* opinion is optional
*obtain WRITTEN REPRESENTATIONS FROM MANAGEMENT
60
Reports on Application of the Requirements of an Applicable Financial Reporting Framework
* no reports on hypothetical transactions
* not required to be independent
* management is responsible
* statement that any difference in the facts, circumstances, or assumptions presented may change the report
* if the reporting accountant is not independent, a statement indicating that lack
* restrict the use of the report
61
Reporting on Financial Statements Prepared in Accordance with a Framework used in a Different Country
* auditor should obtain understanding of
* *purpose
* *intended users (can be obtained from management)
Outside US
*report of the other country or the report set out in SA
or
*modified US form that reflects that the statements being reported on have been prepared in accordance with a financial reporting framework
Inside US
* US form report
* emphasis-of-matter
* identifies framework
* refers to note
* indicates that the framework differs
62
GAAS (listed)
General
T raining
I ndependence
P rofessional care
Fieldwork
P lanning & supervision
I nternal control understanding
E vidence (sufficient and appropriate)
```
Reporting
C onsistency (implied)
D isclosures (implied)
O pinion
G AAP in accordance with
```
