What is the purpose of an audit?
to provide financial statement users with an opinion on whether the F/S are PRESENTED FAIRLY, in ALL MATERIAL RESPECTS, in ACCORDANCE with the applicable financial reporting framework
What is management responsible for?
The financial statements and Internal Controls
What are the inherent limitations of an audit?
- The nature of financial reporting (management judgment)
- The nature of audit procedures
- Timeliness of financial reporting (cost/benefit)
What standards does an accountant follow in an audit engagement?
- GAAS (Generally accepted auditing standards)
What is the difference in standards of an audit engagement between auditing issuers and non-issuers?
If auditing an issuer -> follow PCAOB auditing standards
If auditing an non-issuer -> follow AICPA SASs (Statements on Auditing Standards)
What type of opinion should be issued on an audit if there are weak internal controls?
Trick question- weak internal controls do not lead to an adverse opinion, but rather to more work for the auditor.
Management’s Responsibility for the Financial Statements (paragraph)
"MR DIM" Management's Responsibility Design Implementation Maintenance (of internal control)
Auditor’s Responsibility (paragraph)
"REPPORTS CRAME" Responsibility Express an opinion Plan and perform the audit Performing procedures Obtain audit evidence Risks of material misstatement "Test" internal control Statements (fair presentation) Control (internal control effectiveness) Reasonableness of significant Accounting estimates made by Management Evaluating overall presentation of F/S
What paragraph does GAAS belong in?
GAAS(ssss) belongs in the (ssss)scope paragraph- Auditor’s responsibility paragraph
What paragraph does GAAP belong in?
GAAP(ppp) belongs in the oPinion Paragraph (and management’s responsibility paragraph)
Requirements to make reference to a component auditor
- they performed the audit in accordance with GAAS or PCAOB
2. their report is not restricted
GAAP problems that would result in a Qualified or Adverse opinion
- Accounting policy
- Presentation
- Disclosures
- Estimates
GAAS problems that would result in Qualified or Disclaimer
- Insufficient Evidence
(rest are Disclaimer only) - Significant going concern uncertainty
- Lack of Independence
When to withdraw from an engagement
False, Fraudulent, Deceptive or Misleading
Basic definition of an Emphasis-of-Matter paragraph
The matter is APPROPRIATELY presented or disclosed in the financial statements and is of such importance that it is FUNDAMENTAL to the users’ UNDERSTANDING of the F/S. Note: the addition of this paragraph does NOT affect the opinion.
When is an emphasis-of-matter paragraph REQUIRED?
- Substantial doubt about going concern.
- Describe justified change in accounting principle
- Change in the audit opinion
- F/S are prepared using special purpose framework
*for other situations use professional judgment
Procedures to examine whether going concern is an issue
"ADMITS" Analytical procedures Debt compliance Minutes of stockholder and BOD meetings Inquiry of legal counsel Third parties Subsequent events review
Conditions and events indicative of doubt to continue (going concern)
"FINE" Financial difficulties Internal matters Negative trends External matters
Factors to mitigate a going concern
- plans to borrow money or restructure debt
- plans to sell assets
- plans to delay or reduce expenditures
- plans to increase ownership equity (issue more stock)
Which paragraphs are modified when a qualified or adverse opinion is issued? (GAAP)
- Auditor’s Responsibility
- Add a “Basis for Modification” paragraph
- Opinion paragraph
Which paragraphs are modified when a qualified of disclaimer opinion is issued? (GAAS)
- Introductory paragraph (only for disclaimer)
- Auditor’s responsibility paragraph
- Add a “Basis for Modification” paragraph
- Opinion paragraph
What should an auditor disclose when they change their previous opinion?
"Only DORCS change their mind" Date of auditor's previous report Opinion type previously issued Reason for prior opinion Changes that have occurred Statement that the opinion is different
Procedures to perform during the subsequent period to look for subsequent events
"PRIME" Post balance sheet transactions Representation letter from management Inquiry Minutes of meetings Examine latest available interim F/S
If there’s a subsequent event, but management refuses to cooperate then…
“DAR then to fix it”
Disassociate
Alert agencies
Relying parties notified
