What are the three general standards? Let me give you a TIP on how to remember this!
The auditor must have adequate technical TRAINING and proficiency to perform the audit.
The auditor must maintain INDEPENDENCE in mental attitude in all matters relating to the audit.
The auditor must exercise due PROFESSIONAL CARE in the planning and performance of the audit and the preparation of the report.
What are the three standards of fieldwork? I’d like a piece of PIE!
The auditor must adequately PLAN the work and must properly supervise any assistants.
The auditor must obtain a sufficient understanding of the entity and its environment, including its INTERNAL CONTROL, to assess the risk of
material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing, and extent of further audit
procedures.
The auditor must obtain sufficient appropriate audit EVIDENCE by performing audit procedures to afford a reasonable basis for an
opinion regarding the financial statements under audit.
What are the four standards of reporting? All CPAs Do OK!
- The auditor must state in the auditor’s report whether the financial statements are presented in accordance with generally accepted ACCOUNTING PRINCIPLES.
- The auditor must identify in the auditor’s report those circumstances in which such principles have not been CONSISTENTLY observed in the current period in relation to the preceding period.
- When the auditor determines that informative DISCLOSURES in the financial statements are not reasonably adequate, the auditor must so state in the auditor’s report.
- The auditor must either express an OPINION regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed, in the auditor’s report. When the auditor cannot express an overall opinion, the auditor should state the reasons therefor in the auditor’s report. In all cases where an auditor’s name is associated with financial statements, the auditor should clearly indicate the character of the auditor’s work, if any, and the degree of responsibility the auditor is taking, in the auditor’s report.
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 should be included in the introductory
paragraph of the auditor’s standard report under
U.S. auditing standards?
A statement 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 should be included in the scope paragraph of
the auditor’s standard report under
U.S. auditing standards?
Statements that:
• The audit was conducted in accordance with auditing standards generally accepted in the United States of America (nonissuers), or the audit was
conducted in accordance with the standards of the PCAOB (United States).
• The audit was planned and performed to obtain reasonable assurance that the financial statements are free of material misstatement.
• The audit included:
○ Examining evidence on a test basis.
○ Assessing the accounting principles used and significant estimates made by management.
○ Evaluating the overall financial statement presentation.
• The audit provides a reasonable basis for the opinion.
Note: All of the general and fieldwork standards are implicit in the scope paragraph.
What should be included in the opinion paragraph
of the auditor’s standard report under
U.S. auditing standards?
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 generally accepted in the United States of America.
What is the content and format of the standard
auditor’s report?
Independent Auditor’s Report
To the Stockholders and Board of Directors of X Company:
We have audited the accompanying balance sheet of X Company as of December 31, Year 1, and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of X Company as of December 31, Year 1, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
[Firm name]
[Date]
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 quarterly financial data has been omitted or has not been reviewed
- Supplementary information required by GAAP has been omitted or departs from guidelines, or the auditor’s work related to such information is incomplete or insufficient
- Other information in a document containing audited financial statements is materially inconsistent with information appearing in the financial statements
Define illegal acts.
Violations of laws or governmental regulations committed by the entity or by company personnel acting on behalf of the entity.
State the auditor’s response to detected illegal acts.
• Consider the effects of the illegal act on the financial statements;
• Evaluate the materiality of the illegal act, considering both quantitative and qualitative factors;
• Evaluate the disclosure of loss contingencies, including possible fines, penalties, and damages;
• Consider the implications for other areas of the audit; and
• Communicate the illegal act to those charged with
governance.
Define a component auditor and identify the two requirements that are necessary to reference a component auditor in the auditor’s report.
A component auditor is an auditor who performs work on the financial information of a component that will be used as audit evidence for the group audit. The component auditor may be part of the group engagement partner’s firm, a network firm, or another firm.
Reference to the component auditor in the auditor’s report can be made if:
• The group engagement partner has determined that the component auditor has performed an audit in accordance with the relevant requirements of GAAS, or when required, the PCAOB.
The component auditor’s report is not restricted use.
Give examples of special purpose frameworks.
- Cash basis
- Tax basis
- Regulatory basis
- Contractual basis
- Any other basis of accounting that uses a definite set of logical, reasonable criteria that is applied to all material items appearing in the financial statements
