- After issuance of the report, what actions should an auditor take upon discovering information that materially affects the report?
- Determine whether there are persons relying or likely to rely on the financial statements.Advise the client to immediately disclose the new information to persons currently relying or likely to rely on the finan
- 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.
- 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.
- 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
- 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.
- 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
- 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
- Identify some causes of scope limitations.
- Restrictions on the use of auditing procedures due to:Time constraintsLack of sufficient competent evidence or unavailability of pertinent recordsExamples include:Inability to observe inventoryInab
- 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.
- 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?
- The auditor should update the opinion in the current year's report. If the opinion differs from the previous opinion, the reason(s) should be disclosed in a separate explanatory paragraph preceding the opinion paragraph.The explanatory
- In what situations will an auditor issue an adverse opinion?
- Unjustified departure from GAAP.Inadequate disclosureUnreasonable accounting estimateNon-GAAP change in accounting principle
- List several features of a report on the application of accounting principles.
- Description of engagement, entity, and transactionReference to professional standardsDescription of appropriate accounting principles OR the type of opinion that may be renderedPreparers are responsible for proper accoun
- What actions should an auditor take upon discovering omitted audit procedures?
- Determine whether other procedures tended to compensateIf not, apply the omitted (or alternative) proceduresIf facts emerge that support a different opinion, advise the client to make appropriate disclosure and notification.
- What are the four standards of reporting?
- The report shall state whether the financial statements are presented in accordance with generaly accepted ACCOUNTING PRINCIPLES.The report shall identify those circumstances in which such principles have not been
- 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; ORUS style report modified slightly to refer to the other countryDistributed within the USStandard US report modified for a departure from GAAP
- What are the three general standards?
- 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 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
- What are three things are necessary to constitute sufficient appropriate audit evidence?
- Evidence that:Audit documentation has been reviewed,Financial statements have been prepared, ANDManagement has taken responsibility for the financial statements
- 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
- 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 DifficultiesInternal matters labor difficulties, substantial dependence on a particular project, etc)
- 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 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.
- 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.
- 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
- 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 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.
- What is the format of a report issuing an adverse opinion?
- [Same 1st and 2nd paragraphs]The reasons for the adverse opinion and the related financial impact should be set forth in a separate explanatory paragraph(s) preceding the opinion paragraph.The opinion paragraph should state, "In our
- 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 paragraphUse of the phrase "we were engaged to audit" in the introductory paragraphNo scope paragraphAn e
- 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.
- What procedures would an auditor perform related to supplementary information that is required by GAAP and accompanies the financial statements?
- Inquire regarding how the supplementary information was prepared, including changes from prior years and significant assumptions were used.Determine whether the methods used are consistent with management's responses, audited financial state
- What should be included in the introductory paragraph of the auditor's standard report?
- Statements that:The financial statements identified in the report were auditedThe financial statements are the responsibility of managementThe auditor's responsibility is to express an opinion based on the audit.
- 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
- What should be included in the scope paragraph of the auditor's standard report?
- Statements taht:The audit was conducted in accordance with auditing standards generally accepted in the USThe audit was planned and performed to obtain reasonable assurance that the financial statements are free of material misstat
- 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 types of problems would warrant a qualified opinion due to lack of adherence to GAAS?
- UncertaintyScope limitation
- What types of problems would warrant a qualified opinion due to nonconformity with GAAP?
- Non-GAAP change in accounting principleInadequate disclosureUnjustified departure from GAAPUnreasonable accounting estimate
- What types of problems would warrant a disclaimer of opinion?
- UncertaintyScope limitationLack of independenceUnaudited financial statements
- When and why is dual dating used?
- Dual dating is used when subsequent events requiring financial statement adjustment or disclosure occur. Dual dating extends the auditor's responsibility only for the particular subsequent event. The original date of the report is retai
- 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
- When is an explanatory paragraph added to an unqualified opinion?
- Necessary and justified departure from GAAPGoing ConcernTo emphasize a matter regarding the financial statementsA justified lack of consistency caused by a material change in GAAPRequired SEC regulation S-K quar
- 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.
