Audit Chapter 17

what is included in the opinion on the financial statements paragraph?

- "we have audited" - list entity name - specific dates - list all financial statements audited - will mention if they audited internal controls as well

unmodified but additional language report - going concern opinions

- Emphasis of matter paragraph (will tell where the uncertainty is related to the goin concern - Substantial doubt of the entity's ability to continue to continue as a going concern - Management may have plans that address all uncertainties and thus, a going concern opinion is not warranted.

unmodified but additional language report - auditor discretionary circumstances

- Emphasis of matter paragraph - emphasizes a matter appropriately presented in financial statements - Risk of uncertainties (warranties can be an example) - related party transactions - acquisitions and significant events

when would you give a disclaimer of opinion

- auditors unable to form an opinion or did not form an opinion on financial statements - Management is unwilling to sign a management representation letter

what are the four types of unmodified but additional language reports?

1. auditor discretionary circumstances 2. going concern opinions 3. group financial audits 4. GAAP not consistent

T/F an auditor is require to add an emphasis of matter paragraph for all uncertainties.

False

what are the two circumstances where a modified opinion will be issued?

GAAP departure (material but not pervasive) scope limitation (material but not pervasive)

what information about the audit firm is included in the audit report?

Includes the year the audit firm began auditing the client (tenure), Name of the CPA firm, not the name of the audit partner, City and state of the audit office signing the audit opinion, audit report date

what is stated in the critical audit matters section?

State any significant matters that used professional judgement during the audit

who is the audit report of a nonpublic company addressed to?

Usually addressed to the company itself, shareholders, audit committee, or board of directors

what does the audit report include?

a discussion of auditor responsibilities and management responsibilities, Includes a paragraph indicating that the auditors have also issued a report on the client's internal control over financial reporting, Includes a critical audit matters section*

when the financial statements are not fairly presented in conformity with GAAP, auditors issue an _______ opinion

adverse

a material and pervasive departure from GAAP requires a basis for modification paragraph and a/an _____________

adverse opinion

audits that involve a modification for both a departure from GAAP and a scope limitation that together result in material and pervasive misstatements should result in a/an _________

adverse opinion

what are the five things needed to issue an unmodified standard report?

all 3 financial statements are included all 3 standards of GAAS are followed sufficient, appropriate audit evidence collected follows GAAP no circumstances needing modification

when comparative financial statements are presented by the client company, the auditors report should____________

always cover all years presented

for scope limitations that have a material but not pervasive effect on the financial statements should issue a report that includes modification to which paragraphs?

an additional basis for modification paragraph, and the opinion paragraph

what provides and independent and expert opinion on whether the financial statements are presented fairly

audit report

the PCAOB audit report includes an additional paragraph indicating_____

auditors have also issued a report on the client's internal control over financial reporting

the nature of an audit is outlined in the section called _______

auditors responsibility

what things are covered by the audit opinion?

balance sheet, income statement, statement of retained earnings, statement of cash flows, notes to the financials

publicly owned companies are required to include _________ for each of the last two years in their annual report

balance sheets

financial statements are generally presented in _______ form for the current year and one or more preceding years.

comparative

group auditors need to obtain an understanding of whether the ___________ auditors are competent

component

group financial statements are those of a company that consist of more than one _________

component

to evaluate whether there is substantial doubt about a client's ability to continue as a going concern, auditors should _________

consider results of audit procedures performed during the audit

disclosure of the engagement partner's name and certain information about other CPA firms that participated in the audit required by the PCAOB is the______

form AP

for a pubic company, what does the title include?

independent registered

in the auditors professional judgment, matters that were of most significant in the current period audit of financial statements are defined as _______ audit matters in public company audit reports

key

the decision on whether a scope limitation results in a qualified or disclaimer of opinion is whether misstatements or possible misstatements are both ________ and _________

material and pervasive

if there are material departures from GAAP in the financial statements, auditors must _______ the audit report

modify

what does a standard report for a nonpublic company not include, that a public company report does.

no "registered" in title no reference to PCAOB no internal control report more detail in management and auditor responsibilities

what does pervasive mean?

not confined to specific accounts, and it if is, they represent a substantial proportion of the financial statements

the PCAOB requires that CAM's ________

only be reported for the period being audited

the purpose of financial statements notes is _______

properly disclose information required by GAAP

if auditors have substantial doubt about a company's ability to continue as a going concern an management's disclosures are materially inadequate, approapriate audit opinions are ________

qualified opinion, and adverse opinion (because inadequate disclosure is a departure from GAAP)

auditors obtain _________ that the financial statements are in conformity with GAAP

reasonable assurance

for a public company who is the audit report addressed to?

shareholders, BoD, audit committee, never management

what is included in the basis for opinion paragraph?

states management's responsibilities states auditors responsibilities

the nonpublic company audit report should be signed with the name of _________

the CPA firm

what is the audit report date?

the date of the last day of fieldwork, and when sufficient and appropriate audit evidence has been obtained

sufficient audit evidence is obtained when _______ (two things).

the financial statements are prepared and all audit documentation has been reviewed

a major assumption underlying the inclusion of an emphasis-of-matter paragraph for an uncertainty is _______

the matter is adequately disclosed in the notes

for a change in accounting principle, the client must report in the notes to the financial statements what three things?

the nature of the change, the effect of the change, and justification for the change

for comparative financial statements, the auditor can issue an opinion that cover both years if ___________

the prior year was audited by the firm

what does pervasive mean in relation to disclosures?

they are fundamental to users' understanding of the financial statements

T/F a situation involving an uncertainty may also involve a scope limitation

true

for auditors that are reporting on two periods, consistency of GAAP application should be evaluated between the current period and preceding _________

two periods

a situation in which conclusive audit evidence concerning the ultimate outcome cannot be gathered because the outcome will occur in the future is called a/an _________

uncertainty

if a client changes depreciation methods but the change is immaterial, the auditors should issue a ________

unmodified opinion

auditors who want to emphasize significant client transaction with related parties can issue a ______

unmodified opinion, with an emphasis-of-matter paragraph

re-expressing or revising an audit opinion that was previously issued is referred to as ________ the report

updating

when would you issue an adverse opinion?

when a GAAP departure is material and pervasive

unmodified but additional language report - GAAP not consistent

- emphasis of matter paragraph - comparability vs consistency - auditors must agree with departure from GAAP

what are the auditors responsibilities?

- express an opinion - follow GAAS - not a statement of fact - "in our opinion" - implies professional judgment

what are the three kinds of scope limitations?

- imposed by circumstances - Engaged too late in year to observe client's beginning inventory - imposed by client

what are the section headings for nonpublic companies?

- introductory paragraph - management's responsibilities - auditors responsibilities - opinion paragraph

what are the three main sections of a standard audit report for a public company?

- opinion on the financial statements paragraph - basis for opinion - critical audit matters

what are management's responsibilities?

- prepare financial statements - Establish and maintain effective internal controls over financial reporting