Audit 3222 Ch 14

the opinion paragraph is titled as "qualified opinion" and the only change to the opinion paragraph is the addition of the phrase ______

"except for the effects of the matter described in the basis for qualified opinion paragraph"

the emphasis-of-matter paragraph must include the phrase ______ and use the heading emphasis-of-matter. the paragraph should also include a reference to the note in the financial statements that provide more information about the going concern circumstances.

"substantial doubt about the entity's ability to continue as a going concern"

for the disclaimer of opinion the introductory paragraph is slightly modified to state ____ to audit the financial statements instead of "we have audited". the auditors responsibility paragraph is also modified by stating _____ . the second paragraph of the auditors responsibility section is completely eliminated as to not confuse users. the opinion paragraph is different from the other modified reports. it clearly states that _____.

-"we were engaged" -the auditors were not able to obtain sufficient appropriate audit evidence to form an opinion. -the auditor does not express an opinion on the financial statements.

two situations that can materially impact the consistency of the financial statements are:

-a change in accounting principle -an adjustment to correct a material misstatement in previously issued financial statements.

3 types of situations that are considered a change in accounting principles are:

-change from one acceptable accounting principle to another acceptable accounting principle. -changing from one acceptable accounting principle to a newly adopted accounting principle. -changing the method of applying an acceptable accounting principle.

3 scenarios that may cause a material scope limitation are:

-circumstances beyond the control of the entity -circumstances relating to the nature or timing of the auditors work -scope limitation imposed by management

if you have a subsequently discovered fact before the report release date, 5 steps happen:

-discuss with management or BOD to gather evidence. -ask yourself, do financial statements need adjustments, or note disclosure, or nothing. Management takes action. -audit procedures on changes made by management -dating of report (dual dating, or date of subsequent event) -update management representation letter (same date as audit report)

the 2 scenarios that would cause auditors to modify the opinion on ICFR are:

-one or more material weaknesses in ICFR are identified. -there is a restriction on the scope of the auditors work.

if you have a subsequently discovered fact after the report release date 3 steps:

-take the same steps as if it were found before report release date. -if FS adjusted or note added, auditors must reissue audit report along with the revised FS. -dual date or new end of fieldwork date -if updated report is modified opinion, (different from original opinion) add emphasis-of-matter paragraph after the opinion paragraph. include date/opinion of previous report, and why updated report is different.

the order of a public company's audit report is:

-title (report of independent registered public accounting firm) -address (to the board of directors and shareholders) -introductory paragraph -scope paragraph -opinion paragraph -paragraph referencing the audit of internal control -signature -date

an emphasis of matter paragraph is used with an unmodified opinion when a. a significant uncertainty exists that should be brought to the financial statements users attention. b. an extreme limitation of the scope of the audit exists. c. there is a disagreement with those charged with governance regarding the selection of accounting policies. d. a client has an unjustified change in accounting principle.

a. a significant uncertainty exists that should be brought to the financial statements users attention.

in an engagement to review financial statements of a private company, the auditor will do all of the following except a. confirm key account receivable balances b. inquire of management regarding key revenue recognition policies c. calculate key ratios relevant to the client. d. issue a report at the conclusion of the engagement

a. confirm key account receivable balances

all of the following phrases would be found in the standard unmodified audit report except a. in our opinion, the financial statements referred to above are correct, in all material respects. b. management is responsible for the preparation and fair presentation of the financial statements. c. standards require that we plan and perform the audit to obtain reasonable assurance. d. we believe the audit evidence we have obtained is sufficient and appropriate.

a. in our opinion, the financial statements referred to above are correct, in all material respects.

which of the following is an example of a modified opinion? a. qualified opinion b. going concern emphasis of matter paragraph c. consistency emphasis of matter paragraph d. reference to the audit of component auditors.

a. qualified opinion

if a misstatement is material and pervasive, an _____ is issued. the only change to the opinion paragraph are the addition of the phrase _____ and the words "do not" which is italicized. the results of material and pervasive misstatement is the financial statements as a whole are not presented fairly.

adverse "because of the significance of the matter discussed in the basis for adverse opinion paragraph"

all of the following are examples of a change in accounting principle except a. a change from one acceptable accounting principle to another accounting principle. b. a change in an accounting estimate. c. a change from an acceptable accounting method to a newly adopted accounting principle. d. a change in the method of application of an acceptable accounting principle.

b. a change in an accounting estimate.

if auditors identify only one material weakness in a clients internal control system, the appropriate report to issue is an a. qualified opinion b. adverse opinion c. disclaimer of opinion d. unqualified opinion with an emphasis of matter paragraph.

b. adverse opinion

if the auditor becomes aware after the date of the auditors report but before the financial statements are issued, of a fact that may materially affect the financial statements, the first step the auditor should take is to: a. alert the appropriate regulatory body b. discuss the matter with management and, if appropriate those charged with governance. c. determine if the financial statements need to be revised. d. make the appropriate adjustments to the financial statements.

b. discuss the matter with management and, if appropriate those charged with governance.

if the auditor encounters a material scope limitation and cannot obtain sufficient appropriate audit evidence regarding the fair presentation of the financial statements, what type of report would be issued? a. a qualified or adverse opinon b. an unmodified opinion with an emphasis of matter paragraph. c. a qualified or disclaimer of opinion d. no report can be issued.

c. a qualified or disclaimer of opinion

if a client has a going concern issue that has been properly disclosed in the notes, the auditor should a. issue an unmodified report and add an emphasis of material paragraph before the opinion paragraph to highlight the going concern issue. b. issue an qualified report and add an emphasis of material paragraph before the opinion paragraph to highlight the going concern issue. c. issue an unmodified report and add an emphasis of material paragraph after the opinion paragraph to highlight the going concern issue. d. issue an qualified report and add an emphasis of material paragraph after the opinion paragraph to highlight the going concern issue.

c. issue an unmodified report and add an emphasis of material paragraph after the opinion paragraph to highlight the going concern issue.

the dual dating of an audit report means a. the release date of the financial statements was after the completion of fieldwork. b. a subsequent event occurred c. the auditors performed audit procedures regarding a specific event that was after the end of fieldwork d. the auditors extended their responsibility period to include the release date of the financial statements.

c. the auditors performed audit procedures regarding a specific event that was after the end of fieldwork

a natural disaster could occur that destroys some or all of a clients accounting records.

circumstances beyond the control of the entity

the timing of when the auditor is hired may impact the performance of some audit procedures.

circumstances relating to the nature or timing of the auditors work.

when the auditor opinion is based in part on the work of a component auditor, all of the following changes are made to the standard unmodified audit report except a. the auditors responsibility paragraph has added wording stating that other auditors completed a portion of the audit. b. the opinion paragraph references the other auditors. c. the portion of the audit conducted by the component auditor is stated in the report. d. an emphasis of matter paragraph is added after the opinion paragraph.

d. an emphasis of matter paragraph is added after the opinion paragraph.

in a public company audit, the audit report is addressed to the a. audit committee b. the CEO and CFO c. the SEC d. the board of directors and shareholders

d. the board of directors and shareholders

all of the following are components of the standard unqualified report on the effectiveness of ICFR except a. a title that includes the term "independent" b. an inherent limitation paragraph c. the definition of internal control over financial report. d. the definition of a material weakness

d. the definition of a material weakness

a scope limitation occurs when auditors cannot perform planned procedures to gather sufficient appropriate evidence regarding the design and effectiveness of a clients internal controls. the appropriate report to issue in this case would be a ____. this states the auditor does not express an opinion on the effectiveness of ICFR. the scope limitation paragraph is omitted in this.

disclaimer of opinion

if there is a situation in which the team discovers an independence issue after the audit team has stated the audit, the audit firm should withdraw from the engagement and issue a ____ report. for an independent issue there is no distinction being material and pervasive. the report is only two sentences. the audit firm is not required to provide the reason for the lack of independence.

disclaimer of opinion

is a scope is material and pervasive, a _____ is issued. with a material and pervasive scope limitation auditors cannot gather enough evidence to determine if the financial statements are presented fairly or not. therefore there is no opinion.

disclaimer of opinion

showing two dates on an audit report, one date is the end of fieldwork and the other is the date of a revision to the financial statements that occurred after the end of fieldwork.

dual dating

3 characteristics of a pervasive misstatement or scope limitation are: -it is not confined to specific ____, ____, or items of the financial statements. -if it is confined, it represents or could represent a _____ portion of the financial statements. -in the context of _____, it is fundamental to users understanding of the financial statements.

elements, accounts substantial disclosures

a paragraph included in the auditors report that is required by generally accepted auditing standards, or is included at the auditors discretion, and that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditors professional judgment, is of such importance that it is fundamental to users understanding the financial statements. this is placed after the opinion paragraph because it does not modify the auditors opinion on the financial statements as a whole.

emphasis-of-matter paragraph

in a public company the auditing standards for adding an emphasis of matter paragraph are the same, but one minor difference is the PCAOB refers to an emphasis of matter paragraph as a _____

explanatory paragraph

an audit that combines the financial statements audit with an audit of the effectiveness of ICFR

integrated audit

if new info is discovered after the financial statements and auditors report have been released to external users, then they would first discuss the matter with an appropriate _____ and if appropriate those charged with governance. then they would determine if the new info is ____, ____, and if it would have impacted the financial statements and auditors report had the info been known at the date of the auditors report. if so, they would determine whether the financial statements need revision, and _____ how management plans to address the situation in the financial statements. the auditors would perform audit procedures on the revisions made by management and then ____ the auditors report along with the revised financial statements. the revised auditors report would have a new date or follow the _____ procedure discussed.

level of management reliable, material inquire reissue dual dating

a qualified opinion, an adverse opinion, or a disclaimer of opinion.

modified opinion

when a public company files its annual audited financial statements with the SEC, the SEC will not accept ____. this means management must make the auditor recommended adjustments to the financial statements to receive an unmodified opinion to complete the fling with the SEC.

modified opinions

2 scenarios that would cause auditors to modify the opinion for both private and public company clients are: -the auditor concludes the financial statements are not presented fairly in accordance with the applicable financial reporting framework because of _____. -the auditor is not able to gather sufficient appropriate audit evidence to draw a conclusion about the fair representation of the financial statements. in other words, the auditor cannot complete some portion of the planned audit procedures, this is referred to as a _____

one or more material misstatement scope limitation

a description of the impact or possible impact of a material misstatement or material scope limitation on the financial statements as a whole.

pervasive

if a misstatement is material, but not pervasive a ____ is issued.

qualified opinion

if a scope limitation is material, but not pervasive, a ____ is issued. the only change to the opinion paragraph is the addition of the phrase ____.

qualified opinion "except for the effect of the matter described in the basis for qualified opinion paragraph"

management may prevent auditors from performing certain procedures, such as confirming financial info with third parties or observing the physical inventory count

scope limitation imposed by management

facts that become known to the auditor after the date of the auditors report that, had they been known to the auditor at that date, may have caused the auditor to revise the auditors report.

subsequently discovered facts

the components of an unqualified opinion on the effectiveness of ICFR for public companies report are:

title address introductory paragraph scope paragraph definition paragraph inherent limitation paragraph opinion paragraph paragraph referencing signature date

the order of a private company's audit report is:

title (independent auditors report) address (the the owners of McLellans shoes) introductory paragraph managements responsibility paragraph auditors responsibility paragraph opinion paragraph signature date

for a private company the auditors report is called _____, and for a public company the auditors report is called _____

unmodified unqualified

the opinion expressed by the auditor when the auditor concludes the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.

unmodified opinion

if the management imposed scope limitation is material and pervasive the auditors should consider______ from the engagement.

withdrawing