Chapter 12 Terms/HW

When companies present required supplementary information, auditors are required to expand their report to include an ______. -other-matter paragraph -emphasis-of-matter paragraph -opinion on the fairness of the information

-other-matter paragraph

SEC filing and audit requirements apply to ______. -public entities only -both public and private entities -private entities only

-public entities only

When the auditor finds a departure from GAAP, a(n) ______. -standard report may still be appropriate -adverse or disclaimer of opinion must be issued -qualified opinion must be issued

-standard report may still be appropriate

special purpose frameworks

A coherent accounting framework in which substantially all important financial measurements are governed by criteria other than GAAP or IFRS.

internal control deficiency

A condition that exists when the design or operation of a control does not allow the entity's management or employees to detect or prevent misstatements in a timely fashion.

reissued report

A copy of a previously issued report that auditors provide or grant entities permission to use in another document after its original date; the report is not modified to consider events occurring subsequent to the date of the original report.

significant deficiency

A deficiency or a combination of deficiencies in internal control that is less severe than a material weakness yet important enough to merit attention by those charged with governance.

Material Weakness

A deficiency or combination of deficiencies that results in a reasonable possibility that a material misstatement would not be prevented or detected on a timely basis.

explanatory paragraph

A paragraph added to an auditors' report that either provides information fundamental to users' understanding of the financial statements (emphasis-of-matter paragraph) or is relevant to users' understanding of the audit, the auditor's responsibility, or auditors' report (other-matter paragraph).

emphasis-of-matter paragraph

A paragraph added to an auditors' report that provides information fundamental to users' understanding of the financial statements (such as consistency or going-concern uncertainties).

other-matter paragraph

A paragraph added to the auditors' report that is relevant to users' understanding of the audit, the auditor's responsibility, or the auditors' report.

Attestation

A professional service resulting in a report on an assertion (or assertions) about subject matter that is the responsibility of another party.

circumstance-imposed scope limitation

A restriction on auditors from gathering sufficient appropriate evidence because of a situation beyond control of both the auditors and client, such as late appointment of the auditors.

client-imposed scope limitation

A restriction on auditors from gathering sufficient appropriate evidence because of the client's imposition of limitations on the auditor's application of auditing procedures or the client's deliberate refusal to provide auditors access to evidence.

Trust Services

A set of professional attestation and advisory functions based on a core set of principles and criteria that addresses the risks and opportunities of IT-enabled systems and privacy programs.

Scope Limitation

A situation in which the auditors are unable to obtain sufficient appropriate evidence. If material, a scope limitation results in the issuance of either a qualified opinion or disclaimer of opinion.

cash basis accounting

A special purpose framework in which revenues are recognized when cash is received and expenses are incurred when cash is disbursed.

Modified cash basis of accounting

A special purpose framework that provides limited accruals for items such as fixed assets or inventories and long-term debt.

WebTrust Services

An assurance function designed to reduce the concerns of Internet users regarding the existence of a company and the reliability of key business information placed on its website.

SysTrust Services

An assurance function that reviews an entity's computer system to provide confidence to business partners and customers concerning the security, privacy, and confidentiality of information in addition to system availability and processing integrity.

Examination

An attestation engagement similar in nature to an audit.

Attestation Enagements

An engagement in which a practitioner is engaged to issue a report on an assertion (or assertions) about subject matter that is the responsibility of another party.

Preparation Engagements

An engagement in which an accountant assembles financial statements without performing any additional procedures or issuing a report.

Review Enangement

An engagement in which an accountant performs inquiries and analytical procedures and provides limited assurance about financial information.

review

An engagement in which an accountant performs inquiries and analytical procedures and provides limited assurance about financial information.

Compilation Engagement

An engagement in which an accountant performs limited procedures (such as reading the entity's financial statements) in assembling financial information but does not provide any assurance on that information.

agreed-upon procedures

An engagement in which the accountant performs procedures that are specified by specific user(s).

non-issuers

An entity that does not offer registered securities, such as stocks and bonds, for sale to the general public (also known as a nonpublic entity). Non-issuers are not subject to mandatory audit requirements. private companies

Issuers

An entity that offers registered securities, such as stocks and bonds, for sale to the general public (also known as a public entity). Issuers are subject to mandatory audit requirements.

Service Organizations

An entity that provides services to user entities that are likely to be relevant to user entities' internal control over financial reporting.

Broker-dealer

An individual or company involved in the business of buying and selling investment securities either for its own account or on behalf of customers.

Modified Opinion

Any opinion other than an unmodified opinion on an entity's financial statements (qualified opinion, adverse opinion, or disclaimer of opinion).

Which of the following statements is correct? -Auditing standards place official limits on the contents of paragraphs auditors add to a standard audit report. -Auditors may add one or more paragraphs to a standard report to describe circumstances that present business or information risk. -Auditors cannot add anything other then the standard explanatory paragraphs to an unmodified report.

Auditors may add one or more paragraphs to a standard report to describe circumstances that present business or information risk.

Accounting and review engagements

Engagements performed by accountants on historical financial statements that are less in scope than an audit.

accounting and review engagements

Engagements performed by accountants on historical financial statements that are less in scope than an audit.

True or false: Auditors cannot express different opinions on comparative years' financial statements in the same report.

False

Critical Audit Matters

Matters communicated or required to be communicated to the audit committee that involve challenging, subjective, or complex auditor judgment relating to material accounts and disclosures.

Key Audit Matters

Matters that, in the audit team's professional judgment, were of most significance in the audit of the financial statements of the current period.

departure from GAAP

Situation in which an entity does not follow GAAP in preparing its financial statements. Auditors can issue qualified or adverse opinions for material departures from GAAP.

going-concern uncertainty

Situation in which questions are raised about an entity's ability to continue operations and meet its obligations as they become due.

division of responsibility

Situation in which the component auditors are involved with the examination of a subsidiary, branch, component, or investment that is included in the financial statements audited by group auditors.

associated (association) with financial statements

Situations in which auditors consent to the use of their name in some form of communication containing the entity's financial statements or submit to their clients or others (such as third-party users) financial statements they have prepared or assisted in preparing. Auditors should issue a one-paragraph disclaimer when they are associated with (but did not audit) financial statements.

Component Auditor

The auditor who audits divisions, subsidiaries, or components that are included in the group financial statements.

updated report

The auditors' report on prior-year financial statements that is based on both the prior-year audit and information that has come to the auditors' attention in the most recent audit.

responsible party

The person or persons, either as individuals or representatives of the entity, responsible for the subject matter of an attestation engagement.

financial projection

The prospective financial information reflecting a transaction or event that may occur in the future.

financial forecast

The prospective financial information reflecting an entity's estimates of what is likely to occur in a future period.

sustainability

The triple-bottom-line of economic viability, social responsibility, and environmental responsibility.

Broker-dealers who do not hold customer funds ______. Multiple select question. a. must file an exemption report b. still must provide auditors some degree of assurance c. still must file compliance reports

a, b

The auditor's report on a single statement or elements, accounts or items ______. Multiple select question. a. expresses an opinion regarding if it is fairly stated in accordance with GAAP b. is similar to the auditor's standard report on the complete set of statements c. must always be published along with the report on the complete set of financial statements

a, b

When auditors are engaged to examine and report on supplementary information ______. Multiple select question. a. an other-matters paragraph may be added to the audit report b. a separate report on the information may be prepared c. the auditors' conclusion will express an opinion

a, b

When performing a compilation engagement, the accountant should ______. Multiple select question. a. not express any assurances b. read the financial statements c. assess conformity with GAAP d. be independent

a, b

With respect to required supplementary information included with the basic financial statements, auditors are required to ______. Multiple select question. a. compare information with the financial statements for consistency b. obtain written representations from management c. issue an opinion with regard to the fairness of the information

a, b

To conduct an engagement related to compliance, ______. Multiple select question. a. management must accept responsibility b. evaluation and measurement against reasonable criteria must be possible c. sufficient evidence must be available to support management's evaluation d. management must present its assertions about compliance in a written report that accompanies the accountant's report

a, b, c

Agreed-upon procedures reports ______. Multiple select question. a. describe procedures users deemed necessary b. describe specific findings c. identify the specified users d. state the work was not an audit e. provide an overall opinion at the end of the report

a, b, c, d,

The Basis for Opinion paragraph on a PCAOB audit report ______. Multiple select question. a. indicates the responsibilities of management b. indicates the responsibilities of the audit team c. states the firm is registered with the PCAOB d. identifies any critical audit matters found during the audit engagement e. describes the audit

a, b, c, e

The Auditor's Responsibility section of the standard audit report for a nonpublic entity includes paragraphs indicating ______. Multiple select question. a. the audit team's responsibility to conduct the audit under GAAS b. a description of the audit c. entity management's responsibility for the fairness of the financial statements d. identifying several components of a GAAS audit

a, b, d

When other information is presented along with the financial statements, the auditors' report includes an Other Information section that includes ______. Multiple select question. a. a description of any material misstatements of the other information, if found b. a statement that management is responsible for the other information c. an indication that the audit team expresses an opinion on the other information d. the audit team's responsibility with respect to the information

a, b, d

If auditors issued a disclaimer or adverse opinion on the complete set of financial statements, the firm may separately report only on an element, account, or item in the financial statements if the ______. Multiple select question. a. element, account, or item is not related to equity or net income b. report is published with the report containing the adverse or disclaimer of opinion c. element is not a major portion of the financial statements d. opinion for the element, account or item differs from the opinion reached for the statements as a whole

a, c

Levels of accountant service related to compliance are ______. Multiple select question. a. an examination engagement b. a review engagement c. agreed-upon procedures

a, c

Required SEC financial information ______. Multiple select question. a. includes audited financial statements b. must be filed within 60 to 90 days of the end of the fiscal year c. must be filed by both public and nonpublic entities d. is filed using Form 10-K

a, c, d

Rule 17a-5 requires the broker's or dealer's compliance report includes assertions that the broker-dealer ______. Multiple select question. a. was in compliance with the reserve requirement rule at fiscal year-end b. based its assertions on information from audited financial projections c. had effective internal control over compliance during the year and at year-end d. was in compliance with the net capital rule at fiscal year-end

a, c, d

Types of attestation engagements include ______. Multiple select question. a. examination b. interim financial statement audit c. review d. agreed-upon procedures

a, c, d

When audit teams are asked to report on compliance issues as part of a GAAS audit, the report on compliance must ______. Multiple select question. a. indicate a GAAS audit was conducted b. be included in the report expressed on the financial statements as an other-matter paragraph c. indicate the audit was not directed towards identifying noncompliance d. indicate the communication of compliance is intended for specific parties

a, c, d

The Auditor's Responsibility section of the standard audit report for a nonpublic entity includes paragraphs indicating ______. Multiple select question. a. a description of the audit b. entity management's responsibility for the fairness of the financial statements c. the audit team's responsibility to conduct the audit under GAAS d. identifying several components of a GAAS audit

a, c, d,

When a material weakness is ICFR is identified, the auditors' will issue a(n) ______ opinion. -adverse -disclaimer of -qualified

adverse

Agreed-upon procedures reports ______. -may be distributed as long as the specific procedures completed are specified in the report -are restricted to the specified users who defined the work on the engagement

are restricted to the specified users who defined the work on the engagement

"Independent professional services that improve the quality of information, or its context, for decision makers" is the definition of _____ services.

assurance

A preparation of financial statement engagement requires ______. Multiple select question. a. the accountant to prepare a report b. no procedures be performed c. "no assurance is provided" on each page of the statements d. the accountant to be independent

b, c

The opinion section of the standard audit report includes ______ a. the fact that the auditors were responsible to obtain reasonable assurance regarding the financial statements b. the fact that the statements were prepared in accordance with GAAP c. identification of the financial statements and years examined

b, c

When auditors issue a report on current-year financial statements ______. Multiple select question. a. the updated report must be dual dated with the prior and current audit report date b. auditor responsibility for comparative financial statements extend to the current audit report date c. they must consider if prior years' opinions are still appropriate

b, c

When performing a compilation engagement, the accountant should ______. Multiple select question. a. assess control risk b. obtain an engagement letter c. understand the entity's business d. perform evidence-gathering procedures

b, c

When two different auditors examined financial statements included in comparative years ______. Multiple select question. a. the current year auditor must issue a qualified opinion b. the predecessor auditor's report should be included with the statements c. an other-matters paragraph can be used to reference the predecessor auditor

b, c

Assurance services ______. Multiple select question. a. are intended to be useful for large groups of decision makers b. are more customized than attestation services c. are similar to consulting services d. consist of a large group of activities

b, c, d

When group auditors decide to refer to the work and reports of component auditors ______. Multiple select question. a. the component auditors should be mentioned by name b. the extent of the component auditors' work must be disclosed c. it is considered a scope limitation d. it is referred to as a division of responsibility

b, d

A review of unaudited financial statements includes ______. -both an engagement letter and written representations from management -an engagement letter but no written representations from management - neither an engagement letter nor written representations from management -written representations from management but no engagement letter

both an engagement letter and written representations from management

The standard auditors' report on the financial statements for nonpublic entities ______. Multiple select question. a. is appropriate even if material issues are encountered during the audit b. must be addressed to the board or directors and shareholders c. should have a title that stresses auditor independence d. is also referred to as the ASB report

c, d

If auditors expressed a disclaimer or adverse opinion on the complete set of financial statements, an unmodified opinion ______ be expressed on a single financial statement. cannot can

cannot

A departure from GAAP is _____ when it can be isolated to a particular account group or transactions without materially affecting other accounts.

compartmentalized

Assisting in the preparation of financial information without providing any assurance or accuracy on the completeness of the information is the purpose of a(n) _____ engagement.

compilation

In connection with examination engagements for compliance, accountants are required to consider _____ risk, _____ risk and _____ risk.

control, inherent, detection

The three sections of the PCAOB report are: Opinion of the Financial Statements; Basis for Opinion; and _____ _____ _____.

critical audit matters

A preparation of financial statement engagement ______. Multiple select question. a. requires only limited procedures b. should include a report c. does not require independence to be assessed d. should include an engagement letter

d, c

Obtaining review evidence ______ require analytical procedures. does not does

does

Paragraphs that provide information fundamental to understanding the entity's financial statements are known as _____ - of - _____ paragraphs.

emphasis of matter

Assurance Engagement

engagements performed by CPAs that improve the quality of information for decision makers

Emphasis-of-matter and other-matter paragraphs may be collectively referred to as _____ paragraphs.

explanatory

True or false: Outsourcing non core functions to service organizations absolves management of its responsibility for internal control over those functions.

false

True or false: When auditors are engaged to examine and report on supplementary information, the conclusion will express an opinion on the information.

false

Prospective financial information based on expected conditions and courses of action is a financial _____.

forecast

Assurance Services

independent professional services that improve the quality of information, or its context, for decision makers.

PCAOB standards require that the audit of ICFR be ______ the financial statement audit. -performed as a separate engagement from -integrated with

integrated

When the design or operation of a control does not allow the entity's management or employees to detect or prevent misstatements in a timely fashion a(n) ______ exists. -significant deficiency -internal control deficiency -material weakness

internal control deficiency

Consistency

is based on the importance of permitting users to appropriately compare an entity's f/s across years.

Presenting balance sheets for two years and statements of income, changes in shareholders' equity and cash flow for three years in comparative format is required for ______. -non-issuers only -neither issuers or non-issuers -issuers only -both issuers and non-issuers

issuers only

The audit team is required to evaluate and express an opinion on the effectiveness of the entity's ICFR for ______. -non-issuers only -both issuers and non-issuers -issuers only

issuers only

Responsibility to evaluate whether substantial doubt about continued existence of the entity exists rests with the ______. -management -auditors -both management and auditors

management

When auditors believe something, such as a warning that a bankruptcy filing may be imminent, needs to be emphasized they ______. -should ask management to discuss the matter in their Responsibilities paragraph -may add additional paragraphs to their report -must modify the Opinion paragraph to include reference to the item(s) to be emphasized -must modify the Basis for Opinion paragraph to reference item(s) to be emphasized

may add additional paragraphs to their report

A departure from GAAP ______. -may be ignored if immaterial -will alway result in a qualified opinion -must always be mentioned in the auditor's report

may be ignored if immaterial

When auditing public entities, auditors ______. -must combine the report of the financial statements with the report of ICFR -may either prepare separate reports or provide a single, combined report -must prepare a report on the financial statements and a separate report on ICFR

may either prepare separate reports or provide a single, combined report

An auditor issued a qualified opinion on 2018 and 2019 financial statements. When doing the audit of the 2020 financial statements the auditor ______. -may issue an unmodified opinion if appropriate -must also issue a qualified opinion

may issue an unmodified opinion if appropriate

When a audit firm becomes the auditor of a company in 2020, the predecessor auditor ______ be referenced in the current audit report. -must always -must never -may or may not

may or may not

AU-C 705 refers to qualified opinions, adverse opinions, and disclaimers of opinion as _____ opinions

modified

In order to perform review services, auditors ______ be independent. -should -should not -may or may not -must

must

When the auditor finds a departure from GAAP that is sufficiently material to affect users' decisions, but the departure can be compartmentalized, the auditors ______. -may still issue a standard report -must qualify the opinion -must issue either an adverse or disclaimer of opinion

must qualify the opinion

When an annual report contains other information such as a president's letter or MD & A, the auditor ______. -must read and audit the information -must read the information and determine if it is consistent with audited financial statements -has no obligation to read the information or refer to it in the audit report

must read the information and determine if it is consistent with audited financial statements

Auditors may be engaged to examine and report on summary financial statements ______ audited the full financial statements. -whether or not they have -only if they have -only if they have not

only if they have

Prospective financial information based on the occurrence of one or more hypothetical events that change the entity's existing business structure is a financial _____.

projection

The phrase "except for" is used in ______. -adverse opinions only -disclaimers of opinion only -qualified opinions only -both qualified and adverse opinions

qualified opinions only

When a scope limitation is material and alternative procedures cannot be performed, a(n) ______. -unmodified opinion is appropriate but the -scope limitation must be referenced -standard report can be issued only if the limitation was circumstance-imposed -adverse opinion must be issued -qualified or disclaimer of opinion must be issued

qualified or disclaimer of opinion must be issued

A service performed by accountants to obtain limited assurance that no material modifications should be made to the financial statements in order for them to be in conformity with the applicable reporting framework is a(n) _____.

review

Only a limited level of assurance is provided by an attestation _____.

review

When broker-dealers file an exemption report under Rule 17a-5, the report is subject to a(n) _____ engagement under AT2.

review

Payroll processing companies, bank trust departments and computerized information processing centers are all examples of _____organizations.

service

A deficiency or combination of deficiencies important enough to merit attention to those charged with governance is identified as a(n) _____ deficiency.

significant

Other comprehensive bases of accounting (OCBOA) are also known as _____ _____ frameworks.

special purpose

Tax basis, cash basis and modified cash basis are all example of _____ _____ frameworks.

special purpose

When a scope limitation is immaterial, a(n) ______. -unmodified opinion is appropriate but the scope limitation must be referenced -standard report can be issued -qualified opinion must be issued -standard report can be issued only if the limitation was circumstance-imposed

standard report can be issued

group auditors

the auditors who perform the audit of a material portion of the assets, liabilities, revenues, and expenses of an entity's group financial statements; also known as principal auditors

Group Financial Statements

the financial statements of more than one component (division, subsidiary, or other segment)

The examination of internal control over compliance under Rule 17a-5 covers controls ______. -only as of the fiscal year-end -throughout the fiscal period and at year-end

throughout the fiscal period and at year-end

Entities that are required to report compliance with contractual obligations to third parties may request auditors ______ a GAAS financial statement audit. -perform procedures specifically designed to evaluate compliance as part of -to report on compliance based on procedures performed during

to report on compliance based on procedures performed during

True or false: A written letter of management representations is required in a compliance examination.

true

To define a set of professional attestation and advisory services based on a core set of principles and criteria that addresses the risk and opportunities of IT-enables systems and privacy programs, the AICPA has adopted the term _____ _____.

trust services

The SEC requires issuers to present balance sheets for _____ years and statements of income, changes in shareholders' equity, and cash flows for _____ years in comparative format.

two three

When no material issues are encountered during the audit and the financial statements are prepared in accordance with GAAP a(n) _____ audit report is appropriate.

unmodified

Both prior-year audits and information that has come to the auditor's attention since then (particularly in the most recent audit) is the basis for a(n) _____ report.

updated

If group auditors are satisfied with the independence and professional reputation of the component auditors, a standard report may be issued ______. -but the report must state that other, unnamed auditors participated in the audit -but the component auditors must be mentioned by name -with the group auditors assuming full responsibility for the audit

with the group auditors assuming full responsibility for the audit