Chapter 17- Part 2

material

A Critical audit matter must be related to a ____________ financial statement account or disclosure and involve "especially challenging, subjective, or complex auditor judgment."

again

A question which arises is whether a prior year CAM should ___________ be included in the audit report.

Opinion and Basis for Opinion

As is the case with nonpublic company audit reports, the first two sections of the report are the ___________ and ________ _________ __________ sections, in that order.

shareholders and the board of directors

Audit report with an unqualified opinion based on the audit of a public company: It must be addressed to the ____________ and ________ ________ _______ (or equivalents for companies not organized as corporations), although additional addressees may be added.

signature date

Audit report with an unqualified opinion based on the audit of a public company: The report is concluded with the CPA firm's ____________, its city and state, and the audit report _________.

engagement partner not frequently

Audit report with an unqualified opinion based on the audit of a public company: The report may also include an engagement partner disclosure section which includes the name of the ___________ _________. Such a section is _______ _________ included in the audit report.

Report of Independent Registered Public Accounting Firm

Audit report with an unqualified opinion based on the audit of a public company: The title of the report must include the words " ________________________"

choose

Auditors also may ___________ to communicate CAMs of prior periods that are presented. For example, when the prior year financial statements are being made public for the first time, the auditors may ___________ to also communicate the prior year CAMs.

Audits of financial statements for periods ending on or after 06/30/19 for large accelerated filers ($700 million public float); 12/15/2020 for other public companies

CAM's: Implementation

yes

CAMs: Included in reports with qualified opinion, emphasis of matter or other matter?

no

CAMs: included in reports with adverse or disclaimer of opinion?

key audit matters

Critical audit matters for public companies are similar to the ________ _________ ______ that may be disclosed in audit reports for nonpublic companies.

response or approach brief overview outcome key observations

Description of how the CAM was addressed in the audit: includes some combination of 1) the auditor's __________ or __________ to the matter 2) a __________ __________ of procedures performed 3) an indication of the _________ of the audit procedures 4) __________ ________ on the matter

identification principle considerations addressed reference

For each critical audit matter that is disclosed, the auditors must include the following information in the audit report: - ______________ of the matter - description of the _________ __________ that led the auditors to determine that the matter is a CAM - description of how the CAM was _____________ in the audit. -____________ to the relevant financial statement accounts and disclosures that related to the CAM.

audit hours spent interim internal control

Form AP: In addition to requiring the engagement partner's name, the form requires disclosure of the total_________ _________ _______ on the financial statement audit, reviews of __________ financial statements, and the audit of_________ ______ over financial reporting.

name, location and extent 5 name, location and extent 5

Form AP: When other accounting firms participated in the audit, the following information also is required: - __________, __________ and ________ of participation of each other accounting firm whose work constituted at least ________% of total audit hours. - _________ and _________ ______ of participation of all other accounting firms whose work was less than _____% of total audit hours.

again not

If the CAM continued to require challenging, subjective or complex auditor judgment it should __________ be included. However, if it does not, it should _______ be included in the current year report.

tenure

In addition, a public company report indicates when the firm began servicing the company as its auditors (referred to as firm "_______").

necessary

In describing a CAM, the auditors are not ordinarily expected to provide information about that company that has not been made publicly available by the company unless that information is ____________ to describe the principal consideration that led the auditors to determine that the matter is a CAM.

significant significant judgment uncertainty nature and timing specialized skills audit evidence

In identifying critical audit matters, the auditors should consider factors such as the: -Assessment of the risks of material misstatement, including ___________ risks. - Degree of auditor judgment related to financial statement areas that involve the application of ________ ______ or estimation by management, including estimates with significant measurement ________. - ________ and _______ of significant unusual transactions and the extent of audit effort and judgment related to them -nature and extent of audit effort required to address the matter, including the extent of __________ ________ or knowledge needed or the nature of needed consultations outside the engagement team - nature of ________ ______ obtained regarding the matter

non identified

In situations in which the auditors determine that there are no critical audit matters on an audit, a paragraph is included in the report defining a critical matter and then indicating that there were _______ _________.

significant deficiency or material weakness severity

In some situations a _________ ___________ or _________ ______ in internal control may be identified as a CAM. However, the ___________ does not in and of itself determine whether it is a CAM.

yes

Is CAM limited to matters communicated or required to be communicated to those charged with governance?

yes

Is KAM limited to matters communicated or required to be communicated to those charged with governance?

yes

KAMs: Included in reports with qualified opinion, emphasis of matter or other matter?

Audits of financial statements for periods ending on or after 12/15/2020

KAMs: implementation

no

KAMs: included in reports with adverse or disclaimer of opinion?

adverse disclaimers of opinions

Major concepts and requirements related to Key and Critical Audit Matters, are not included in reports with _________ or _________ of _________.

Critical Audit Matters

Most PCAOB audit reports also include _________ __________ _________ section.

critical audit matters

Most public company audit reports are required to include disclosure of __________ _________ _________.

accrual disclosure material

PCAOB auditing standards include the following examples to assist auditors in identifying CAMs: - a potential loss contingency for which management recorded an __________ and/or made a _________ could potentially be a CAM. However, a potential loss contingency for which the likelihood was appropriately determined to be remote, and which was not recorded in the financial statements, or otherwise disclosed, would not be a CAM because it would not relate to an account or disclosure, that is ___________ to the financial statements.

disclosure required

PCAOB auditing standards include the following examples to assist auditors in identifying CAMs: -A potential illegal act about which management provided __________ could be determine to be a CAM. Even if the amounts involved were not quantitatively material, such __________ on its own may be qualitatively material. On the other hand, if management appropriately determined that no disclosure or accrual was __________ in the financial statements, the matter would not be a CAM.

current

The PCAOB requires the auditors to include CAMs only for the __________ audit period, not all periods for which financial statements are presented.

form AP

The name of the engagement partner is required to be disclosed in PCAOB _______ ________.

material financial statement accounts or disclosures

To be identified as a CAM, the deficiency must affect one or more _________ __________ _________ or _________ that required especially challenging, subjective, or complex audit judgment.

allowance loss provisions goodwill acquisitions going concern hard to value income

What types of matters are included in the KAM and CAM concepts? Although company and audit specific considerations affect which items are identified as CAM's or KAMs, subjective audit areas such as the following will often merit consideration: - the ___________ for sales returns - loan _________ __________ - __________ impairment - accounting for ____________ - _________ _______ assessments - _________ ________ _______ financial instruments -__________ taxes

$75,000,000 $100 million

When management has issued a report on internal control, but the auditors have only audited the financial statements, which generally occurs for companies with a market capitalization of less than _______________ or revenues less than _____________ _________ in the preceding year, the second paragraph in the Opinion section is deleted.

allows

While Form AP is designed in part to disclose the engagement partner's name, as illustrated earlier, the PCAOB ________ , but does not require, disclosure of that individual's name in the PCAOB audit report.

identical

While the concept of CAMs and KAMs are similar, they are not _________.

during material

While the primary focus of KAMs is on matters of most significance ____________ the audit, the definition of CAMs focuses on matters involved especially challenging, subjective, or complex auditor judgement related to __________ financial statement accounts and disclosures. This difference could, in concept, result in different matters being identified.

current year

Years of CAMs ordinarily reported upon in audit report when comparative financial statements are presented and reported upon.

current year

Years of KAMs ordinarily reported upon in audit report when comparative financial statements are presented and reported upon.

International

___________ auditing standards require disclosure of the name of the engagement partner for public company audits in the audit report itself.

Form AP

a form that must be filed with the PCAOB within 35 days of the dates the audit report is first included in a document filed with the SEC; this period is shortened to 10 days for registration statements for new issuances of securities.

Yes for most public companies. Certain companies are excluded ( broker dealers, investment funds, benefit plans.)

are CAMs required in audit reports?

No, not in general. But the auditors may be required to communicate by the terms of the engagements ( either by client choice, law or regulation.)

are KAMs required in audit reports?

a CAM that should not be included in the audit report

implementation of a new accounting standard for accounting for a significant unusual transaction may require such judgment only in the year in which it occurs, but not thereafter. This is an example of

tenure date

the earlier of when the CPA firms signed its first engagement letter with the client, or when it first began performing audit procedures for the client.