Financial Reporting - Auditing

  1. The objective of a financial audit is to:
    Render a report by independent auditors expressing an opinion that financial statements present fairly, the financial position, change in financial position and cash flows of the organization.
  2. Present fairly with regards to financial statements mean:
    Conformity with appropriate GAAP
  3. Auditor opinions are based on reasonable assurance that the financial statements are free from:
    Material misstatements (error or fraud)
  4. Audits do not provide absolute:
  5. Auditors performing audits on financial statements follow:
    Generally Accepted Auditing Standards (GAAS)
  6. GAAS is reflected in the:
    Statements of Auditing Standards (SAS)
  7. Which standards board issues the Statements of Auditing Standards?
    Standards Board of the American Institute of Certified Public Accountants
  8. How many Generally Accepted Auditing Standards are there:
    10 standards
  9. What are the types of Generally Accepted Accounting Standards:
    • General Standards
    • Field Work Standards
    • Reporting Standards
  10. General Standards for auditors are:
    Adequate technical training and proficiency as a auditor

    Independence in mental attitude

    Due professional care
  11. Standards of field work for auditors are:
    Adequate planning and proper supervision

    Study and evaluation of internal control and understanding entity and it's environment to assess risk of material misstatement

    Sufficient compentent evidential matter/basis of opinion
  12. Standards of reporting for auditors are:
    State if financial statements are in accordance with GAAP

    GAAP consistently observed within current and preceding period

    Informative disclosures resonably adequate

    Expression of opinions or reasons why not
  13. What are the paragraphs in a standard audit report:
    • Opening: identifies the financial statement being audited
    • Scope: describes the nature of the audit
    • Opinion: expresses the auditor's opinion regards fairness of the financial statement

    Explanatory: auditor's role in reviewing supplementary information
  14. What are the types of auditor's opinions?
    Unqualified (clean): financial statement presents financials position and changes in position and cash flows according to GAAP.

    Qualified Opinion: financial statement contains material departure from GAAP or there is a material change between periods in GAAP.

    Adverse Opinion: financial statement do not present fairly in accordance with GAAP.

    Disclaimer of Opinion: Often due to inability to examine records.
  15. How is materiality defined?
    In the auditor's judgement, the level at which the quantitative or qualitative effects of misstatements will have a significant impact on users' evaluations.

    Auditors make seperate materiality determinations for each opinion unit (i.e. government activities, business activities).
  16. What are statements of auditing standards (SAS) 114 and 115?
    SAS 114 communicates with those charged with governance. It provides those in charge with:

    -An understanding of the auditor's responsibilities under GAAS

    -Overview of planned scope and timing of the audit

    -Significant findings of the audit

    SAS 115: Communicates internal control related matters

    -Requires written communication of significant deficiencies and material weakness to management

    -Common terms used are control deficiency, significant deficiency, material weakness.
  17. What are the types of government audits?
    Financial: opinion as to whether financial statements are presented fairly in conformity with GAAP & all material facts are disclosed.

    • Attestation Engagement: Examination/procedures that lead to a report & assertion about subject matter that is the responsibility of another party:
    • -Internal Controls
    • -Compliance
    • -MD&A
    • -Contract Amounts
    • -Performance Measures

    Performance: Determination of whether managers are using resources efficiency and effectively in accomplishing organizational goals.

  18. Which organization establishes Generally Accepted Government Auditing Standards (GAGAS)?
    US General Accountability Office (GAO)

    GAGAS is intended to supplement GAAS.
  19. When are audits in complaince with GAGAS required?
    For Single Audit of organizations that expend more than $500k of federal financial assistance in a year.

    Required by all governments in FL.
  20. GAGAS place more emphasis on ___________ with laws and regulations & ___________ than do GAAS.
    • Compliance
    • Ethics
  21. What are the two overarching principles of the Government Accountability Office (GAO) independence standards for nonaudit services?
    Auditors should not perform management functions or make management decisions.

    Auditors should not audit their own work or provide nonaudit services when the nonaudit services are significant to the audit subject matter.
  22. Single Audit audit of 1984 and amended in 1996 replaced grant by grant audits with _________, comprehensive, _________ wide __________.
    • Single
    • Entity
    • Audit
  23. Single audits provide all federal awarding agencies with a _________ report to satisfy program's audit requirements.
  24. The 1996 amendment to the single audit act:
    • Places greater audit coverage on high risk programs
    • Improves content and timeliness of single audit reporting

    OMB can administratively revise single audit standards without requiring additional legislation - Circular A-133
  25. What entities must have a single audit?
    Those that expend more than $500k in federal financial assistance within a single year.
  26. When is a program audit allowed in place of a single audit?
    When the federal assistance is expended for one federal program or program cluster.
  27. What are the two federal program categorizations in regards to determining which program to single audit?
    Type A: Any federal program within a recipient which expends either: (1) $300,000 or more of federal assistance for recipients with $10 million or less of expended federal assistance during the audit period, or (2) 3% of the total federal assistance expended during the year for those who exceed $10 million, whichever is greater.

    Type B: Any single program which does not meet the Type A requirements. Example 1 – The City of Example operates a Section 8 program, and expended $450,000 in Section 8 funds and $5,000,000 of total federal assistance during the year. Since this amount does not exceed $10,000,000, the Section 8 program is considered a Type A program because $450,000 exceeds the $300,000 threshold.
  28. The schedule of findings and questioned costs of a single audit describes:
    • -Internal control weaknesses
    • -Instances of noncompliance
    • -Questioned costs
    • -Fraud
    • -Material missrepresentations by the auditee
  29. Questioned costs for single audits usually involve ___________
    • Instances noncompliance with a law/regulation where costs are:
    • -Unallowable
    • -Unreasonable
    • -Not supported by adequate documentation

    Must be reported in schedule if the known questioned costs are greater than $10k; likely costs greater than $10k
Card Set
Financial Reporting - Auditing
Financial Reporting - Auditing