Auditing 6

  1. Second Standard of Reporting
    The auditor must identify in the auditor's report those circumstances in which such principles (GAAP) have not been consistently observed in the current period in relation to the preceding period.
  2. Audit Reports - Standards of Reporting
    Address what the reports should say
  3. Fourth Standard of Reporting
    The auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed, in the auditor's report. When the auditor cannot express an overall opinion, the auditor should state the reasons therefore in the auditor's report. In all cases where an auditor's name is associated with financial statements, the auditor should clearly indicate the character of the auditor's work, if any, and the degree of responsibility the auditor is taking, in the auditor's report.
  4. Third Standard of Reporting
    When the auditor determines that informative disclosures are not reasonably adequate, the auditor must so state in the auditor's report
  5. First Standard of Reporting
    The auditor must state in the auditor's report whether the financial statements are presented in accordance with generally accepted accounting principles (GAAP).
  6. Standard Unqualified Report - Necessary conditions
    No significant GAAP departure and no significant scope limitation
  7. Standard Unqualified Report - Date of report requirements
    As of the date sufficient appropriate evidence has been collected to support the opinion
  8. Standard Unqualified Report - Signature requirement
    Name of the auditing firm - manual or printed
  9. Standard Unqualified Report - Title requirements
    Must include a heading with the word "independent" such as Report of Independent Accountants
  10. Standard Unqualified Report - Addressee requirements
    Entity, board of directors, shareholders, or combination
  11. Reporting on Other Information Included in Client-Submitted Document
    • Identify such information in explanatory paragraph
    • Report on information
  12. Unqualified but Modified Report - Limited reporting engagement requirement
    Engagement to report on just 1 of the basic financial statements
  13. Modifications to Standard Report for Use of Other Auditors
    • Not necessary to refer to other auditors, usually only when others involved to material degree
    • If referenced, referenced in each paragraph of audit report to some extent
  14. Modifications to Standard Report still Requiring Only Three Paragraphs
    • Limited reporting engagement
    • Report based in part on other auditors
  15. Unqualified but Modified Report - Emphasis of a matter
    Auditor always has ability to add a paragraph to the audit report to highlight a particular area of concern, e.g., related party transactions
  16. Audit Procedures for Other Information in Document Containing Audited Financial Statements
    Paragraph can either precede or follow opinion paragraph; must follow when uncertainty or inconsistency; must precede when opinion on prior period financial statements changes
  17. Reporting Issues on Supplementary Information Outside of GAAP Required by GASB or FASB
    • If omitted, point out omission
    • If incorrect, describe departure from guidelines
  18. Audit Procedures for Supplementary Information Required by FASB or GASB Outside of GAAP
    • Not required to audit supplementary information
    • Should inquire of client management
  19. Modifications Involving an Explanatory Paragraph that may be Added after the Opinion Paragraph
    • Uncertainties (including going concern)- must follow the opinion paragraph
    • Justifiable Departure from promulgated GAAP
    • Change in Accounting Principle - must follow the opinion paragraph
    • Omitted quarterly data for SEC companies
    • Required supplementary information omitted or incorrect
    • Issues with other information
    • Emphasis of a matter
  20. Reporting on Financial Statements with Unacceptable Measurement Principles
    If practicable, the auditor's report should identify the financial statement effects of the misapplication of GAAP
  21. Types of GAAP Departures
    • Inadequate disclosure
    • Unacceptable measurement principles
  22. Adverse Opinions
    Mean that the financial statements, taken as a whole, are NOT fairly stated
  23. Reporting on Financial Statements with Inadequate Disclosure
    • If practicable, include the omitted information in the auditor's report
    • The auditor would not have to include a statement of cash flows, or segment information in the auditor's report
  24. Qualified Opinions
    Meaning that the auditor has one or more reservations, although the financial statements, taken as a whole, are fairly stated
  25. Reasons for Qualified Opinions
    • GAAP departure
    • Scope limitations
  26. Audit Report when Auditor Lacks Independence
    "We are not independent with respect to ... the financial statements and, accordingly, we do not express an opinion on them."
  27. Reporting Considerations when Auditor Lacks Independence
    • Must mark each page unaudited
    • Must not describe any procedures performed
    • Must modify disclaimer to point out known GAAP departures
  28. Reasons for a Disclaimer of Opinion
    • Lack of independence
    • Major scope limitation
  29. Major scope limitation relating to disclaimers of opinion
    1) Due to client imposed limitations (e.g., refusal to sign rep letter); 2) Due to other circumstances (e.g., weak internal controls)
  30. Effect of known GAAP departures on Disclaimer of Opinion
    Would modify disclaimer report to identify effects of any known GAAP departures
  31. Auditing Procedures for Subsequent Discovery of Facts Affecting Opinion Existing at the Report Date
    • Request client assistance in informing users that previous statements should not be relied upon and in issuing revised financial statements
    • If client refuses, notify board, client, applicable regulators, and other users not to rely and consult legal counsel
  32. Reporting on Financial Statements Used Solely Outside US
    Can use US format or foreign country's format
  33. Audit Procedures when Reporting on Financial Statements to Be Used Exclusively Outside the US
    • Must follow US GAAS
    • Must understand foreign country's accounting principles
    • Obtain management's representation for use of financials
  34. Audit Procedures when Omitted Procedures are Discovered After Report Date
    • Nothing if other audit procedures compensate
    • Belatedly perform audit procedures
    • If support opinion, document procedures
    • If not, treat as subsequent discovery of facts existing at the report date
  35. Predecessor's Procedures When Previously Issued Report Will Be Reissued
    • Read current year's financial statements
    • Obtain a letter of representation from management that nothing materially affects the financial statements previously reported
  36. Piecemeal Opinions
    • Describing different conclusions about selected elements of the financial statements than expressed about the financial statements taken as a whole
    • Prohibited
  37. Reporting on Condensed Financial Statements
    • State that the auditor has reported on the complete financial statements -- indicate the date and type
    • Indicate whether the condensed financial statement information is fairly stated relative to the complete set of audited financial statements
    • Information should be clearly marked condensed
  38. Dual Dating
    • Audit report dated as of the date sufficient appropriate evidence collected
    • May specify a later date applicable to a particular footnote added to the financial statements
  39. What Successor Auditor Should Indicate if Predecessor's Report Not Reissued
    • That PY financials were audited by other auditor
    • Identify date and type of report issued
    • Identify reasons for any modifications to report if not standard
  40. Interim Internal Control Inquiries
    • Internal control issues
    • Changes in company's business activities and accounting practices
    • Questions raised by analytical procedures
    • Subsequent events and litigation issues
  41. Auditing Procedures for Interim Reviews
    • Read financial information for GAAP consistency
    • Perform analytical procedures
    • Inquire of management
  42. Three Paragraphs on Public Entity's Interim Financial Statements
    • Identify the interim financial statements and indicate management's responsibility
    • Indicate adherence to AICPA standards; describe the procedures for a review; and indicate that the scope is "substantially less" than an audit
    • Indicate whether any deficiencies were identified
  43. Interim Analytical Procedures
    • Compare the current and prior interim financial statements
    • Consider interrelationships of financial and non-financial data
    • Compare the client's recorded amounts with the auditor's expectations in view of current economic conditions and industry events
  44. Additional Procedures for Interim Financial Statements in SEC Filings
    • Extend subsequent events procedures to effective date of registration statement
    • Read any prospectus filed to verify accountant's name has not been used improperly
  45. Effect of GAAP requirements on Standard Unqualified Report
    Report must refer to country or entity of origin, e.g., accounting standards generally accepted in the United States of America
  46. Effect of GAAS requirements on Standard Unqualified Report
    Report must refer to country or entity of origin, e.g., auditing standards generally accepted in the United States of America
  47. Standard Unqualified Report (Sentences) - First paragraph requirements
    3 sentences - financial statements audited and management and auditor responsibilities
  48. Standard Unqualified Report (Sentences) - Third paragraph requirements
    1 sentence - opinion
  49. Standard Unqualified Report (Sentences) - Second paragraph requirements
    5 sentences - GAAS, assurance, evidence, assessment, and basis
  50. Limited Reporting Engagement - Audit report
    Report refers only to specific financial statement audited
  51. Limited Reporting Engagement - Auditor access
    Access to information underlying basic financial statements must not be limited
  52. Limited Reporting Engagement - Scope
    Does not involve scope limitation; instead limited reporting objective
  53. Limited Reporting Engagement - Audit procedures
    Auditor must be able to complete all procedures considered necessary
  54. Division of Responsibility Report - Scope paragraph
    Includes sentence "We believe that our audits and the report of other auditors provide a reasonable basis for our opinion."
  55. Division of Responsibility Report - Other auditors referenced
    Referred to only as "other auditors," not mentioned by name
  56. Division of Responsibility Report - When appropriate?
    When impractical to review other auditor's work or when part audited by other CPA is material in relation to the whole
  57. Division of responsibility
    Affects each paragraph of the auditor's report
  58. Division of Responsibility Report - Areas audited by other auditors
    Areas of audit specifically mentioned in the introductory paragraph
  59. Qualified for Inadequate Disclosure Report - Explanatory paragraph
    Additional paragraph describing omitted or inadequate disclosure and effects on financial position, results of operations and cash flows, if practicable, or indicating that information is not reasonably determinable
  60. Definition of inadequate disclosure
    Failure to present disclosures required by GAAP
  61. Effect of inadequate disclosure on audit report
    Report includes additional paragraph describing omitted or inadequate disclosure and modified wording in opinion paragraph
  62. Qualified for Inadequate Disclosure Report - Auditor requirements
    If practicable, auditor should present required information in audit report; if not practicable, auditor can so indicate
  63. Qualified for Inadequate Disclosure Report - Practicable
    When information can be obtained from accounts and records without substantial increase in effort by auditor
  64. Qualified for Omission of Cash Flows - Requirement on audit report
    Additional paragraph noting omission of statement of cash flows and modification of opinion paragraph
  65. Qualified for Omission of Cash Flows Report - Departure from GAAP
    Failure to include a statement of cash flows
  66. Qualified for Omission of Cash Flows Report - Preparation of statement of cash flows
    Auditor is NOT required to prepare a missing statement of cash flows (or any missing financial statement)
  67. Qualified for Accounting Principles Report - Explanatory paragraph
    Paragraph usually includes specific dollar amounts related to the GAAP departure, or may refer to a note to the financial statements where details are provided
  68. Qualified for Accounting Principles - Effect on audit report
    Additional paragraph disclosing principal effects of GAAP departure, if practicable, or otherwise stating effects not reasonably determinable and modification of opinion paragraph
Card Set
Auditing 6
Auiting 6