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3 general standards of GAAS
- Training=adequate technical training and proficiency
- Independence=in fact and appearance
- Professional care=sufficient appropriate evidence to provide reasonable assurance
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3 fieldwork standards of GAAS
- Planning and supervision=adequately planned and properly supervised
- Internal control=understand entity and environment
- Evidence =sufficient appropriate evidence to provide reasonable basis for opinion
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4 reporting standards of GAAS
- Accounting=GAAP=explicit statement
- Consistency=enhances comparability, implicit (silence means it's OK)
- Express opinion=explicit statement
- Disclosure=implicit (silence means it's OK)
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3 differences between US and Intn'l auditing standards
- 1. Intn'l requires expanded descriptions of responsibility
- 2. Intn'l report should name location in country or jurisdiction
- 3. If intn'l and country are same auditor can refer to both
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Types of opinions
- Unqualified (can be modified)
- Qualified (except for)
- Adverse
- Disclaimer
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opinions resulting from GAAP problems
- Material problem=qualified (except for)
- Very material=Adverse
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opinions resulting from GAAS problems
- Material=qualified (except for)
- Significant=disclaimer
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Position of explanatory paragraph
- Unqualified opinion=explanatory paragraph after opinion paragraph
- Qualified opinion=explanatory paragraph before opinion paragraph
- Justified GAAP departure and emphasis of a matter=explanatory paragraph after or before
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Modified unqualifed opinion
- Another CPA
- Consistency
- Emphasis of a matter
- Justified GAAP departure
- Other
- Going concern
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Reliance on another auditors work
- modified unqualified opinion
- division of responsibility
- modify all three paragraphs
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Justified departure from GAAP
- modified unqualifed opinion
- explanatory paragraph before or after opinion
- describe departure, effects and why
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Going concern
- consider mitigating factors=borrow money, sell assets, delay expenditures, increase equity
- explanatory paragraph after opinion
- modified unqualified if disclosed, qualified/adverse for lack of disclosure
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Emphasis of a matter
- professional judgement
- explanatory paragraph after or before opinion paragraph
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Lack of consistency (acceptable/justified change in accounting principle)
- comparability of financial statements from year year
- change estimate=no paragraph needed
- change depreciation=need paragraph
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Qualified (except for GAAP)
- non-GAAP change in accounting principle
- inadequate disclosure
- unjustified departure from GAAP
- unreasonable accounting estimate
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Non GAAP change in accounting principle
- unjustified
- consistency problem
- explanatory paragraph before opinion
- modify opinion paragraph
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Inadequate disclosure
- qualified or adverse depending on materiality
- if causing fraud, insist on correction
- no CFS=explanatory before opinion, modify intro
- modify opinion paragraph
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Unnecessary/unjustified departure from GAAP
- f/s not prepared in accordance with GAAP
- explanatory paragraph before opinion
- modify opinion paragraph
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Unreasonable accounting estimate
- causes f/s to be materially misstated
- qualified or adverse
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adverse opinion
- same as qualified but very material GAAP problem
- explanatory before opinion
- modify opinion
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Qualified (except for GAAS)
- uncertainty
- scope limitation
- material
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uncertainty
- unable to obtain sufficient evidence to support managements assertions
- unqualified is OK if evidence supports managments assertions about uncertainty
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scope limitation
- unable to fully complete audit
- time restraints, lack of sufficient appropriate evidence, refusal of mngt letter or attorney response
- explanatory paragraph before opinion
- modify scope and opinion
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Disclaimer of opinion (GAAS problem) uncertainty, scope, lack of independence
- significant problem
- explanatory before opinion
- modify intro and opinion
- NO scope
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automatic disclaimer
- lack of independence
- unaudited f/s
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unaudited f/s
- no audit work=no opinion
- lack of independence=no intro, no scope, modify opinion to disclaimer
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reporting different opinions in different years
- CY qualified, PY unqualified=explanatory before opinion, modify opinion
- CY unqualified, PY disclaimer=like scope limitation, explanatory before opinion, modify scope and opinion, disclaim i/s, RE, and CFS
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amended opinion
- explanatory before opinion
- modify opinion
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reporting on supplementary info
- auditor must get mngt representation letter
- if material misstatement=modify opinion or withhold report
- can be either
- -explanatory paragraph after opinion paragraph
- -separate report
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RSI procedures
- f/s opinion does not generally cover RSI
- procedures include
- -inquire of mngt
- -is RSI consistentwith mngt and f/s
- -get written representation
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AICPA code of professional conduct
- applies to all members
- distinguishing mark that accepts high degree of responsibility toward public
- 2 major sections- principles and rules
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Rule 101 independence requirements
- covered members
- immediate family
- close relatives
- not required for complitations and non attest services
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disclose confidential info without consent of client
- subpoena or summons
- peer quality review
- inquiry by ethics division of AICPA or state board
- for defense if client is suing
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permission of contingent fees
- tax/bankruptcy court
- compilations of f/s used by 3rd parties with lack of independence disclosure
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partner rotation under SEC
- lead partner=5 year rotation with 5 year time out
- other partners=7 year rotation with 2 year time out
- exemption=small firms with <five issuer clients and <10 partners
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