Audit Flash Cards

Audit - CPA Exam

What are the responsibilities of management?

1. Prepare financial statements

2. design, implementation, and maintenance of internal control

3. provide auditor with access to information and people to complete the audit

When is an auditor required to add an emphasis-of-matter paragraph?

Describing a justified change in accounting principle that has a material effect on the entity’s financial statements

What are the responsibilities of an auditor?

1. professional skepticism

2. ethical requirements

3. professional judgment

4. obtain sufficient appropriate evidence

5. comply with GAAS

6. competence and capabilities to perform an audit

When the auditor of an issuer expresses a qualified or adverse opinion due to material misstatement of the financial statements, what paragraphs are modified in the standard auditor report?

Opinion paragraph and an additional paragraph is added after the opinion paragraph

What does an auditor need to consider when planning and performing an audit with professional skepticism?

1. contradicting audit evidence

2. reliability of audit evidence

3. fraud

4. additional procedures

To comply with ethical requirements, an auditor must be…

independent in both fact and appearance

What are the two scenarios in which an auditor that is not independent can perform an engagement in accordance with GAAS?

GAAS provides otherwise or the auditor is required by law or regulation to report on the financial statements

What should the auditor determine in the planning phase to ensure they can support their audit opinion?

nature, extent and timing of audit procedures

T/F: A client who provides sufficient appropriate evidence but has a weak internal control system will always receive an adverse opinion.

False

What is the level of assurance an auditor obtains to report on the financial statements?

reasonable assurance

Which of the following ways can an auditor not obtain reasonable assurance?

a. Plan the work and supervise assistants

b. Examine all available corroborating evidence supporting management’s assertions

c. determine and apply appropriate materiality levels

d. identify and assess risks of material misstatement

e. obtain sufficient appropriate audit evidence

b

What are the two objectives of a financial statement audit?

obtain reasonable assurance and report on financial statements

What are the two objectives required for the audit of internal control over financial reporting?

express an opinion on the effectiveness of internal control and obtain reasonable assurance about whether material weaknesses exist

How can financial statements receive an unmodified/unqualified opinion if there is a departure from GAAP?

the financial statements would be misleading under GAAP

What are the three opinions that can be given when there are audit issues (GAAS problems)?

Unmodified, qualified, disclaimer

What are the three opinions that can be given when there are financial statement issues (GAAP problems)?

Unmodified, qualified, adverse

When would an auditor express a qualified opinion?

the FS issue or audit issue is material but not pervasive

When would an auditor express an adverse opinion?

When the FS issue is material and pervasive

When would an auditor express a disclaimer of opinion?

When the audit issue is material and pervasive

In order for form an opinion on the financial statements, the auditor should consider what?

The FS are prepared in accordance with the requirements of the applicable financial reporting framework

Which of the following factors should most influence an auditor’s decision to modify the audit opinion of an issuer’s financial statements?

a. The types of users expected to rely on the financial statements

b. The effect of a misstatement on the financial statements taken as a whole

c. Whether the auditor’s opinion is based in part on the report of another auditor

d. Uncertainties related to management’s estimates as of the reporting date that are adequately disclosed in the footnotes to the financial statements.

b

If the auditor is not able to obtain sufficient appropriate evidence on an account balance and the potential effect on the financial statements is immaterial, what is the opinion type, the changes made to the auditor’s responsibility section, the changes made to the opinion section and the changes made to the basis for opinion section?

Unmodified, NC, NC, NC

If the auditor is not able to obtain sufficient appropriate evidence on an account balance and the potential effect on the financial statements is moderate, what is the opinion type, the changes made to the auditor’s responsibility section, the changes made to the opinion section and the changes made to the basis for opinion section?

Qualified, NC, Modify, Modify

If the auditor is not able to obtain sufficient appropriate evidence on an account balance and the potential effect on the financial statements is high, what is the opinion type, the changes made to the auditor’s responsibility section, the changes made to the opinion section and the changes made to the basis for opinion section?

Disclaimer, Modify, Modify, Modify

Which section of the Standard Audit report contains the nature of the engagement, specific financial statements covered by the audit, and identifies the applicable framework and origin?

Auditor’s Opinion

Which section of the unmodified audit report contains the sentence “We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.”?

Basis for Opinion

Inadequate disclosure of a material subsequent event will result in either types of opinions: __________ or ______________.

Qualified, adverse

Which section of the Standard Auditor’s report includes that the audit was conducted in accordance with GAAS (or other applicable auditing framework), the origin of the applicable framework, references the auditor’s responsibilities under GAAS, requires the auditor to be independent and ethical and whether the audit evidence obtained is sufficient and appropriate?

Basis for Opinion

What is the earliest date that can be used for an auditor’s report?

The date the auditor has obtained sufficient appropriate audit evidence to support the opinion

Does the inclusion of the Substantial Doubt About the Entity’s Ability to Continue as a Going Concern cause the audit opinion to be modified?

No

When would the auditor of a nonissuer report on Key Audit Matters?

When engaged

What additional paragraphs can only be added if their is an unmodified oinion?

Emphasis-of-Matter, Other-Matter, Key Audit Matters, Explanatory, critical audit Matters

Which of the following is not included in the Auditor’s Responsibility paragraph of the Standard Auditor’s Report?

a. obtain reasonable assurance on whether the financial statements are free from material misstatement

b. express an opinion on the financial statements

c. an audit conducted in accordance with GAAS will not always detect a material misstatement

d. Exercise professional judgment, maintain professional skepticism, obtain an understanding of internal control, evaluate appropriateness of accounting policies used, identify and assess the risks of material misstatement

e. None of the above

E

Which sections of the Auditor’s Report include GAAS?

Basis for opinion and Auditor’s Responsibilities

Which sections of the Auditor’s Report include GAAP?

Opinion and Management’s Responsibilities

What is the order of frameworks in an audit report?

GAAP, GAAS, GAAP, GAAS

What is the order of the basic elements of a Standard Independent Audit Report?

Opinion, Basis for Opinion, Going Concern (When relevant), Key/Critical Audit Matters (When engaged), Management Responsibilities, Auditor Responsibilities, Other Information (When relevant), Other Reporting Responsibilities

What is required to be included in the Critical Audit Matter paragraph?

IPAD

1. identification of the CAM

2. description of the principal considerations

3. how the CAM was addressed in the audit

4. reference to the relevant financial statements or disclosures

What would not be included in a Key Audit Matters paragraph?

Qualified Opinion matters or going concern

What must you consider when engaging other auditors when you are the principle auditing firm?

Reputation, Independence, Professional Competency, Program steps

Which of the following is not an example of a situation where you would issue a qualified or adverse opinion?

a. An unjustified GAAP consistency change

b. An inadequate disclosure

c. Not allowing the auditor to contact their lawyers

d. An unjustified departure from GAAP

e. Unreasonable accounting estimate

c

What four modifications are made to the audit report when a qualified opinion is issued?

1. Title the Opinion section “Qualified Opinion”

2. include “except for” in the opinion section

3. change Basis of Opinion to Basis for Qualified Opinion

4. Basis for Qualified opinion should include why the qualified opinion was given

What are the four modifications made to the standard audit report when issuing an adverse opinion?

1. Title the Opinion section “Adverse Opinion”

2. include “because of the significance of the matters described in the” in the opinion section

3. Change Basis of Opinion to Basis for Adverse Opinion

4. Basis for Adverse opinion should include why the qualified opinion was given

What should not be included when issuing an adverse opinion in the Standard Auditors Report?

Key Audit Matters

When a qualified or adverse opinion is issued for an issuer (public company), what additional information needs to be included and where in the audit report should it be included?

All of the substantive reasons for the GAAP material problem and disclosure of the principal effects immediately following the opinion paragraph

A scope limitation sufficient to preclude an unmodified opinion always will result when management:

Refuses to acknowledge its responsibility for the fair presentation of the financial statements in conformity with GAAP

When would a qualified or adverse opinion be appropriate?

unjustified gaap consistency change, inadequate disclosure, unjustified departure from gaap, unreasonable estimates

When would a disclaimer of opinion be appropriate?

undetermined employee fraud amounts, undetermined effects of subsequent events by auditor, can’t send confirmations, no signed rep letter, auditor lacks independence

What are the four modifications made to the standard audit report when issuing a disclaimer of opinion?

1. Title the Opinion section “Disclaimer of Opinion”

2. include “We do not express an opinion on the accompanying FS”.

3. Change Basis of Opinion to Basis for Disclaimer of Opinion

4. The basis for Disclaimer of Opinion should describe why the disclaimer of opinion was given

5. The auditors’ responsibilities paragraph should omit all standard audit responsibilities and say we were not able to obtain sufficient appropriate evidence, we are required to be independent and meet our ethical responsibilities

If comparative financial statements are being issued and there is a change in the prior year's opinion, where should a non-issuer disclose the change in opinion?

Emphasis of Matter (if already disclosed) or other matter (if not already disclosed)

If comparative financial statements are being issued and there is a change in the prior year's opinion, where should an issuer disclose the change in opinion?

Explanatory paragraph

What must be disclosed when a prior year audit opinion is changed? (5 criteria)

DORCS

1. Date of the previous audit report

2. Opinion from PY

3. Reason for prior opinion

4. Changes that have occurred

5. Statement that the opinion is different

When an auditor qualifies his opinion because of a scope limitation, should the wording in the opinion paragraph include the words scope limitation or possible effects on the financial statements?

possible effects on the financial statements

When there are differing opinions for separate periods for comparative financial statements, what paragraphs in the standard auditor’s report should be modified and how are they modified?

Opinion section - should state which statements have a different opinion; Basis for Opinion - should describe why the difference of opinion

What should a predecessor auditor perform before reissuing a report on financial statements when those financial statements are to be presented on a comparative basis with financial statements audited by another auditor?

Obtain representation letters from management of the former client and the successor auditor.

According to the Dodd-Frank Act, integrated audits are excluded for which public companies?

non accelerate filers who have a small amount of public funding and a smaller amount of revenues

T/F: SAS prohibits integrated audits for nonissuers.

False - auditors can perform these if engaged

Although the objectives of an audit of internal control and an audit of financial statements are different, the auditor should design tests of controls to:

obtain sufficient appropriate evidence to support the auditor’s opinion on internal controls and to support the control risk assessment for the financial statement audit

What are the steps in taking a top down approach of testing controls?

1. Evaluate overall FS risk

2. Consider entity-level controls

3. Test controls for accounts, disclosures and assertions that have a higher risk of material misstatement

Which of the following items are communicated to management in writing during a FS audit: control deficiencies, significant deficiencies, material weaknesses?

control deficiencies, significant deficiencies, material weaknesses

Which of the following items are communicated to those charged with governance in writing during a FS audit: control deficiencies, significant deficiencies, material weaknesses?

significant deficiencies, material weaknesses

For issuers, when should material weaknesses be communicated to management and the audit committeeee?

before the issuance of the audit report

For nonissuers, when should significant deficiencies and material weaknesses be communicated to management and the audit committee? What about control deficiencies?

by the report release date; within 60 days of the report release date

When issuing a combined report on internal controls and the financial statements, which sections are included in the audit report for an issuer?

1. Opinion on the Financial Statements and Internal Control over Financial Reporting

2. Basis for Opinion

3. Definition and Limitation of Internal Control over Financial Reporting

4. Critical Audit Matters

When issuing a combined report on internal controls and the financial statements, which sections are included in the audit report for a non-issuer?

1. Opinion on the Financial Statements and Internal Control over Financial Reporting

2. Basis for Opinion

3. Responsibilities of Management for the Financial Statements and Internal Control over Financial Reporting

4. Auditor’s Responsibilities for the Audits of the Financial Statements and Internal Control over Financial Reporting

5. Definition and Limitation of Internal Control over Financial Reporting

6. Report on Other Legal and Regulatory Requirements - optional

If a Material Weakness is discovered during an integrated audit, what opinion must be issued?

Adverse

T/F: The Definition and Limitation of Internal Control over Financial Reporting paragraph contains a statement saying the internal control over financial reporting system will always prevent, or detect and correct misstatements.

False - an inherent limitation of internal control over financial reporting is that the system may not prevent, or detect and correct misstatements.

What engagements are covered under the Statements on Standards for Attestation Engagements (SSAE) in order from most to least assurance?

Examination (reasonable), Review of pro formal financial statements or MD&A (limited), Agreed-Upon-Procedures (none)

What are the required conditions for performing an agreed-upon procedures engagement?

I AM SURE

1. Independence

2. Agreement of parties

3. Measurability and consistency

4. Sufficiency of Audit procedures

5. Use of the report - general or restricted

6. Responsibility for the subject matter - client

7. Engagements to perform AUPs on prospective financial statements must include a summary of significant assumptions

What are financial statements that show the effect of a hypothetical event on historical financial statements if it had occurred during the period covered by the financial statements?

Pro Forma Financial Statements

What reflects the expected financial results of a future period based on expected conditions and expected courses of action and is appropriate for general or restricted use?

Financial forecasts

What reflects the financial results of a future period based on hypothetical situations and is only appropriate for restricted use?

Financial projections

Which report should include a paragraph describing the purpose of the projection, state that this is a hypothetical assumption and restricts the use of the report?

Report on Examination of a Financial Projection

When a practitioner performs an Agreed-Upon Procedure Engagement, the practitioner should express:

no opinion on the procedures performed

For the General Procedures performed during an examination engagement, the practitioner should ________ prospective financial statements, __________ responsible party’s assumptions, and _________ on if the financial statements and significant assumptions are in conformance with AICAP guidelines?

Evaluate, Evaluate, express an opinion

An entity's comparative financial statements include the financial statements of the prior year that were audited by a predecessor auditor whose report is not presented. If the predecessor's report was qualified, the successor should:

Indicate the substantive reasons for the qualification in the predecessor auditor's opinion

Examination Reports include which of the following statements regarding:

Identification of PFS

Compliance with AICPA Standards

Limitation of Scope

An enumeration of procedures performed

A caveat that prospective results may not be achieved

CPA has no responsibility for updating the report

Opinion on the PFS in accordance with AICA presentation guidelines

Limited Use of Report

Identification of PFS, Compliance with AICPA Standards, A caveat that prospective results may not be achieved, CPA has no responsibility for updating the report, Opinion on the PFS in accordance with AICA presentation guidelines, Limited Use of Report for Projections

Agreed Upon Procedures Reports include which of the following statements regarding:

Identification of PFS

Compliance with AICPA Standards

Limitation of Scope

An enumeration of procedures performed

A caveat that prospective results may not be achieved

CPA has no responsibility for updating the report

Opinion on the PFS in accordance with AICA presentation guidelines

Limited Use of Report

Identification of PFS, Compliance with AICPA Standards, Limitation of Scope, An enumeration of procedures performed, A caveat that prospective results may not be achieved, CPA has no responsibility for updating the report, Limited Use of Report for Projections

What engagements are covered under the Statements on Standards for Accounting and Review Services (SSARS) in order from most to least assurance?

Review of Historical FS (limited), Compilations (none)), Preparations (none)

Review Engagement Procedures primarily consist of what?

Inquiry and Analytical Procedures

What are the independence requirements for Reviews, Compilations and Preparation Engagements?

Review - must be independent, Compilation - must disclose if not independent, Preparation - no requirement

What procedures are performed during a preparation engagement? (5)

1. Establish an Understanding with The Client (Engagement Letter)

2. Have Knowledge of Accounting Principles/Practices

3. Understand the financial reporting framework

4. Read the Financial Statements

5. Evaluate and Document Results

What procedures are performed during a compilation engagement? (6)

1. Establish an Understanding with The Client (Engagement Letter)

2. Have Knowledge of Accounting Principles/Practices

3. Understand the financial reporting framework

4. Read the Financial Statements

5. Evaluate and Document Results

6. Create Appropriate Report

What procedures are performed during a review of historical Financial statements engagement under SSARS? (6)

1. Establish an Understanding with The Client (Engagement Letter)

2. Have Knowledge of Accounting Principles/Practices

3. Understand the financial reporting framework

4. Read the Financial Statements

5. Evaluate and Document Results

6. Create Appropriate Report

7. Inquiries With Organization

8. Analytical Procedures

9. Obtain Rep Letter

What are the required procedures for a review of historical financial statements and a review of interim financial statements under SSARS?

U LIAR CPA

1. Understanding with the client (Engagement Letter)

2. Learn and obtain knowledge of the entity and its industry

3. Inquiries - Internal

4. Analytical Procedures

5. Review - other procedures performed

6. Client Rep Letter

7. Professional Judgment

8. Accountant should communicate results

What are the main sections required in a review report under SSARS?

Introduction, Management Responsibilities, Accountant’s Responsibilities, Conclusion

What are the two most important statements contained in a review report under SSARS?

A review includes primarily applying analytical procedures to management's financial data and making inquiries of company management. A review is substantially less in scope than an audit.

If there is an increase in level of service (going from a compilation to a review), what should be included in the current year report?

updated prior year report in the last paragraph

For a decrease in the level of service (going from a review to compilation), what are the three options a practitioner can take for issuing the report on the CY statements?

Issue a compilation report and include a paragraph stating prior year procedures performed, issue two separate reports, issue a combined report

If an auditor of an issuer is performing a review of the interim financial statements of the issuer, which guidance should be followed?

PCAOB

If an auditor of a non-issuer is performing a review of the interim financial statements of the non-issuer, which guidance should be followed?

SAS

If there is other information in documents containing audited financial statements, what responsibility does the auditor have if they are not engaged to report on the other information?

resolve any material inconsistencies or material misstatements of fact with the client

What should be included in a firms client acceptance and continuance policy?

Ability to meet deadlines, staffing availability, independence, integrity of client management

What three standards will an auditor need to follow if they are conducting an audit of a governmental entity that receives and expends more than $750k of government assistance annually?

GAAS, GAGAS, Single Audit Act

The only difference between performing a financial statement audit and a compliance audit is?

Instead of the risk of material misstatement, the auditor will assess and perform procedures related to the risk of noncompliance

What are management’s responsibilities within a compliance audit?

Compliance, maintain controls over compliance, disclose all programs to the auditor, disclose all instances of noncompliance or indicate there are no issues of noncompliance

What are the five ethical principles an accountant must have to complete a GAGAS audit?

1. Serve the public interest

2. Integrity

3. Objectivity

4. Proper use of government information, resources and positions

5. Professional behavior

In performing an audit in conformity with Government Auditing Standards, the auditor will face more restrictive or expanded requirements related to:

Reporting on financial statements, reporting on internal control, independence

Reporting standards associated with government audits include requirements in addition to those associated with generally accepted auditing standards such as:

Written communication of the auditor’s report on internal control

Besides reporting fraud and noncompliance, in a government audit, the auditor must report:

abuse that is qualitatively or quantitatively material