AUD

Different Audit Standard-Setting Bodies and Their Descriptions

• AICPA (American Institute of CPAs): Sets auditing standards for nonissuers (private companies). Issues Statements on Auditing Standards (SASs).

• PCAOB (Public Company Accounting Oversight Board): Sets auditing standards for issuers (public companies). Issues Auditing Standards (AS).

• IAASB (International Auditing and Assurance Standards Board): Develops international auditing standards (ISAs) used globally.

• GAO (Government Accountability Office): Issues Government Auditing Standards (Yellow Book) for audits of government entities.

• FASB (Financial Accounting Standards Board): Sets accounting standards, not auditing standards, but important for audit context.

• AICPA: The American Institute of Certified Public Accountants, the professional organization for CPAs.

• ASB (Auditing Standards Board): A committee within the AICPA that sets auditing standards for nonissuers (private companies).

• SAS (Statements on Auditing Standards): The actual auditing standards issued by the ASB. These are the rules auditors follow when auditing nonissuers.

So, the ASB is the board that issues the SAS, and both are part of the AICPA framework. When you audit a nonissuer, you follow the SAS issued by the ASB under the AICPA umbrella.

TRUE

What are Generally Accepted Auditing Standards (GAAS)?

GAAS are measures of the quality of the auditor's performance. They guide auditors in planning and executing a properly conducted audit to ensure objectivity, accuracy, and consistency. GAAS focus on how well the audit is performed, not specific procedures or report formats.

Purpose of an Audit, Management Responsibilities, and Auditor Responsibilities

• Purpose of an Audit:
  To provide reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error, enhancing their reliability for users.

• Management Responsibilities:

  • Prepare and fairly present financial statements in accordance with the applicable financial reporting framework.

  • Design, implement, and maintain internal controls relevant to the preparation of financial statements.

  • Provide the auditor with access to all relevant information and explanations.

• Auditor Responsibilities:

  • Obtain reasonable assurance about whether the financial statements are free of material misstatement.

  • Plan and perform the audit with professional skepticism and due professional care.

  • Obtain sufficient appropriate audit evidence to form an opinion on the financial statements.

  • Communicate the audit opinion through the auditor’s report.

Differences Between Financial Statement Audit, Internal Control Audit, and ERISA Plan Audit

• Financial Statement Audit:

  • Objective: Obtain reasonable assurance that financial statements are free from material misstatement (error or fraud).

  • Focus: Fair presentation of financial statements as a whole.

  • Applies to: Issuers, nonissuers, governmental entities.

  • Result: Auditor’s opinion on financial statements.

• Internal Control Audit (over Financial Reporting):

  • Objective: Express an opinion on the effectiveness of internal control over financial reporting.

  • Focus: Controls that prevent or detect material misstatements.

  • Required for: Issuers; optional for nonissuers and government entities.

  • Must be integrated with financial statement audit.

• ERISA Plan Audit:

  • Objective: Form an opinion on ERISA plan financial statements, including compliance with plan provisions and additional ERISA-specific requirements.

  • Focus: Employee benefit plans (e.g., 401(k), pension plans).

  • Includes: Procedures on certified investment information if ERISA Section 103(a)(3)(C) audit is elected.

  • Additional management responsibilities (e.g., maintaining plan instrument, administering plan transactions).

  • Auditor communicates findings specific to ERISA requirements.

Who issues Generally Accepted Auditing Standards (GAAS)?

• For non-issuers (private companies): GAAS are established by the AICPA through Statements on Auditing Standards (SAS).

• For issuers (public companies): GAAS are established by the PCAOB through its auditing standards.

What term identifies a requirement for audit evidence in auditing standards?

• The correct term is "Appropriate."

• Auditors must obtain sufficient appropriate audit evidence to provide a reasonable basis for their opinion.

• Appropriate means the evidence must be relevant and reliable.

• Other terms like adequate, disconfirming, or reasonable are not used to describe the requirement for audit evidence:

  • Adequate is not the standard term.

  • Disconfirming is not used in this context.

  • Reasonable describes the level of assurance, not the evidence requirement.

Here’s the key difference between Emphasis-of-Matter (EOM) and Other-Matter (OM) paragraphs in an auditor’s report for nonissuers:

• Emphasis-of-Matter Paragraph

  • Highlights a matter already presented or disclosed in the financial statements.

  • The matter is important enough to be fundamental to users’ understanding of the financials.

  • Examples: going concern issues, changes in accounting principles, restatements.

  • Does not modify the auditor’s opinion.

  • Used to draw attention to something within the financial statements.

• Other-Matter Paragraph

  • Addresses matters not presented or disclosed in the financial statements but relevant to users’ understanding of the audit or auditor’s report.

  • Examples: explaining why the auditor cannot withdraw, matters related to comparative financial statements, or other audit-related info.

  • Also does not modify the auditor’s opinion.

  • Used to communicate information outside the financial statements.

Both paragraphs are primarily used for nonissuers (private companies). For issuers (public companies), similar information is included in an explanatory paragraph.

In short:

• EOM = draws attention to something in the financial statements.

• OM = draws attention to something outside the financial statements but still relevant.

Does that help clarify?

GAAP VS GAAS

GAAP (Generally Accepted Accounting Principles)

• Rules and principles management follows to prepare financial statements

• Focuses on how financial info is recorded and reported

• Issued by FASB (Financial Accounting Standards Board)

• Ensures consistency, comparability, and transparency in financial reporting

GAAS (Generally Accepted Auditing Standards)

• Standards auditors follow to conduct an audit

• Focuses on how the audit is planned, performed, and reported

• Issued by AICPA for nonissuers; PCAOB standards apply for issuers (public companies)

• Ensures audit quality and reliability of auditor’s opinion

What is the difference between an unmodified opinion and an unqualified opinion in audit reports?

Back:

• Unmodified Opinion: Term commonly used for nonissuers (private companies). Means the financial statements are presented fairly in all material respects, in accordance with GAAP.

• Unqualified Opinion: Term commonly used for issuers (public companies). Means the same as unmodified—no material misstatements or scope limitations.

Key point: The terms are interchangeable in meaning; both indicate a "clean" audit opinion with no modifications.

Form AP: Required Auditor Reporting of Certain Audit Participants

Back:

• What is Form AP?

  • A PCAOB-required form filed by auditors of issuers for each audit report issued.

  • Discloses information about the engagement partner and other audit firms participating in the audit.

• Key requirements:

  • Must be filed within 35 days after the audit report date.

  • If the audit report is included in a registration statement (e.g., IPO), file within 10 days.

  • Includes:

    • Engagement partner’s full name.

    • Names of other accounting firms involved.

    • Percentage of total audit hours each other firm contributed.

    • Whether the lead auditor assumes responsibility or divides responsibility with other auditors.

• Optional inclusion in audit report:

  • Auditor may include engagement partner’s name and info about other firms in the audit report, but Form AP filing is still mandatory.

• Purpose:

  • Provides transparency about who performed the audit work and their level of involvement.

Auditor Opinion When Financial Statements Depart from U.S. GAAP Due to Unusual Circumstances

• When following U.S. GAAP would make the financial statements misleading, a departure from GAAP is allowed.

• In such cases, the auditor should issue an unmodified opinion because the statements are not materially misstated.

• The departure is justified to avoid misleading users.

• The opinion is not qualified or adverse since the financial statements are fairly presented overall.

Here’s the key difference between the opinion paragraph in an auditor’s report for an issuer versus a nonissuer:

• Nonissuer (private company):

  • The opinion paragraph must identify the applicable financial reporting framework and its origin.

  • It states the auditor’s opinion on the financial statements.

  • The word “independent” is in the report title, not in the opinion paragraph.

  • Auditor’s responsibility and management’s responsibility are described in separate paragraphs.

• Issuer (public company):

  • The opinion paragraph also states the auditor’s opinion and identifies the applicable financial reporting framework and its origin.

  • The report includes a “Basis for Opinion” section that explicitly describes the auditor’s procedures (e.g., “examining, on a test basis, evidence regarding the amounts and disclosures”).

  • The word “independent” is in the report title, not in the opinion paragraph.

  • Management’s responsibility and auditor’s responsibility are described in separate sections.

  • The opinion paragraph may be slightly more formal and structured due to PCAOB requirements.

Summary: Both include the opinion and framework identification in the opinion paragraph, but the issuer’s report has a separate, explicit Basis for Opinion section describing audit procedures, which is not present in the nonissuer’s report. The wording and structure differ to meet regulatory standards for public companies.

Key Differences in Auditor’s Report Components: Nonissuers vs. Issuers

• Nonissuer Audit Report:

  • Opinion section: States nature of engagement, entity, financial statements covered, and dates

  • No separate Scope paragraph

  • Basis for Opinion section: References GAAS, auditor independence, and evidence sufficiency

  • Emphasis-of-matter paragraphs used as needed

  • Follows AICPA SAS standards

• Issuer Audit Report:

  • Opinion section: Similar but wording differs; may include additional details per PCAOB standards

  • Includes separate sections on management and auditor responsibilities

  • Basis for Opinion section references PCAOB standards

  • Additional paragraphs may be included for emphasis or explanatory matters

  • Follows PCAOB standards

Summary: Both reports communicate the audit opinion but differ in structure and wording due to different governing standards.

When a client refuses to adjust immaterial auditor-proposed adjustments, how should the auditor report on the financial statements?

• If the aggregate unadjusted misstatements are immaterial, the financial statements are still considered free from material misstatement.

• An unmodified (unqualified) opinion is appropriate.

• No footnote disclosure of the proposed immaterial adjustments is required.

• Financial statements still conform with GAAP within an acceptable range.

• Qualified or adverse opinions are not necessary unless misstatements are material.

What content is inappropriate for a CPA's report on audited financial statements under U.S. auditing standards?

• The CPA's report should not refer to the auditor's assessment of sampling risk factors.

• It can include:

  • Management's responsibility for the financial statements.

  • Evaluation of the appropriateness of accounting policies used.

  • Reasonableness of significant accounting estimates made by management.

• Matters related to specific risk assessments (like sampling risk) are excluded from the report.

Basic Element of the Auditor's Report under U.S. Auditing Standards

• An audit includes evaluating the reasonableness of significant accounting estimates made by management.

• The report states the auditor evaluates appropriateness of accounting policies and estimates.

• It does NOT say the auditor evaluated overall internal control (only understanding internal control to design procedures).

• It does NOT state financial statements are consistent with prior period (only mention if inconsistency exists).

• It does NOT claim disclosures provide reasonable assurance; rather, the objective is reasonable assurance that financial statements are free of material misstatement.

In which sections of the auditor's report is U.S. GAAP referenced under U.S. auditing standards?

• Opinion section: Auditor expresses opinion on financial statements’ conformity with GAAP.

• Management’s Responsibility section: Management is responsible for preparation and fair presentation in accordance with GAAP.

• Note: GAAP is not referenced in Basis for Opinion or Auditor’s Responsibility sections (these refer to GAAS).

In an audit of an issuer, what information is least likely to be included about a critical audit matter in the audit report?

• The auditor will not include a statement disclaiming responsibility for critical audit matters.

• Auditor must include:

  • Reference to relevant financial statement accounts related to the matter.

  • Description of principal considerations that made the matter critical.

  • Description of how the matter was addressed in the audit.

• Disclaiming or minimizing responsibility language is inappropriate and not allowed.

• For nonissuers, there is no requirement to communicate critical audit matters in the audit report.

TRUE

What is a Critical Audit Matter (CAM)?

A CAM is a matter from the current period audit that:

1. Was communicated or is required to be communicated to the audit committee,

2. Relates to accounts or disclosures material to the financial statements, and

3. Involves especially challenging, subjective, or complex auditor judgment.

Why does omitting the statement of cash flows typically lead to a qualified opinion rather than an adverse opinion?

• The omission is a GAAP departure because the statement of cash flows is required for a complete set of financial statements.

• A qualified opinion is issued when the omission is material but not pervasive—it affects the financial statements but does not distort the overall picture.

• An adverse opinion is reserved for when the omission is both material and pervasive, significantly misleading users about the financial position or results.

• Usually, the omission of the cash flow statement is material but not pervasive, so a qualified opinion is appropriate.

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This distinction is based on the auditor’s judgment about how much the omission affects the financial statements as a whole.

Front:
When is expressing a disclaimer of opinion inappropriate?

Back:

• Disclaimer of opinion is used when the auditor cannot obtain sufficient appropriate evidence and the possible effects are material and pervasive.

• Situations allowing disclaimer:
  • Unable to obtain audited financials of a consolidated investee
  • Management denies access to key documents (e.g., canceled checks, bank statements)
  • Unable to verify inventory due to no physical count and no alternative procedures

• Inappropriate for disclaimer:
  • Management does not provide reasonable justification for a change in accounting principles
  → Here, auditor issues a qualified or adverse opinion, not a disclaimer.

When should an auditor issue a special report?

lashcard Back:

• A special report is issued when auditing financial statements prepared using a special purpose framework (non-GAAP basis).

• It includes specific wording to describe the special purpose framework used.

• The report may include an emphasis of matter paragraph to highlight the use of the special purpose framework.

• An other-matter paragraph may be added to restrict the use of the report if required by the framework (e.g., regulatory or contractual basis).

• Special reports are not issued for issues like suspected illegal acts; those require different audit opinions or disclaimers.

According to U.S. GAAS, when the auditor is not independent but is required by law or regulation to report on the financial statements, what should the auditor's report include?

• The auditor should disclaim an opinion.

• The auditor must specifically state that they are not independent.

• The auditor is not required to provide the reasons for the lack of independence (but may choose to do so, including all reasons if provided).

When may an auditor NOT issue a qualified opinion?

Back:

• If the auditor is not independent, a qualified opinion cannot be issued.

• Only a disclaimer of opinion is allowed when independence is lacking.

• Scope limitations (e.g., inability to observe inventory) may lead to a qualified opinion.

• Material GAAP departures may also result in a qualified opinion.

Scope limitation that always precludes an unmodified opinion

• Occurs when management refuses to accept responsibility for fair presentation of financial statements in conformity with GAAP

• This refusal prevents issuance of the standard unmodified audit report

• Other scope limitations (e.g., no confirmation of receivables, late engagement, blocking predecessor auditor docs) may allow alternative procedures or affect engagement acceptance, but do not always preclude unmodified opinion

This flashcard highlights why management’s refusal of responsibility is a critical scope limitation.

What is the auditor's concern when management refuses to disclose related party transactions authorized by the Board of Directors in the financial statement notes?

• This is a GAAP (accounting principles) issue, not a scope limitation.

• The refusal affects the adequacy of financial statement disclosures.

• The auditor must consider issuing a qualified or adverse opinion due to the GAAP departure.

• It does not restrict the auditor’s ability to perform audit procedures, so it does not cause a scope limitation.

When an independent CPA assists in preparing financial statements of a publicly held entity but has not audited or reviewed them, what procedures is the CPA responsible for before issuing a disclaimer of opinion?

• CPA must issue a disclaimer of opinion.

• No responsibility to perform audit or review procedures.

• Required to read the financial statements for obvious material misstatements only.

• No need to:
  • Document internal control reliance
  • Determine if management omitted disclosures
  • Ascertain GAAP conformity (but must disclose known departures)

When must a CPA issue a disclaimer of opinion on financial statements of a publicly held entity?

Flashcard Back:

• When the CPA is associated with the financial statements but has not audited or reviewed them.

• The CPA cannot express an opinion without audit or review procedures.

• The report must clearly state a disclaimer of opinion to avoid misleading users.

• This applies especially for publicly held entities where audit or review is required for an opinion.

• The disclaimer clarifies the CPA’s role and that no assurance is provided.

An auditor issues a qualified opinion due to a major inadequacy in computerized accounting records preventing necessary audit procedures. What should the opinion paragraph state?

The qualification pertains to the possible effects on the financial statements, not the scope limitation itself.

Explanation:

• The auditor’s report should focus on how the limitation might affect the financial statements.

• It should not say the qualification is due to the scope limitation directly.

• This distinguishes a scope limitation from a GAAP departure or client-imposed limitation

why would auditors responsibily section change for disclaimer

the auditor's responsibility section changes for a disclaimer of opinion because the auditor was unable to obtain sufficient appropriate audit evidence due to a significant scope limitation.

Normally, this section describes the audit procedures performed to obtain reasonable assurance that the financial statements are free of material misstatement. But with a disclaimer, the auditor couldn’t perform all necessary procedures, so the standard language is no longer accurate.

Modifying this section clearly communicates that the audit was limited in scope and the auditor cannot express an opinion. This helps users understand the restriction on the audit and the reliability of the report.

In short:

• The auditor’s responsibility is limited due to lack of evidence.

• The section is amended to reflect this limitation.

• This aligns with the modified opinion (disclaimer) and basis for disclaimer sections for consistency and transparency.

Front:
When an entity changes its method of accounting for income taxes with a material effect on comparability, what should the auditor include in the emphasis-of-matter paragraph?

• Identify the nature of the change

• Refer to the financial statement note that discusses the change in detail

• Do NOT describe the cumulative effect of the change

• Do NOT explain why the change is justified under GAAP

• Do NOT state auditor’s explicit concurrence or opposition (use qualified/ad

Flashcard Front:
Difference between Emphasis-of-Matter, Other-Matter, and Explanatory Paragraphs

Flashcard Back:

• Emphasis-of-Matter (EOM) Paragraph

  • Used for nonissuers (private companies).

  • Highlights matters already disclosed in the financial statements that are fundamental to users’ understanding (e.g., justified change in accounting principle, going concern).

  • Does not modify the auditor’s opinion.

  • Placed after the opinion paragraph.

• Other-Matter (OM) Paragraph

  • Used for nonissuers.

  • Addresses matters not disclosed in the financial statements but relevant to users’ understanding of the audit or auditor’s report (e.g., prior auditor’s report, restrictions on use).

  • Also placed after the opinion paragraph.

• Explanatory Paragraph

  • Used for issuers (public companies) under PCAOB standards.

  • Combines the purposes of EOM and OM paragraphs for issuers.

  • Highlights matters required by PCAOB or at auditor’s discretion (e.g., going concern, changes in accounting principles).

  • Placed after the opinion paragraph.

Summary:
EOM and OM paragraphs are for nonissuers, with EOM focusing on disclosed matters and OM on nondisclosed matters. Explanatory paragraphs serve a similar role for issuers.

When is it not appropriate to refer a reader of an auditor's report to a financial statement footnote?

• Not appropriate for details about the results of audit procedures (e.g., confirmation of receivables)

• Such details generally do not appear in footnotes

• Appropriate to refer for:
  • Pro forma effects of a business combination
  • Sale of a discontinued operation
  • Subsequent events (these can be included in emphasis-of-matter paragraphs with footnote references)

When would an auditor most likely add an other-matter paragraph?

• When current period financial statements are audited and presented in comparative form with prior period financials that were reviewed, compiled, or not audited

• Highlights matters unrelated to the current period audit opinion

• Does NOT include going concern issues (which get a separate section)

• Different from emphasis-of-matter paragraphs, which highlight consistency or significant accounting changes

This helps distinguish other-matter paragraphs from emphasis-of-matter and going concern paragraphs.

Here’s a clear flashcard for those terms in the context of nonissuers (private companies)

Flashcard: Group Audit Terms (Nonissuers)

Group Engagement Partner

• The partner or person responsible for the overall group audit engagement and the auditor’s report on the group financial statements.

Group Financial Statements

• Financial statements that include the combined financial information of more than one component (e.g., subsidiaries).

Group Engagement Team

• The group engagement partner plus other partners and staff who plan and perform the group audit, communicate with component auditors, and evaluate audit evidence for the group financial statements.

Component

• An entity or business activity (like a subsidiary) whose financial information is included in the group financial statements.

Component Auditor

• The auditor who performs audit work on the financial information of a component, which may be part of the group engagement firm or a separate firm.

Flashcard: Group Engagement Partner’s Options with Component Auditor

Option 1: Assume Responsibility

• Group engagement partner assumes full responsibility for the component auditor’s work.

• No reference to the component auditor in the audit report.

• Group engagement team plans, directs, and reviews the component auditor’s work as if it were their own staff.

Option 2: Divide Responsibility

• Group engagement partner does not assume responsibility for the component auditor’s work.

• The component auditor’s report is referenced in the group audit report.

• Group engagement partner bases opinion on their own work plus the component auditor’s report.

Flashcard: When Can a Lead Auditor of Issuer Divide Responsibility with a Referred-to Auditor?

Conditions to Divide Responsibility:

• The referred-to auditor’s work was performed and their report issued in accordance with PCAOB standards.

• The lead auditor assesses that the referred-to auditor is familiar with the applicable financial reporting framework and PCAOB/SEC standards.

• The referred-to auditor is independent and duly licensed in their jurisdiction.

• The referred-to auditor is registered with the PCAOB if auditing an issuer or significant business unit.

• The lead auditor communicates the plan to divide responsibility in writing with the referred-to auditor.

• The lead auditor performs procedures to evaluate the consolidation of the referred-to auditor’s work into the group financial statements.

If these criteria are not met, the lead auditor cannot divide responsibility and must perform or re-perform necessary procedures.

Flashcard: When Lead Auditor Determines Responsibility Cannot Be Divided with Referred-to Auditor

• Lead auditor cannot divide responsibility for the audit with the referred-to auditor.

• Lead auditor must plan and perform all necessary audit procedures to express an opinion on the entire financial statements.

• If a modified opinion is appropriate due to issues related to the referred-to auditor’s work, the lead auditor:

  • States the reasons for the departure from an unqualified opinion.

  • Discloses the magnitude of the portion of the financial statements affected.

• The audit report does not refer to the referred-to auditor.

• Lead auditor assumes full responsibility for the audit.

Flashcard: Reporting When Responsibility Is Divided with the Referred-to Auditor

• The lead auditor’s report must refer to the audit and report of the referred-to auditor.

• The report should clearly indicate the division of responsibility in the Opinion section (and if applicable, Internal Control and Basis for Opinion sections).

• The referred-to auditor is identified by name and their report is referenced when describing the audit scope and expressing the opinion.

• The report discloses the magnitude of the portion of the financial statements (and internal control, if applicable) audited by the referred-to auditor.

• If the referred-to auditor’s report includes a modified opinion or explanatory language, the lead auditor should reference that unless the matter is clearly trivial.

Successor auditor's reporting on prior year's audited financial statements when predecessor's unmodified report is not presented

• Successor auditor expresses opinion only on current year’s financials

• Must include an other-matter paragraph referencing predecessor’s unmodified opinion on prior year

• No need to obtain a letter of representation from predecessor auditor

• No emphasis-of-matter paragraph or limited assurance on prior year statements provided

When should an auditor change a prior year’s qualified or adverse opinion to an unmodified opinion on restated financial statements?

• When the prior year financial statements are properly restated to conform with GAAP.

• The restatement corrects the issues that caused the original qualification or adverse opinion (e.g., lack of adequate disclosure).

• The auditor expresses an unmodified opinion on the restated prior year statements.

• An emphasis-of-matter (or other-matter) paragraph is added to explain the change in opinion.

Before reissuing the prior year's auditor's report on a former client's financial statements, from whom should the predecessor auditor obtain letters of representation?

• Successor auditor: Confirms if any material issues were found in the current audit affecting prior statements.

• Former client's management: Confirms prior representations are still accurate and discloses any subsequent events impacting prior financials.

• Not from attorney or board of directors.

• Also required: Read current financials and compare prior-period info for consistency.

When a group engagement partner references a component auditor's audit under U.S. GAAS in a nonissuer audit, where in the audit report should the statement "We did not audit the financial statements of X Company..." appear?

In the Opinion section of the auditor's report.

• The report states: "Those statements were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for X Company, is based solely on the report of the other auditors."

• No separate report is issued.

• Auditor's Responsibilities section remains standard.

• No emphasis-of-matter paragraph is added.

What does the acronym PRIME stand for in the auditor’s responsibility for subsequent events?

PRIME outlines the key audit procedures to identify subsequent events:

• P: Post Balance Sheet Transactions — Review transactions after the balance sheet date (e.g., stock or debt changes).

• R: Representation Letter — Obtain management’s written confirmation about subsequent events.

• I: Inquiry — Ask management and legal counsel about any subsequent events (litigation, borrowings, unusual transactions).

• M: Minutes — Review minutes of meetings held after the balance sheet date for relevant events.

• E: Examine — Examine the latest interim financial statements and compare to audited statements.

What actions must an auditor take if they become aware of material subsequent events after issuing the audit report?

Flashcard Back:

• Investigate if the information is reliable and existed at the report date.

• Determine if anyone is relying or likely to rely on the financial statements and if the info is important to them.

• Discuss the matter with management and those charged with governance.

• Advise management to:

  • Issue revised financial statements with a new audit report, or

  • Disclose the event in imminent financial statements with a subsequent auditor’s report, or

  • Notify users that the financial statements and auditor’s report should not be relied upon if timely correction isn’t possible.

• If management refuses to act, notify the board of directors and:

  • Disassociate from the financial statements,

  • Alert regulatory agencies, and

  • Notify known users relying on the statements.

What is dual dating in an audit report and when is it used?

Flashcard Back:

• Dual dating is when an auditor uses two different dates on the same audit report.

• The original date covers all audit procedures except for a specific subsequent event or item.

• The later date applies only to the specific event or item that required additional audit work after the original report date.

• Used to limit the auditor’s responsibility for subsequent events to just that specific item, avoiding extending procedures for the entire financial statements.

• Example format: "January 24, Year 3, except as to Note #, which is as of February 8, Year 3."

Procedure to Obtain Evidence About Occurrence of Subsequent Events

• Inquire about the current status of transactions recorded on preliminary data

• Helps identify events after the balance sheet date that may affect financial statements

• Focuses on changes or developments that could require adjustment or disclosure

• Other procedures (e.g., comparing current to prior year statements, confirming pledged inventory, tracing shipping to sales) are less relevant for subsequent events

This procedure is key to ensuring financial statements reflect all material events up to the audit report date.

what is a dual-dated qualified opinion

A dual-dated qualified opinion is an audit report dated with two different dates to limit the auditor’s extended responsibility for subsequent events to a specific matter, combined with a qualified opinion due to a material issue that is not pervasive.

Here’s how it works:

• Qualified opinion: Issued when there is a material misstatement or scope limitation that affects the financial statements but is not pervasive.

• Dual dating: The auditor uses the original report date for most of the financial statements but adds a second, later date for a specific event or transaction discovered after the original report date.

For example, the auditor issues the report dated March 1 but later discovers a subsequent event on March 15 that requires investigation. The auditor dual dates the report as "March 1, except for Note X, which is dated March 15." This limits the auditor’s responsibility for subsequent events to March 15 only for that note.

In summary, a dual-dated qualified opinion means the auditor is qualifying the opinion due to a material issue and uses dual dating to confine the extended audit procedures to a specific subsequent event or item.

CPA's next step when management refuses to adjust financials for a material subsequent event after audit report issuance?

Back:

• Auditor learned of material loss after report date but before report issuance

• Management refuses to adjust financial statements

• Creditor reliance on financials confirmed

• Auditor cannot issue revised financials or revised report

• Auditor notifies board of directors to encourage adjustment (correct action)

• Only notify creditors if board cannot facilitate adjustment

This helps remember the proper auditor response to management refusal on subsequent events.

What is the difference between recognized and nonrecognized subsequent events?

• Recognized Subsequent Events:

  • Events that provide additional evidence about conditions that existed at or before the balance sheet date.

  • Require adjustment to the financial statements.

  • Example: Settlement of a lawsuit that existed at year-end.

• Nonrecognized Subsequent Events:

  • Events that arise after the balance sheet date and did not exist at that date.

  • Do not require adjustment but may require disclosure if material.

  • Example: Natural disaster occurring after year-end.

Does Other Information get its own paragraph in the audit report? Where is it located?

Flashcard Back:

• Yes, Other Information gets its own separate paragraph titled "Other Information."

• For nonissuers, this paragraph appears after the Basis for Opinion section in the audit report.

• It clarifies the auditor’s responsibility regarding the other information included with the financial statements.

What is the auditor’s responsibility when other information contains a material inconsistency or misstatement?

• Auditor must read the other information and consider if it has material inconsistencies or misstatements compared to the audited financial statements.

• If a material inconsistency or misstatement is found, the auditor:

  1. Discusses the issue with management.

  2. Requests management to correct the information.

  3. If management refuses, may need to communicate with those charged with governance.

  4. Consider implications for the auditor’s report (e.g., withholding use of the report or withdrawing).

• The auditor’s opinion on the financial statements is not modified solely because of issues in other information.

Where is supplementary information presented for nonissuers vs. issuers, and does the auditor issue a separate opinion on

Flashcard Back:

• Nonissuers:

  • Supplementary information opinion is included either in a separate section within the auditor’s report on the financial statements (heading: "Supplementary Information") or in a separate report.

  • Auditor issues an opinion on the supplementary information if engaged to do so.

• Issuers:

  • Auditor may include the opinion in an explanatory paragraph within the auditor’s report on the financial statements or issue a separate report on the supplementary information.

  • Auditor issues an opinion on supplementary information when engaged.

• If the auditor is not engaged to report on supplementary information, no opinion is expressed; limited procedures are performed instead.

An auditor is engaged to report on supplementary information when the client specifically requests the auditor to perform additional audit procedures and provide an opinion on that information. This engagement is separate from the audit of the basic financial statements.

Key points:

• The auditor must be formally engaged to report on supplementary information; it is not automatic.

• When engaged, the auditor performs additional procedures beyond the financial statement audit, such as:

  • Evaluating presentation and content of the supplementary information.

  • Reconciling it to the audited financial statements or underlying records.

  • Testing completeness and accuracy.

• The auditor then issues an opinion on whether the supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole.

• If not engaged, the auditor only performs limited procedures (for required supplementary information) or reads the information (for other information) but does not express an opinion.

This engagement typically arises when supplementary information is important to users and management or regulators want auditor assurance on it.

How does an adverse or disclaimer opinion on the financial statements affect the auditor’s opinion on supplementary information for issuers vs. nonissuers?

Flashcard Back:

• Nonissuers:

  • If the auditor issues an adverse or disclaimer opinion on the financial statements, the auditor cannot express an opinion on the supplementary information.

  • The auditor disclaims an opinion on the supplementary information in this case.

• Issuers:

  • Even if the auditor issues an adverse or disclaimer opinion on the financial statements, the auditor may still express an opinion on the supplementary information if engaged to do so.

  • The opinion on supplementary information is separate and can be included with modified language as needed.

  • However, the auditor should issue the same opinion

Summary:
Nonissuers are prohibited from giving an opinion on supplementary info if the financial statement opinion is adverse or disclaimer; issuers may still provide an opinion on supplementary info under those circumstances.

Materiality Level for Audit Procedures on Supplementary Information (Nonissuer)

• Auditor uses the same materiality level as the financial statement audit.

• Not double, not half, and not based on supplementary info balances.

• Ensures consistency in evaluating materiality across audit and supplementary info.

• Applies when providing an opinion on supplementary information.

Auditor's Responsibility for Supplementary Information in a Nonissuer Audit

• Auditor applies limited procedures to supplementary info (e.g., pension disclosures) required by GAAP but outside basic financials.

• Not required to audit or verify management’s assertions or comparability to prior year.

• Must check if info is omitted or materially departs from GAAP.

• Include a separate section titled "Required Supplemental Information" in the audit report.

GAAP does not require the basic financial statements to include management's discussion and analysis. Therefore, the auditor's opinion on the fairness of presentation of the financial statements in accordance with GAAP is not affected by the omission. However, the auditor does want to alert the reader that the required supplementary information is omitted, which is stated in an explanatory paragraph.

TRUE

IT IS MANAGEMENT’S RESPONSIBILITY TO ELECT AN APPROPROPRIATE SPECIAL PURPOSE FRAMEWOEK FOR FINANCIAL STATEMENTS

TRUE

Special purpose frameworks include:

1. Cash basis and modified cash basis

2. Tax basis

3. Regulatory basis

4. Contractual basis

5. Other basis

TRUE

Why must the notes to the financial statements explain how a special purpose framework (like income tax basis) differs from GAAP?

The notes must include a description of how the special purpose framework differs from GAAP to inform users about the accounting basis used. This disclosure clarifies that the financial statements are prepared on a basis other than GAAP, explaining key differences so users understand the framework’s impact on reported amounts and presentation. This is required for transparency and to avoid confusion.

What does "Those Charged With Governance" mean?

Individuals or groups responsible for overseeing the strategic direction and obligations of an entity, including its financial reporting process. Typically, this refers to the board of directors and the audit committee.

• What is an audit committee and what are its duties?

• Audit Committee: A subcommittee of the board of directors, usually 3-5 independent (outside) directors who are not company employees or management.

• Duties:

  • Select and appoint the independent external auditor.

  • Oversee the audit engagement, including setting audit fees.

  • Review the nature, scope, and quality of the audit work.

  • Ensure auditor independence from management.

  • Facilitate communication between the board, management, internal auditors, and external auditors.

  • Strengthen public confidence in the auditor’s independence and the reliability of financial reporting.

What does it mean when management elects to have an ERISA Section 103(a)(3)(C) audit, and how does it differ from a normal ERISA plan audit?

• ERISA Section 103(a)(3)(C) Audit:
  Management chooses a limited-scope audit where certain investment information is certified by a qualified institution, so the auditor does not have to audit all investments directly. This reduces the auditor’s work and usually lowers audit fees.

• Difference from Normal ERISA Audit:

  • Normal ERISA Audit: Auditor examines all plan investments and transactions in detail.

  • 103(a)(3)(C) Audit: Auditor relies on certification from a qualified institution for some investments, performing detailed audit only on uncertified items.

  • Auditor issues a two-pronged opinion:

    1. Fair presentation of financial statements excluding certified investments.

    2. Agreement of certified investment info with the qualified institution’s certification.

  • No disclaimer of opinion due to limited scope; instead, an unmodified opinion with additional disclosures.

What are the auditor’s and management’s responsibilities typically included in an engagement letter?

• Management’s Responsibilities:

  • Preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework.

  • Design, implementation, and maintenance of internal controls relevant to the preparation of financial statements.

  • Providing the auditor with access to all information relevant to the audit and unrestricted access to personnel.

  • Providing a management representation letter at the conclusion of the audit.

• Auditor’s Responsibilities:

  • Conduct the audit in accordance with auditing standards (e.g., GAAS).

  • Obtain reasonable assurance about whether the financial statements are free from material misstatement, whether due to fraud or error.

  • Communicate significant findings, including any significant deficiencies or material weaknesses in internal control identified during the audit.

  • Issue an auditor’s report with an opinion on the financial statements.

or changing engagement letters, here’s the key difference between issuers and nonissuers:

• Nonissuers:

  • If there is no change from the prior audit, the auditor can orally remind the client about the engagement terms (though the engagement letter itself must be in writing initially).

  • If there is a change in terms, a written amendment to the engagement letter is required.

• Issuers:

  • The engagement letter and any changes must be documented in writing—oral reminders or amendments are not acceptable.

  • This is because issuers are subject to stricter PCAOB rules requiring formal documentation.

Summary:
Nonissuers have more flexibility to remind clients orally if no changes occur, but any changes require written amendments. Issuers require all engagement terms and changes to be in writing without exception.

changes to Audit Engagements – What & Why?

• Changes to Engagements:

  • Occur when the terms, scope, or nature of the audit differ from the original agreement.

  • Examples: changing from audit to review, modifying scope, or changing reporting framework.

• Acceptable Reasons for Change:

  • Client’s revised requirements.

  • Misunderstanding about the nature of the service.

  • Changes in laws or regulations.

  • Changes in entity’s business or ownership.

• Unacceptable Reasons for Change:

  • To avoid uncovering errors or fraud.

  • To create misleading or deceptive financial statements.

  • Client refuses to provide necessary information or representation letters.

  • Client restricts auditor’s communication with legal counsel.

• Auditor’s Action:

  • If change is acceptable, comply with new standards and issue appropriate report.

  • If unacceptable, consider withdrawing from the engagement.

it is required to document the communication (or attempted communication) with the predecessor auditor before accepting a new audit engagement.

• The successor auditor must obtain client permission to contact the predecessor auditor.

• The successor auditor must initiate communication before accepting the engagement to understand any issues, disagreements, or risks.

• If the predecessor auditor cannot be contacted or the client refuses permission, the successor auditor can still accept the engagement but must use professional judgment and document the reasons for not following the usual requirement.

• This documentation becomes part of the audit working papers and supports the auditor’s acceptance decision.

So, yes, the engagement letter often includes arrangements about contacting the predecessor auditor, and the auditor must document the communication or the reason why it did not occur.

Under which circumstance can an auditor who is not independent perform an audit engagement of a nonissuer?

• Auditor must be independent to perform an audit engagement, regardless of the reason for lack of independence.

• Exception: If the auditor is required by law or regulation to accept the engagement and report on the financial statements, they may do so even if not independent.

• Prior years’ audits or non-financial reasons for lack of independence do not allow the auditor to perform the audit.

• Auditor is not allowed to accept and report if not independent unless legally required.

REAL MICE - Components of a System of Quality Management

Flashcard Back:

• R - Resources

• E - Engagement performance

• A - The firm's risk assessment process

• L - Governance and leadership

• M - Monitoring and remediation process

• I - Information and communication

• C - Acceptance and continuance of client relationships and specific engagements

• E - Relevant ethical requirements

One of a CPA firm's basic objectives is to provide professional services that conform with professional, legal, and regulatory standards. How is reasonable assurance of achieving this objective provided?

• A system of quality management provides reasonable assurance.

• Peer review is a process where one CPA firm reviews another but does not alone provide reasonable assurance.

• Continuing professional education improves auditor competency but alone does not provide reasonable assurance.

• There are no Generally Accepted Reporting Standards, so compliance with them is not applicable.

How often must an audit firm obtain written confirmation from employees on compliance with independence policies?

• Required at least annually

• Ensures compliance with ethical and quality control standards

• More frequent confirmations (e.g., quarterly) not required by professional standards

• Confirmation timing unrelated to performance evaluations or audit report releases

Does every audit engagement require a quality review?

Not necessarily.

• For issuers (public companies), a quality review is required under PCAOB standards.

• For non-issuers (private companies), a quality review is required only if the firm’s policies mandate it.

• The engagement quality review must be performed by someone independent of the engagement team.

• If a required quality review has not been completed, the audit report should not be issued.

how often do issuer and non-issuer audit firms need to review/report on their quality standards?

how often do issuer and non-issuer audit firms need to review/report on their quality standards?

Flashcard Back:

• Issuer firms (PCAOB-registered):

  • Subject to annual PCAOB inspections if they audit more than 100 issuers.

  • PCAOB inspections review quality control systems and audit work.

• Non-issuer firms (AICPA members):

  • Subject to a peer review every 3 years under AICPA standards.

  • Peer reviews assess compliance with quality control standards.

Both reviews focus on ensuring the firm’s quality control system is effective and audits meet professional standards.

A firm must register with the PCAOB if it wants to prepare or issue audit reports for issuers—that is, public companies whose securities are registered with the SEC.

key points:

• Registration is mandatory for any accounting firm auditing an SEC-registered public company (issuer).

• Only a registered public accounting firm may perform audits of issuers.

• The firm must update its registration annually, including details like issuers audited, fees, quality control policies, and any legal or disciplinary proceedings.

In short, if a firm audits public companies (issuers), it must be registered with the PCAOB to legally perform those audits.

What should audit documentation include, and what is its primary purpose?

Flashcard Back:
Audit documentation should include:

• Evidence that accounting records agree or reconcile with financial statements.

• Records of audit procedures performed, evidence obtained, and conclusions reached.

• Significant findings or issues and how they were addressed.

• Details of who performed and reviewed the work, with dates.

• Summaries of significant audit findings or issues.

• Copies or abstracts of significant contracts or agreements.

• Documentation of professional skepticism and judgments made.

Primary purpose:

• To provide a clear record supporting the auditor’s report and conclusions.

• To demonstrate that the audit was conducted in accordance with auditing standards.

• To assist in planning, conducting, supervising, and reviewing the audit.

• To enable accountability and support quality reviews and future audits.

How long must auditors retain audit documentation for issuers vs. nonissuers, and when must the final audit documentation file be assembled for each?

Flashcard Back:

• Retention period:

  • Issuers: 7 years

  • Nonissuers: 5 years

• Final audit documentation assembly deadline:

  • Issuers: Within 14 days after the audit report release date

  • Nonissuers: Within 60 days after the audit report release date

What is the difference between the current audit file and the permanent audit file?

Permanent (Continuous) File:

• Contains audit documentation with continuing relevance year to year.

• Examples: multi-year contracts, pension plans, leases, stock options, bylaws, articles of incorporation, bond indentures, minutes of meetings.

• Used as a reference for future audits to avoid repeated requests.

Current File:

• Contains audit documentation specific to the current year under audit.

• Examples: audit plan, financial statements, trial balance, adjusting journal entries, confirmations, management representation letter, test results, significant findings for the year.

• Focuses on evidence and work related only to the year being audited.

Required audit documentation under GAAS

• Must show accounting records agree or reconcile with financial statements

• Documentation quantity, type, and content vary by circumstances

• Engagement letter (not representation letter) covers timing/details of fieldwork

• List of procedures/findings is for agreed-upon procedures, not audit

• Flowcharts/questionnaires help understand controls but don’t prove effectiveness

Auditor's Documentation of Risk Assessment for a Nonissuer — What influences form and extent?

• Form and extent of documentation depend on:

  • Nature of the entity

  • Size of the entity

  • Complexity of the entity and its internal control

• Documentation may be combined with overall strategy and audit plan

• Documentation varies by engagement; not uniform for all audits

• Complete understanding of the industry is not required, focus is on risks of material misstatement

Retention period rules

During this retention period, the auditor can add or amend documentation but cannot delete any existing documentation. So "before the end" means anytime within those 5 or 7 years, not after.

On their own, oral explanations do not represent adequate support for the work the auditor performed or conclusions the auditor reached, but may be used to explain or clarify information contained in the audit documentation.

TRUE

What are the three categories of entity objectives and their meanings?

Flashcard Back:

1. Reliable Financial Reporting

   • Ensuring financial statements are accurate, complete, and fairly presented.

2. Effective and Efficient Operations

   • Achieving operational goals while using resources wisely and safeguarding assets.

3. Compliance with Laws and Regulations

   • Adhering to all applicable legal and regulatory requirements.

One of the limitations of even a well-designed internal control system is management's ability to override those controls. One reason management may override them is that the benefit of doing so exceeds the cost, which represents an inherent risk of even the strongest systems

True

The Gotham Corporation investigates division variances over 5% in personnel costs promptly to check for unfilled positions or extraordinary overtime. This timely exception resolution best illustrates which COSO information and communication principle?

Obtain and Use Information

• Organization obtains or generates relevant, high-quality information

• Uses information to support control functioning

• Example: Management uses variance reports to monitor and control personnel costs

According to COSO, what is the first ongoing monitoring step in evaluating the effectiveness of an internal control system?

• Establishing a control baseline is the first step.

• Without a baseline, you have nothing to compare future evaluations against.

• Other steps like identifying changes or revalidating operations come after the baseline is set.

• Reevaluating design and implementation to set a new baseline happens only after the initial baseline is established.

Entity Risk vs. Audit Risk

Back:

• Entity Risk (Risk Assessment by Management):

  • Focuses on risks that affect the entity’s ability to achieve its objectives (financial reporting, operations, compliance).

  • Management identifies and manages risks relevant to the entire organization.

  • Includes risks beyond financial reporting (e.g., operational, strategic).

• Audit Risk (Risk Assessment by Auditor):

  • Focuses on the risk that the financial statements are materially misstated.

  • Includes inherent risk, control risk, and detection risk.

  • Auditor assesses risk of material misstatement to plan audit procedures.

Which of the following is usually considered a monitoring activity?

Back:

• Using information from customer complaints is a monitoring activity.

• Monitoring assesses the quality of control performance over time.

• It includes evaluating communications from external parties like customers, regulators, and auditors.

• Not monitoring: analyzing new information systems, segregating duties, or processing transactions.

• Segregation of duties is a control activity, not monitoring.

• Processing transactions is part of operations, not monitoring.

• Analyzing new systems helps understand controls but is not monitoring itself.

Which management control most likely improves management's ability to supervise company activities effectively?

• Establishing budgets and forecasts to identify variances from expectations

• Variances signal potential problems to managers

• Enhances supervisory capability by providing measurable performance indicators

• Other controls like compliance monitoring, resource support, or asset protection do not directly improve supervision ability

In general, policies and procedures should establish that the following activities should be segregated from one another: custody of assets, record keeping, and authorization.

TRUE

types of Controls in Internal Control Framework

Flashcard Back:

• Information-Processing Control: Automated or manual controls ensuring transactions are authorized, complete, and accurate.

• General Control: Controls ensuring a stable and well-managed control environment.

• Logical Control: Software and data controls that monitor and restrict access to systems (e.g., passwords, access lists).

• Physical Control: Controls that safeguard the physical environment and assets (e.g., locks, security devices, uninterrupted power supply).

Which processes should be performed by separate employees to ensure proper segregation of duties?

• Authorization, recordkeeping, and custodial functions should be separated.

• This segregation reduces opportunities for fraud or error.

• Related operational activities like shipping, receiving, and custodial can be done by the same person.

• Execution, authorization, and payment may also be performed by the same individual.

• Authorization, approval, and execution are related and can be done by the same person

CRIME - Five Components of COSO Internal Control Framework

C - Control Environment

• Sets the tone at the top; foundation for all other components.

• Includes management’s integrity, ethical values, governance participation, organizational structure, commitment to competence, and accountability (EBOCA).

• Primarily indirect controls influencing control consciousness.

R - Risk Assessment

• Management identifies and analyzes risks to achieving objectives.

• Involves specifying objectives, assessing changes, considering fraud potential, and analyzing risks (SAFR).

• Helps decide whether to accept or mitigate risks.

I - Information and Communication

• Systems to obtain, use, and communicate relevant information internally and externally (OIE).

• Ensures transactions and disclosures are properly captured and reported timely and accurately.

M - Monitoring

• Ongoing or separate evaluations to ensure controls are present and functioning (SOD).

• Includes communication of deficiencies and corrective actions.

E - Existing Control Activities

• Policies and procedures management implements to mitigate risks (CATP).

• Includes authorization, segregation of duties, pre-numbering documents, performance reviews, and technology controls.

What should an auditor do when there is a disagreement with another auditor on the engagement?

• The dissenting auditor should document the disagreement clearly.

• If unresolved, the dissenting auditor may disassociate from the engagement (remove themselves from responsibility).

• The disagreement and its resolution (or lack thereof) may need to be communicated to those charged with governance.

• The auditor’s report may need to reflect the disagreement if it affects the audit opinion.

What is an audit plan, is it required, and where is it documented?

• Audit Plan: A detailed listing of audit procedures necessary to achieve the audit objectives. It outlines the nature, timing, and extent of audit work at the assertion level.

• Requirement: Yes, an audit plan is required for every audit engagement.

• Location: The audit plan itself is an internal document used by the audit team; it is not included in the audit report issued to users. The audit report communicates the auditor’s opinion, not the plan.

How does an ERISA plan affect the audit plan and what are the key considerations?

• ERISA audits require applying all relevant SAS(Statements of auditing standards), plus additional ERISA-specific criteria.

• Auditor must obtain and review the most current plan instrument, including amendments.

• Consider plan tax-exempt status and whether compliance tests (e.g., nondiscrimination) have been performed and passed.

• Evaluate prohibited transactions and ensure proper reporting in ERISA-required supplemental schedules.

• If management elects an ERISA Section 103(a)(3)(C) audit, auditor relies on certified investment info from a qualified institution, reducing audit scope.

• Auditor must assess and document management’s determination of qualified institution status.

• Obtain a draft of Form 5500 before report date, ensuring it is substantially complete and properly certified.

• Perform audit procedures to verify contributions and benefit payments conform to plan provisions.

What does the mnemonic COVERUP stand for in financial statement assertions for non-issuers?

• C — Completeness: All transactions and accounts that should be recorded are included.

• O — Cutoff: Transactions are recorded in the correct accounting period.

• V — Valuation, Allocation, and Accuracy: Assets, liabilities, and transactions are recorded at appropriate amounts.

• E — Existence and Occurrence: Assets, liabilities, and transactions actually exist and occurred.

• R — Rights and Obligations: The entity holds rights to assets and obligations for liabilities.

• U — Understandability and Classification: Financial information is properly presented and classified.

• P — Presentation and Disclosure: All disclosures are complete and understandable.

What does NET stand for in an audit plan, and what does it involve?

• NET = Nature, Extent, and Timing of audit procedures.

• Nature: The type of audit procedures to be performed (e.g., inspection, observation, confirmation).

• Extent: The quantity or scope of the procedures (e.g., number of items to test).

• Timing: When the procedures will be performed (e.g., interim or year-end).

Key point: The audit plan details the specific NET of audit procedures to achieve audit objectives.

What are the key points when communicating the planned scope and timing of an audit engagement with those charged with governance?

• Communicate the overall planned scope and timing of the audit to provide insight into auditor activities.

• Discuss significant risks of material misstatement and how they will be addressed.

• Explain the planned approach to testing internal controls and whether an opinion on controls will be expressed.

• Share factors affecting materiality and any use of internal audit staff or specialists.

• Inform about planned responses to significant changes in financial reporting framework or business environment.

• Avoid disclosing overly detailed audit procedures to prevent compromising audit effectiveness.

• Use this communication to improve auditor understanding of the entity and help governance fulfill oversight responsibilities.

• May include inquiries about governance’s views on risks, objectives, and communications with regulators.