Audit Exam 1

What makes up the standard report

The opinion section

Basis for Opinion

Responsibilities of Management

Auditors Responsibilities

Opinion Section

F/S and years examined

Auditors opinion on F/S

Basis for Opinion Section

Conducted a GAAS Audit

Required to be independent and meet ethical requirements

Audit Evidence

Responsibilities of Management Section

Responsible for F/S and Internal Controls

Required to evaluate ability for going concern

Auditors Responsibilities Section

Responsible for issuing an opinion on F/S

Audit provides reasonable assurance

Overview of elements of GAAS AuditW

What are the two reports required in a 10-K

Fairness of Financial Statements and Overview of Internal Controls

What does management have to include in a 10-K

Effectiveness of internal control over financial reporting

Existence

Assets and Liabiltie included in F/S actually exist

Occurence

Recorded transactions are valid and actually occured

Completeness

All balances and transactions have been recorded in F/S

Valuation or Allocation

Assets, Liabilites, and transactions have been valued in accordance with GAAp

Rights and Obligations

Entity has a legal claim on all assets and revenues reported and has a legal responsibility for all liabilities and expenses.

Presentation and Disclosure

All accounts are presented in the appropriate place and all information required has been disclosed in the statements and footnotes.P

Professional Skepticism

Is defined as having an attitude that “includes a questioning mind and a
critical assessment of evidence.”

Prohibited Professional Services Definition

Sarbanes-Oxley prohibits professional service firms from performing any client services for audit clients in which the auditors may find themselves making
management decisions or auditing their own firm’s workP

Prohibited Professional Services Examples

1. bookkeeping and related services.
2. design or implementation of financial information systems.
3. appraisal or valuation services.
4. actuarial services.
5. internal audit outsourcing

6. management or human resources services.
7. investment or broker/dealer services.
8. legal and expert services (unrelated to the audit)

Independence in Fact

Independence in fact refers to an auditor's objective, unbiased state of mind, also known as "independence of mind," ensuring they perform an engagement with integrity, professional skepticism, and intellectual honesty

Independence in Appearance

Independence in appearance means avoiding any situations or relationships that would make a reasonable, informed outside observer think an auditor's judgment, integrity, or objectivity has been compromised

Suffiency for Audit Evidence

quantity (How many transactions or components?).

Appropriate for Audit Evidence

quality (What level of reliability needed? Source?).

Relevance for Audit Evidence

Does evidence address assertion(s) of interest?R

Reliability for Audit Evidence

Source of evidence. Auditors direct personal knowledge is highest, with internal documentary is the lowest

Unmodified Opinion

F/S are in accordance with GAAP.
Standard report may be modified to disclose additional matters

Qualified Opinion

“Except for” some matter, F/S are in accordance with GAAPA

Adverse Opinion

F/S are not in accordance with GAAP.

Disclaimer of Opinion

No opinion is issued by auditors

Is the Departure from GAAP Material? NO

Use unmodified opinion

The departure from GAAP is material but not pervasive

Qualified Opinion

The departure from GAAP is material and pervasive

Adverse opinion

The scope limiation is immaterial

Unmodifed Opinion

The scope limitation is material and alternate procedures are available

Unmodified opinion

The scope limitation is material, no alternate procedures, but is not pervasive

Qualified Opinion

The scope limitation is material, no alternate procedures, and it is pervasive

Disclaimer of OpinionC

Circumstance-Imposed Scope Limitation

Situation in which matters beyond auditors’ and client’s control limit
procedures performed by auditors
Example: inability to observe year-end inventory because of late
appointment

Client Imposed Scope Limitation

Situation in which client specifically limits auditors’ procedures.
Should be viewed as a significant restriction and a disclaimer is ordinarily
issued

Qualified Opinion for Scope Limitation

Issued when scope limitation is material but not pervasiveD

Disclaimer of Opinion for Scope Limitations

Pervasive scope limitation that is usually client imposed

Prevents auditor from gathering sufficient appropriate evidence to form an opinion

What to do when auditor has lack of independence

Report.
• Single paragraph.
• Indicates auditors are not independent.
• Does not indicate why independence lacking.

Performance Principle

Goal is to provide reasonable assurance that financial statements do not
contain material misstatements

Includes planning and supervision, materialty, risk assessment, and audit evidence

Reporting Principle

Express an opinion (or indicate that an opinion cannot be expressed) on
entity’s financial statements.
Assess financial statements against financial reporting framework.
• Set of criteria used to determine the measurement, recognition,
presentation, and disclosure of material items in the financial statements.
• Examples include GAAP,IFRS, or special purpose framework.

Responsibilities Principle

Competence and Capabilities

Independence

Due Care

Professional Skepticism and Judgement