Becker - AUD A1 Flashcards

SAS

What standards does a nonissuer use?

PCAOB AS

What standards does an issuer use?

GAGAS

What standards does a government entity use?

SSAE

When doing an attestation engagement, what standards are used?

SSARS

When providing guidance on the unaudited financial statements of nonissuers, what standards are used?

SQCS

Provides guidance to CPA firms about a quality control system

GAAS

Measures of the quality of the auditor's performance

Engagement Acceptance, Assess Risk/Plan Response, Perform Procedures/Obtain Evidence, Form Conclusions, Reporting

What are the five steps of the audit process?

ERISA Audit Engagement

Audit that is typically performed by an independent CPA and applies primarily to large employee benefit plans, such as 401(k)s, pension plans, and health & welfare plans

Opinion

Basis for Opinion

Responsibility of Management for the Financial Statements

Auditor’s Responsibilities for the Audit of the Financial Statements

What are the four required sections of an unmodified audit opinion?

Opinion, Responsibility of Management for the Financial Statements

Within the four sections of an unmodified audit opinion, in what section(s) is the framework referenced?

Opinion

Within the three sections of an unqualified audit opinion, in what section(s) is the framework referenced?

Basis for Opinion, Auditor’s Responsibilities for the Audit of the Financial Statements

Within the four sections of an unmodified audit opinion, in what section(s) is the set of standards referenced?

Basis for Opinion

Within the three sections of an unqualified audit opinion, in what section(s) is the set of standards referenced?

Key Audit Matters (KAMs)

Section that may be added to the nonissuer report and is added when the client engages the auditor to communicate them; Provides visibility into the more complex/judgment-focused areas of the audit

Anywhere After Basis for Opinion

Where in the auditor’s report can KAMs be reported?

Auditor is Engaged to Report Them

For a nonissuer, when are KAMs reported? (Unmodified opinion is issued)

Always

For an issuer, when are CAMs reported? (Unqualified opinion is issued)

Opinion on the Financial Statements

Basis for Opinion

Critical Audit Matters

What are the three required sections of an unqualified audit opinion?

Was Communicated or is Required to Be Communicated to the Audit Committee

Relate to Accounts or Disclosures Material to the Financial Statements

Involve Challenging, Subjective, or Complex Auditor Judgment

To be considered as a CAM, what three criteria must the matter meet?

I - Identify Each CAM in the Audit Report

P - Describe the Principal Considerations that Led the Auditor to Determine a CAM

A - Describe How the CAM was Addressed in the Audit

D - Refer to the Relevant Financial Statement Accounts and Disclosures

What four things must be included when addressing a CAM within an unqualified audit opinion?

Form AP

Form filed with the PCAOB that provides information about audit participants involved in the audit of a public company’s financial statements; Includes the name of the audit partner and other accounting firms involved

Explicit Assertions

Clearly stated representations made by management in the financial statements or accompanying disclosures

Implicit Assertions

Not directly stated but are inherently implied by including items in the financial statements

Adverse

The Opinion section states: “Financial statements do not present fairly” (Nonissuer)

Qualified

The Opinion section states: “Except for” (Nonissuer)

Scope Limitations (Audit Issues), Qualified, Disclaimer of

Time constraints, inability to obtain sufficient appropriate audit evidence, and the refusal of client’s attorney to respond to inquiry are examples of _____ ______ and may result in a ______ or _________ opinion.

Disclaimer of Opinion

The auditor not being independent, unaudited financial statements, and/or refusal of management to provide written representation results in a ______.

True

There are no heading changes for unqualified, qualified, and adverse for issuer reports.

True or False?

Emphasis-of-Matter Paragraph

When the auditor concurs with a change in accounting principle, what should be included in the audit report?

Emphasis-of-Matter Paragraph

Emphasizes a matter that is already disclosed in the financial statements

Required by GAAS, Auditor’s Discretion

An emphasis-of-matter paragraph OR other-matter paragraph should be included in the audit report of a nonissuer when…?

Required by PCAOB Standards, Auditor’s Discretion

An explanatory paragraph should be included in the audit report of an issuer when…?

Opinion, Basis for Opinion

When a qualified opinion is issued, what section(s) should be modified on the audit report?

Opinion, Basis for Opinion

When an adverse opinion is issued, what section(s) should be modified on the audit report?

Opinion, Basis for Opinion, Auditor’s Responsibilities, Introductory Paragraph

When an disclaimer of opinion is issued, what section(s) should be modified on the audit report?

Consistency (Lack Of)

Audit Opinion Change

Purpose - Special Purpose Frameworks

Under GAAS, when is an emphasis-of-matter paragraph required for a nonissuer? (3 Instances)

Restrict Use

Subsequently Discovered Facts That Lead to a Change in Audit Opinion

Comparative Financial Statements (Prior Period Not Audited or Audited by Predecessor with No Report)

When is an other-matter paragraph required for a nonissuer? (3 Instances)

Yes

If the client is being sued and it is said to be “unusually important,” should an emphasis-of-matter paragraph be added?

Other-Matter Paragraph

Used when referring to matters other than those that are presented or disclosed in the financial statements that are relevant to the user’s understanding of the audit, the auditor’s responsibilities, or in reference to the audit report

After Opinion Section

Where is an explanatory paragraph typically added in the audit report of an issuer?

Change in Accounting Estimate Inseparable from Change in Accounting Principle, Corrections of an Error in Accounting Principle, Correction of a Material Misstatement in Previously Issued Financial Statements, Change in Reporting Entity

What are four common consistency changes in which the auditor would add an emphasis-of-matter (or explanatory) paragraph?

Date of the Auditor’s Previous Report

Opinion Type Previously Issued

Reason for the Prior Opinion

Changes that Have Occurred

Statement that the “Opinion… is Different”

When updating/changing the prior year’s audit opinion, the auditor needs to add an emphasis-of-matter/other-matter paragraph (nonissuer) or explanatory paragraph (issuer). What five things must this additional language disclose?

1. Group Engagement Team Takes Full Responsibility for the Audit of the Component; Does Not Reference Component Auditor

2. Group Engagement Team and Component Auditor Divide Responsibility; Reference Component Auditor

When the group engagement team relies on the work of the component auditor, the group engagement team has which two alternatives?

Recognized Subsequent Event

Event that provides additional information about conditions that existed at the balance sheet date; Management needs to adjust financial statement amounts and/or add disclosures

Nonrecognized Subsequent Event

Event that provides information about conditions that occurred after the balance sheet date and did not exist at the balance sheet date; Entries should not adjust the numbers on the financial statements, disclosure should be considered instead

Post Balance Sheet Transactions (Stock, Debt)

Representation Letter

Inquiry (Litigation Status, New Commitments, Unusual Transactions)

Minutes

Examine

What are the five procedures auditors will follow to evaluate subsequent events?

Information is Reliable, Existed at Report Date, Would Have Affected the Auditor Report, Auditor Should Have Known

What four terms indicate that the auditor needs to investigate subsequent events that occurred after the report date?

Dual Date, Use Later Date

If the auditor needs to adjust the report for subsequent event(s), what two options do they have?

Disassociate (Notify That Audit Report Must No Longer be Associated with the Financial Statements)

Alert Agencies

Relying Parties (Notify that Auditor’s Report Shouldn’t Be Relied On)

If the client refuses to take action to address information that materially affects the report after report issuance, what three steps must be taken by the auditor?

Other Information

Financial or nonfinancial information (other than financial statements and the auditor’s report) included in an entity’s annual report

False

If the auditor deems that something in the Other Information section is incorrect, they should modify the opinion.

True or False?

Separate Section

If the client is a nonissuer, where should Other Information be reported?

True

If the client is an issuer, auditors are not required to include an explanatory paragraph when other information is included in a document with the auditor’s report.

True or False?

Cannot

For nonissuers, if financial statements get an adverse or disclaimer of opinion, the auditor _____ issue an opinion on supplemental information.

The Same

For issuers, if financial statements get an adverse or disclaimer of opinion, the auditor should issue ___ _____ opinion on the supplemental information.

Required Supplementary Information

Information that a designated account standard setter (e.g., GASB, SEC) requires to accompany the basic financial statements

Read Information

If you see a question that asks about procedures for other information, what buzz word(s) should you look for?

Provide Opinion

If you see a question that asks about procedures for an engagement to report on supplementary information, what buzz word(s) should you look for?

Limited Procedures

If you see a question that asks about procedures for required supplementary information, what buzz word(s) should you look for?

Special Purpose Framework

Financial reporting framework other than GAAP that is the cash basis, tax basis, regulatory basis, contractual basis, or other basis

Regulatory, Regulatory (General), Contractual, Other

For which special purpose framework(s) is a description of the purpose for which special purpose financial statements are prepared required?

Cash, Tax, Regulatory, Contractual, Other

For which special purpose framework(s) is an emphasis-of-matter paragraph to alert readers required?

Regulatory, Contractual, Other

For which special purpose framework(s) is an other-matter paragraph restricting the use of the auditor’s report required?

Representation Letter

Written statement provided by management to the auditors at the end of an audit engagement; Confirms that management has provided all relevant information and made certain assertions regarding the financial statements and internal controls