Professional Documents
Culture Documents
What is an Audit?
Financial Statements.
What does the audit function do By having an auditor attest to the statements, the company adds
for a company? credibility to the company
Independent
Expert
-in accounting (GAAP)
An Auditor must be:
-in auditing (GAAS)
-in the industry
Poses professional skepticism
What is the meaning of "fairly A judgment call reflecting whether or not financial statements reflect
presented?" the transactions of a company within an acceptable range.
Public accounting firms must register with the PCAOB and are
Describe requirements for subject to board inspection. The PCAOB originally adopted ASB
auditing a public company? standards. Since then it has released 5 additional standards to replace
related ASB standards.
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SASs - Published by the ASB. Require professional judgment and
may be departed from in certain situations.
Name and describe the 3 levels of Interpretive Publications - recommendations regarding how SASs
GAAS hierarchy: should be applied in specific situations (can be departed from).
Other Auditing Publications - no authoritative status, but can be
helpful
T - training
I - independence
P - professional care
What is GAAS and Name the 10
standards P- planning and supervision
I - internal control
E - evidence
A - accounting = gaap
C - consistency
D - disclosure
O - express opinion
TIP:
Training - the auditor must have an accounting education, practical
auditing experience, and technical knowledge of the industry for the
company being audited.
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Evidence - Procedures are performed so as to gather evidence needed
to render an opinion regarding the FS
ACDO
Accounting = GAAP (E) - Must state whether or not the financial
statements are in accordance with generally accepted accounting
principles.
Express Opinion (E)- The auditor must state and opinion on the
financial statements. If they cannot place an opinion they must
explain why. This standard is used to prevent misinterpretation of the
auditors degree of responsibility. Opinions can be unqualified on one
and qualified or disclaimer on another.
RAPMEAM RAPEAM
Introductory:
Name of the FS to be reported on.
RR - FS responsibility of mgmt.
Auditor resp. for opinion
Scope:
AA - Audit conducted in
Accordance with GAAS or
PCAOB for publicly traded co.
What are the three paragraphs of PP - Planned and Performed to
an unqualified report and what do obtain reasonable assurance
they contain? MM - FS free from Material
Misstatement.
EE - Examined Evidence on a test
basis.
AA - Assessed Accounting principles.
MM -tested Management Made
estimates
Opinion:
reference to the FS (from the intro) and opinion on the fair
presentation of the FS and conformity with GAAP.
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Issuers: There must state in the Scope: "We conducted our audits in
What are PCAOB standards for accordance with the standards of the PCAOB."
audits of issuers and non-issuers
Non-issuers: May, but is not required to conduct the audit in
accordance with GAAS and the PCAOB.
Qualified:
1. Non-GAAP change
2. Inadequate Disclosure
What GAAP issues result in 3. Unjustified Departure from GAAP
qualified and adverse opinions? 4. Unreasonable Accounting Estimate
Qualified:
1. Uncertainty
What GAAS issues result in 2. Scope Limitation
qualified and disclaimer Disclaimer:
opinions? 1 - 2: same as qualified
3. Lack of independence
4. Unaudited
When does an auditor withdraw? When statements are false, fraudulent, deceptive, or misleading.
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A matter where conclusive audit evidence is not currently
What is an uncertainty? available.Examples are impairments, intangibles, lawsuits, and
warranties.
Unqualified:
after the opinion paragraph
Where is the explanatory Qualified, adverse, or disclaimer:
paragraph placed in the various before the opinion paragraph
opinions? Exceptions:
can be placed before or after opinion for Justified GAAP departure
or Emphasis of a matter.
What is the effect upon the audit Before you assume responsibility (and not mention the other CPA)
statement when multiple auditors you must RIPP them:
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R- check Reputation
have audited part of the FS and
I - assure auditors' Independence.
the primary auditors want to
P - check Professional capacity
assume responsibility?
P - check audit Programs
ADMITS:
A - analytical procedures
D - view terms of Debts and loans
What are the procedures for M- review Minutes of the board
evaluating a going concern: I - Inquiry of legal council
T- view Third party financial support
agreements
S - subsequent events review
F - Financial difficulties
What events are indicative of I - Internal matters like work stoppages
substantial doubt? N - Negative trends
E- External matters
What should be included in audit -The events that gave rise to the doubt
documentation when there is -any mitigating factors that are significant
substantial doubt about a -audit work performed to evaluate managements plans
company's ability as a going -conclusion on whether the doubt remains
concern? -the effect on the audits report and the financial statements
How do you deal with no An explanatory paragraph is added with missing info and its effects
statement of cash flows? on the FS. Except for terminology is used in the opinion paragraph
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Time constraints
Inability to obtain enough audit evidence
No management letter
Refusal of clients attorney to respond
Name some scope limitations
Only report the scope limitation if you cannot identify and use
alternative audit procedures (in which case you render an unqualified
opinion with a potential modification)
Intro:
- say "were engaged to audit" instead of have audited
- delete reference of auditor's responsibility
Opinion Paragraph:
- disclaimer is placed on FS as a whole
In an explanatory paragraph,"DORCS"
If during a current audit an D-Date of the previous report
auditor realizes that he must O-type of Opinion issued b4
change a previous year's opinion, R-Reason for the prior opinion
what steps must be taken? C-Changes that have occurred
S-Statement that the opinion is different
What are subsequent events? Events that occur after balance sheet date but before FS are issued.
Subsequent events have what Subsequent events can cause adjustments (type 1 event) to the FS (if
effects can they have on the FS the event existed during the year)or additional disclosures (Type 2
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event) to bring statement users up to date on potential future effects.
Until the date on the Audit report. However, if the auditor is made
How long the auditor is held
aware of events after the report date, they must consider whether or
liable for the audit?
not to adjust FS
PRIME:
P-Post balance sheet transactions should be reviewed
R-Representation letter obtained from management regarding any
disclosures etc.
What subsequent period actions
I-Inquiry to mgmt. about material liabilities or commitments,
should an auditor take?
changes in equity, material unusual adjustments, and to mgmt's legal
counsel
M-Minutes of the board should be read
E-Examine and compare latest interim FS
The report can be dual dated (Jan. 21, 20XX except for note 2, as to
How should a report be dated if which the date is Feb 3, 20XX)
additional details are found? Or the date can be extended, but this increases responsibility until the
new date
DAR:
What should an auditor do if a
D-Disassociate yourself with the financial statements.
client refuses to disclose new
A- Alert Agencies with jurisdiction over the client that the auditor's
information that may denigrate
report cannot be relied upon
the value of the FS?
R-Notify relying parties of the events
How is supplementary information Auditors are not required to audit sup. info. However, certain
reported on? situations require expansion of the report:
-required sup. info is missing
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-the info is not in compliance with GAAP
-The auditor cannot complete required procedures.
-Substantial doubt is raised regarding the info.
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What is an audit committee and An audit committee is a standing committee of the BOD of a
what is their role in the audit public corporation which main responsibility is dealing with the
process? company's FS, external audits, and internal controls.
1. Independence
What are the element of quality
2. Personnel management
control policies and procedures
3. Acceptance and continuance of clients and engagements
applicable to a firm's accounting
4. Engagement performance
and auditing practice?
5. Monitoring
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The person responsible for supervising accounting, auditing, and
What is the practitioner in charge? attestation engagements and signing or authorizing an individual
to sign the accountant's report on such engagement.
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2) Quick ratio
3) Inventory Turnover
liquidity:
4) Receivables turnover
5) Cash from operating activities to current liabilities
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