Term
| If auditor's opinion is based in part of the report of another auditor... |
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Definition
| Modify all 3 paragraphs, but don't add an additional paragraph. |
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Term
| If a material accounting change affects consistency... |
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Definition
| Add an additional paragraph. |
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Term
| Substantial doubt exists about the entity's ability to continue as a going concern... |
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Definition
| Add an additional paragraph. |
|
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Term
| The auditor changes the opinion for a prior period when reporting on current statements in comparative form... |
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Definition
| Add an additional paragraph. |
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Term
| Predecessor auditor's report for a prior period is not presented when reporting on current F/S in comparative form... |
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Definition
| Add sentence to intro paragraph. |
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Term
| A matter needs to be emphasized... |
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Definition
| Add an additional paragraph. |
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Term
|
Definition
| part of audit performed by other independent auditors |
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Term
|
Definition
| The auditor must make professional judgments about whether s/he may serve as principal auditor and use the work and reports of other independent auditors. |
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Term
|
Definition
| These parties have audited the F/S of 1+ subsidiaries, divisions, branches, components, or investments included in the F/S presented. |
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Term
| When other auditors have performed a significant part of the audit... |
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Definition
| the auditor must decide whether his/her participation is sufficient to justify serving as the principal auditor. |
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Term
| Other principal audit considers the following... |
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Definition
1. The materiality of the portion of the F/S s/he has audited.
2. His/her knowledge of the overall F/S.
3. The importance of the components s/he has audited. |
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Term
| If the auditor decides to serve as the principal auditor... |
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Definition
| s/he must then decide whether to refer to the audit of the other auditor. |
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Term
| If the principal auditor assumes responsibility for the other's work... |
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Definition
| no reference should be made. |
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Term
| If the principal auditor does not assume responsibility for the other's work... |
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Definition
the report should refer to the audit of the other auditor and should indicate clearly the division of responsibility.
The other auditor remains responsible for his/her work and report. |
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Term
| If the principal auditor becomes satisfied as to the independence and professional reputation of the other auditor and the audit performed... |
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Definition
| s/he may be able to express an opinion w/out referring to the other auditor. |
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Term
| The principal auditor may make the decision not to refer to the other auditor when... |
|
Definition
1. The other auditor is an associated or correspondent firm whose work is acceptable.
2. Other auditor was retained by principal auditor who guided and controlled the work.
3. Principal auditor becomes satisfied as to the work of the other auditor.
4. Portion of the statements audited by the other is not material. |
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Term
|
Definition
The principal auditor must, before the report release date, obtain, review, and retain an engagement completion document and other documents from the auditor. For example, there other documents should include:
1. Sufficient information about findings that contradict audit conclusions.
2. A list of significant fraud risk factors and the auditor's response.
3. A schedule of audit adjustments, significant deficiencies, and weaknesses in IC.
4. Reconciling information about amounts audited by the other auditor. |
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Term
|
Definition
| ISA 600. This standard makes it clear that the group engagement partner is required to be satisfied that those performing the group audit engagement, including component auditors, collectively have the appropriate capabilities and competence. |
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Term
| ISA & group engagement partner |
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Definition
| responsible for the direction, supervision, and performance of the group audit engagement and whether the auditor's report that is issued is appropriate in the circumstances. |
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Term
| ISA & referring to component auditor |
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Definition
| As a result, the auditor's report on the group F/S shall not refer to a component auditor, unless required by law or regulation to include such reference. |
|
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Term
| When does the principal auditor may decide to refer to the audit of the other auditor because... |
|
Definition
1. It may be impracticable for the principal auditor to review the other's work or perform the other procedures necessary to become satisfied about the other's audit.
2. The F/S of a component audited by another auditor may be material in relation to the total. |
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Term
| When the audit of the other audit is to, the report should indicate clearly... |
|
Definition
the intro, scope, and opinion paragraphs, the division of responsibility.
The report also should disclose the magnitude of the audit of the other auditor in dollar amounts or percentages of total assets, total revenues, or other appropriate criteria, whichever provides the clearest disclosure. |
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Term
| The other auditor may be named if... |
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Definition
| s/he gives express permission and provided his/her report is presented. |
|
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Term
| Is making reference to the other auditor a qualification of the opinion? |
|
Definition
|
|
Term
| Should the principal auditor inquire about the professional reputation and independence of the other auditors if they refer to the other auditor? If they don't refer to the other auditor? |
|
Definition
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|
Term
| appropriate procedures of inquiring of professional reputation and independence of other auditors |
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Definition
1. Making inquiries as to the professional reputation and standing of the other auditor to the AICPA, state societies, other practitioners, bankers, etc., unless known to the principal auditor.
2. Obtaining a representation from the other auditor that s/he is independent.
3. Communicating w/the other auditor to determine that s/he is aware of:
Reliance upon, and possible reference to, his/her report.
Applicable GAAP, GAAS, and regulatory requirements.
The need for a review of uniformity of accounting practices and the elimination of inter-entity transactions and balances. |
|
|
Term
| additional procedures of inquiring of professional reputation and independence of other auditors under decision not to refer |
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Definition
1. Visiting the other auditor, and discussing the audit procedures followed and the results.
2. Reviewing the audit plans and audit documentation of the other auditor.
3. Making supplemental tests of accounts. |
|
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Term
| equity-method investments |
|
Definition
| An auditor who uses another auditor's report to report on an investor's equity in underlying net assets and its share of earnings or losses and other transactions of the investee is effectively a principal auditor using the work and reports of other auditors. |
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Term
| departure of other auditor's report from standard report |
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Definition
If the report of the other auditor is other than a standard report, the principal auditor should decide whether the reason for the departure requires recognition in his/her report.
If the reason for the departure is not material and the other auditor's report is not presented, the principal auditor need not refer in the report to such departure. |
|
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Term
|
Definition
| qualitative characteristic that enables users to identify and understand similarities in, and differences among, items. |
|
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Term
| matters affecting comparability |
|
Definition
1. Accounting changes.
2. Errors (misstatements).
3. Changes in classification.
4. Events or transactions substantially different from those previously accounted for. |
|
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Term
|
Definition
| refers to the use of the same methods for the same items, either from period to period within a reporting entity or in a single period across entities. |
|
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Term
| second standard of reporting |
|
Definition
| The auditor must identify in the auditor's report those circumstances in which such principles have not been consistently observed in the current period in relation to the previous period. |
|
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Term
|
Definition
improvement in accounting
An entity should not make voluntary changes in accounting principles unless they can be justified as preferable. |
|
|
Term
|
Definition
| A change in accounting principle or in the method of its application having a material effect on comparability on the F/S is a departure from the consistency standard. |
|
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Term
| reporting on inconsistency |
|
Definition
| Described in an explanatory paragraph, following the opinion paragraph, stating the nature of the change and referring to an F/S note that discuss the change in detail. |
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Term
| elements of determining whether or not change should be accepted by the auditor |
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Definition
1. Is the new principle generally accepted?
2. Does the method of accounting for the change conforms w/GAAP?
3. Are disclosures adequate? and
4. Is the new principle preferable? |
|
|
Term
|
Definition
| Change in principle in the first year reported on for which it is impracticable to make a cumulative effect adjustment. Ex) change from LIFO to FIFO. |
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|
Term
| retrospective application |
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Definition
| If the change is accounted for by retrospective application, the explanatory paragraph is required only in the year of the change. All periods presented will be comparable in subsequent years. |
|
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Term
|
Definition
the auditor should extend procedures to gather evidence about consistency between the current and the preceding year. Given consistency, no report modification is necessary.
If no evidence can be obtained, the resulting scope limitation may not allow for an opinion to be given. |
|
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Term
|
Definition
| change in accounting principle, accounting estimate, or reporting entity. |
|
|
Term
| change in accounting principle |
|
Definition
Occurs when an entity:
1. Adopts a generally accepted principle different from the one previously used.
2. Changes the method of applying a generally accepted principle, or
3. Changes to a generally accepted principle when the principle previously used is no longer generally accepted. |
|
|
Term
| retrospective application is required for... |
|
Definition
| required for a change in principle. |
|
|
Term
| exceptions for accounting changes |
|
Definition
| are made when it is impracticable to determine the cumulative effect or the period-specific effect of the change. |
|
|
Term
| requirements of retrospective application |
|
Definition
| requires that carrying amounts of balances at the beginning of the first period reported be adjusted for the cumulative effect on the new principle on all periods not reported. |
|
|
Term
|
Definition
| All periods reported must be individually adjusted for the period-specific effects of applying the new principle. |
|
|
Term
| If it is impracticable to determine the cumulative effect of applying a new principle to any period, what happens? |
|
Definition
| The new principle is applied as if the change had been made prospectively at the earliest date practicable. |
|
|
Term
| If it is impracticable to determine the cumulative effect of applying a new principle to all periods, what happens? |
|
Definition
| Cumulative-effect adjustments should be made to the beginning balances for the first period to which the new principle can be applied. |
|
|
Term
| When is a change in accounting estimate accounted for? |
|
Definition
| in the period of change and any future periods affected. |
|
|
Term
| change in estimate inseparable from (effected by) a change in principle |
|
Definition
| accounted for as a change in estimate. |
|
|
Term
| example of change in accounting estimate |
|
Definition
| change in method of depreciation, amortization, or depletion of long-lived, nonfinancial assets. |
|
|
Term
| Should a change in accounting estimate be explained in the audit report? |
|
Definition
| Yes, if the change in estimate relates to a change in principle. |
|
|
Term
| change in reporting entity |
|
Definition
results when:
1. consolidated or combined F/S are presented in place of F/S of individual entities.
2. Consolidated F/S include subsidiaries different from those previously included.
3. Combined F/S include entities from those previously included. |
|
|
Term
| How is a change in reporting entity applied? |
|
Definition
| retrospective applied to interim and annual statements. |
|
|
Term
| Can a change in reporting entity does not result from a transaction or event? |
|
Definition
|
|
Term
| accounting errors result from... |
|
Definition
1. A mathematical mistake.
2. A mistake in the application of GAAP, or
3. An oversight or misuse of facts existing when the F/S were prepared. |
|
|
Term
|
Definition
| A change to a generally accepted accounting principle from one that is not is an error correction rather than an accounting change. |
|
|
Term
|
Definition
| An accounting error related to a prior period is reported as a prior-period statements. |
|
|
Term
| Does restatement require the same accounting adjustments as retrospective application of a new principle? |
|
Definition
|
|
Term
| prior-period adjustments reported in single-period adjustments... |
|
Definition
| are adjustments of the opening balance of retained earnings. |
|
|
Term
| If comparative statements are presented, how should corresponding adjustments be made? |
|
Definition
| Corresponding adjustments should be made to the amounts of net income (and its components) and retained earnings balances (and other affected balances) for all periods reported. |
|
|
Term
| change in accounting principle- GAAP to GAAP, including changes in Presentation of Cash Flows |
|
Definition
Current-Year's F/S: In comparative F/S, adjustments for periodic-specific effects and disclosure. In single-period F/S, adjustments for cumulative effect on beginning balances, and period-specific effects.
Prior Years' F/S: Retrospectively apply.
Add paragraph. |
|
|
Term
| change in accounting principle- Non GAAP to GAAP (correction of error in principle) |
|
Definition
Current-Year's F/S: prior-period adjustment and disclosure
Prior Years' F/S: restate
Add paragraph. |
|
|
Term
| change in reporting entity not from a transaction or event |
|
Definition
Current-Year's F/S: prior-period adjustment and disclosure
Prior Years' F/S: Retrospectively apply.
Add paragraph. |
|
|
Term
| change in estimate effected by a change in principle |
|
Definition
Current-Year's F/S: Disclosure
Prior Years' F/S: Prospectively apply.
Add paragraph. |
|
|
Term
| correction of error not involving principle (PCAOB AS No. 6 requires an additional paragraph for issuers) |
|
Definition
Current-Year's F/S: Disclosure
Prior Years' F/S: Prospectively apply. |
|
|
Term
| change in accounting estimate |
|
Definition
Current-Year's F/S: Disclosure
Prior Years' F/S: Prospectively apply. |
|
|
Term
|
Definition
Current-Year's F/S: Disclosure
Prior Years' F/S: Adjustment permitted. |
|
|
Term
| different (new) transactions |
|
Definition
Current-Year's F/S: None.
Prior Years' F/S: N/A. |
|
|
Term
| changes not material to current but may affect future F/S |
|
Definition
Current-Year's F/S: None.
Prior Years' F/S: N/A. |
|
|
Term
| change in reporting entity from a transaction or event (business combination) |
|
Definition
Current-Year's F/S: Disclosure.
Prior Years' F/S: N/A. |
|
|
Term
|
Definition
| A matter involving an uncertainty (including a contingency) is expected to be resolved at a future date. At the time, conclusive evidence about its outcome is expected to become available. |
|
|
Term
|
Definition
| If the auditor concludes that sufficient appropriate evidence supports the relevant assertions about the nature of an uncertainty, an unqualified opinion ordinarily is expressed, but an explanatory paragraph can be added. |
|
|
Term
|
Definition
| The auditor considers modifying the report by including a paragraph for a significant uncertainty other than a going concern issue. |
|
|
Term
| Does an uncertainty by itself require such a modification? |
|
Definition
| No. The auditor must distinguish between situations involving uncertainties that require no opinion modification and those that require modification b/c of a scope limitation or departure from GAAP. |
|
|
Term
| When does a scope limitation occur? |
|
Definition
| When sufficient appropriate evidence about the relevant assertions regarding the uncertainty does or did exist but was unavailable, for example, b/c or record retention policies or a client-imposed restriction. |
|
|
Term
| Management's responsibility w/regards to uncertainty. |
|
Definition
| Although sufficient appropriate evidence about the outcome of an uncertainty cannot be expected to exist at the time of the audit, management must analyze relevant existing conditions and their effects, and the auditor must assess whether the evidence is sufficient to support the analysis. A scope limitation arises when the auditor is prevented from making that assessment and results in a qualification or disclaimer. |
|
|
Term
| Departures from GAAP result in a qualified or an adverse opinion when... |
|
Definition
1. Disclosure is inadequate.
2. Inappropriate accounting principles or unreasonable estimates cause the statements to be materially misstated. |
|
|
Term
|
Definition
| If the auditor concludes that substantial doubt exists, an additional paragraph should be added to the end of the auditor's standard report. |
|
|
Term
| Can the auditor disclaim an opinion for going concern issues? |
|
Definition
|
|
Term
| explanatory paragraph for going concern |
|
Definition
The explanatory paragraph should include the terms substantial doubt and going concern.
The auditor should not use conditional language such as, "If the company is unable to obtain refinancing, there may be substantial doubt about the company's ability to continue as a going concern. |
|
|
Term
| If disclosures are inadequate... |
|
Definition
| the departure from GAAP may result in a qualified or an adverse opinion. |
|
|
Term
| Does substantial doubt arising in the current period imply that such doubt existed in the prior period? |
|
Definition
| No, so it shouldn't affect the report on prior-period statements. |
|
|
Term
| If the substantial doubt existed in the prior period and doesn't now, should the explanatory paragraph in the prior period be repeated for now? |
|
Definition
|
|
Term
| ISA and material uncertainty |
|
Definition
| If a material uncertainty about going concern exists, the auditor evaluates whether the statements clearly state the existence of the material uncertainty creating a going concern issue. The statements should describe the events and conditions resulting in the significant doubt about the entity's ability to continue as a going concern and management's related plans. |
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|
Term
| "financial statements take as a whole" |
|
Definition
This phrase in the fourth reporting standard applies to current-period and prior-period statements presented comparatively.
Thus, a continuing auditor should update the report for the prior period(s) presented. |
|
|
Term
| If audit firms merge and the new firm becomes the auditor of a former client of one of the merged firms, who becomes the continuing auditor? |
|
Definition
| The new firm may accept responsibility as a continuing auditor. The new firm may indicate that a merger took place and name the firm that was merged with it. |
|
|
Term
|
Definition
| The updated report considers information from the audit of the current-period statements and is issued with the report on those statements. |
|
|
Term
| Is an updated report a reissuance of a previous report? |
|
Definition
|
|
Term
| A continuing auditor need not report if... |
|
Definition
| only summarized comparative information of the prior periods is presented. For example, governmental units and non-profits often present total-all-funds information rather than information by individual funds. |
|
|
Term
| If the client requests an opinion on the prior period(s)... |
|
Definition
| the auditor should consider whether the information contains sufficient detail for a fair presentation. To avoid modification of the report, additional columns or separate detail by fund will usually be needed. |
|
|
Term
| When should the report on comparative statements be dated? |
|
Definition
| As of the date the auditor obtained sufficient appropriate evidence for the most recent audit. |
|
|
Term
| During the audit, the auditor should be alert for... |
|
Definition
| circumstances or events affecting the prior-period statements presented and should consider their effects when updating the report. |
|
|
Term
| The comparative F/S report applies to... |
|
Definition
individual F/S, so an auditor may:
1. express a qualified or adverse opinion.
2. disclaim an opinion.
3. include an explanatory paragraph for one or more statements for one or more periods while issuing a different report on the other statements. |
|
|
Term
| standard report on the prior-year F/S and a qualified opinion on the current-year F/S |
|
Definition
1. The intro and scope paragraphs are unchanged.
2. List how much the accounts are off.
3. Except for opinion paragraph. |
|
|
Term
| standard report on the current-year F/S w/disclaimer of opinion on the prior-year statements of income, retained earnings, and cash flows |
|
Definition
1. The intro and scope paragraphs are unchanged.
2. List how much the accounts are off.
3. Except for opinion paragraph. |
|
|
Term
| opinion on prior-period statements different from previous opinion |
|
Definition
| If the opinion was modified b//c of a departure from GAAP and the statements are restated in the current period to conform with GAAP, the updated report should indicate the restatement and express an unqualified opinion. |
|
|
Term
| opinion on prior-period statements different from previous opinion. When this occurs, an explanatory paragraph preceding the opinion paragraph should disclose... |
|
Definition
1. All substantive reasons for the different opinion.
2. Date of previous report.
3. Type of opinion previously expressed.
4. The circumstances or events that resulted in a different opinion.
5. That the updated opinion differs from the previous opinion. |
|
|
Term
| opinion on prior-period statements different from previous opinion- report |
|
Definition
| Intro, scope, and opinion paragraphs are the same as in the standard report. |
|
|
Term
| report of predecessor auditor |
|
Definition
| A predecessor auditor ordinarily may reissue the report for a prior period at the request of the former client if satisfactory arrangements are made to perform this service and certain procedures are performed. |
|
|
Term
| When can the predecessor auditor not reissue a report? |
|
Definition
| When the CPA is no longer in public practice? |
|
|
Term
| before reissuing (or consenting to reuse of) the report, the predecessor audit should... |
|
Definition
| consider whether the report is still appropriate given the current form or presentation of the prior-period statements and any subsequent events. |
|
|
Term
| procedures performed by predecessor auditor |
|
Definition
1. Read current-period F/S
2. Compare the prior-period F/S reported on with those to be presented comparatively
3. Obtain representation letter from the auditor.
3. Obtain a representation letter from management. |
|
|
Term
| representation letter from the auditor |
|
Definition
| the letter should state whether the audit revealed matters that might materially affect, or require disclosure in, the prior-period F/S |
|
|
Term
| representation letter from management |
|
Definition
letter should state whether:
1. new information indicates that previous representations should be modified and
2. any events have occurred subsequent to the B/S date of the latest prior-period statements reported on by the predecessor that would require adjustment to, or disclosure in, those F/S. |
|
|
Term
| Should the predecessor auditor refer to the report or to the work of the auditor in the reissued report? |
|
Definition
|
|
Term
| events or transactions subsequent to the ate of the previous report that may affect the report... |
|
Definition
| require the predecessor auditor to make inquiries and perform other necessary procedures, such as reviewing the relevant portions of the auditor's documentation. |
|
|
Term
| What date should the auditor use for the reissued report? |
|
Definition
| The sate of the previous report to avoid implications that s/he has examined records, transactions, or events after that date. |
|
|
Term
|
Definition
| If the predecessor auditor's report is revised (which usu. shouldn't happen) or the F/S are restated, the report should be dual-dated. |
|
|
Term
| introductory paragraph of the predecessor auditor's report should state the following... |
|
Definition
1. That the prior-period statements were audited by another auditor, but don't mention predecessor auditor unless a merger happened.
2. Date of predecessor's report.
3. Type of report issued by predecessor.
4. If a standard report is not issued, substantive reasons for not doing so. |
|
|
Term
| changes when predecessor auditor's report not presented |
|
Definition
Intro: add to it that the F/S were audited by other auditors as of X date.
Scope: unchanged.
Opinion: first line revised as "In our opinion, the Year 3 f/s referred to above..." |
|
|
Term
| If the predecessor did not issue a standard report... |
|
Definition
| the auditor should describe the nature of, and reasons for, the explanatory paragraph added to the report or the opinion qualification. |
|
|
Term
| If the F/S have been restated by the predecessor, |
|
Definition
| the intro paragraph should indicate that a predecessor reported on them before restatement. |
|
|
Term
| If the auditor believes that F/S reported on by predecessor auditor need revision... |
|
Definition
| the auditor should request that the client inform the predecessor and arrange for the three parties to resolve the matter (AU 561). |
|
|
Term
| comparative presentation of unaudited prior-year statements w/audited current-year statements |
|
Definition
| In these circumstances, the audit report on comparative statements presented in documents filed w/SEC should not refer to unaudited F/S, which should be clearly marked as such. |
|
|
Term
| When unaudited statements have been reviewed or compiled (and their status has been clearly marked), what should happen? |
|
Definition
Either:
1. The report on the prior period should be reissued (AU 530), or
2. The report on the current period should include as a separate paragraph a description on the responsibility assumed for the prior-period F/S. |
|
|
Term
| emphasis of a matter (AU 508) |
|
Definition
| a matter regarding the F/S may be emphasized in a separate (explanatory) paragraph w/out modifying the opinion. |
|
|
Term
| Should explanations/emphases-of-matter be included in the opinion paragraph? |
|
Definition
|
|
Term
| matters emphasized may include... |
|
Definition
a. The info that the entity is part of a larger enterprise.
b. Significant RPTs
c. An important subsequent event
d. An accounting matter (other than a change in principle) affecting comparability |
|
|
Term
| ISAs and emphasis-of-matter |
|
Definition
| The ISAs prefer that an emphasis-of-matter paragraph be included after the opinion paragraph. It generally does not state that emphasis of a matter is not a basis for qualifying the opinion. |
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