AUD-Lesson 6

Question 1

What should be included for the Auditor’s address?

Answer 1

The City and State where located

Question 2

What is Management Responsible for in regards to the Financial Statements?

Answer 2

Preparation and Fair Presentation of Financial Statements in accordance with the Applicable Financial Reporting Framework

Question 3

What is Management Responsible for in regards to Internal Control?

Answer 3

Internal Control Design, Implementation, Maintenance

Question 4

What are the headings in the Audit Report for an Unmodified Opinion for a Non-Issuer?

Answer 4

(TIM-AA) 
Title
Introduction
Management Responsibility
Auditor Responsibility
Audit Opinion

Question 5

What are the headings in the Audit Report for an Modified Opinion for a Non-Issuer?

Answer 5

(TIMA-BA) 
Title
Introduction
Management Responsibility
Auditor Responsibility
Basis for (Modified) Opinion
Audit Opinion

Question 6

In an Non-Issuer Unmodified Opinion with Emphasis-of-Matter / Other-Matter sections, what is the order of the headings?

Answer 6

(TIM-AA EMO) 
Title
Introduction
Management Responsibility
Auditor Responsibility
Audit Opinion
Emphasis-of-Matter
Other-Matter

Question 7

What are the requirements for referencing a Component Auditor in the Audit Report?

Answer 7

Component Financial Statements must be prepared using same Financial Reporting Framework as the Group Financial Statements; Component Auditor must have performed audit in accordance with GAAS or PCAOB Standards.

Question 8

What must the Group Engagement Partner do if they assume responsibility for the Component Auditor’s work?

Answer 8

Perform additional audit procedures; Be involved in Component Auditors work; Perform Risk Assessment procedures; Assess Risk of Material Misstatement

Question 9

Which clients can have compilation engagements?

Answer 9

Non-SEC (non-public) registrants only.

Question 10

What is a Forecast?

Answer 10

A prospective financial statement that uses normal circumstances. General and limited use allowed.

Question 11

What is a Projection?

Answer 11

A prospective financial statement using hypothetical situations. Only limited use by the client is allowed.

Question 12

What disclosures are required for remote likelihood of losses?

Answer 12

No disclosure required.

Question 13

What disclosure is required for a probable loss contingency?

Answer 13

Accrue if estimable. Emphasis-of-Matter paragraph if not estimable.

Question 14

What disclosure is made if a loss contingency is reasonably possible?

Answer 14

Auditor assesses need for Emphasis-of-Matter paragraph based on loss likelihood.

Question 15

How is a gain contingency reported?

Answer 15

Gain contingencies are not reported.

Question 16

How does an immaterial GAAP issue affect the audit opinion?

Answer 16

It doesn’t. Opinion is Unmodified.

Question 17

How does a very material GAAP issue affect the Audit Report?

Answer 17

Modified-Adverse Opinion is issued. Emphasis-of-Matter paragraph is added after Opinion paragraph.

Question 18

How do GAS standards compare to GAAS?

Answer 18

GAS is more strict than GAAS.

Question 19

What is required under the Single Audit Act?

Answer 19

Funding Threshold is $750,000. An audit performed under governmental auditing standards (GAS). A report on internal control is required. GAAS and GAS don’t require the I/C report.

Question 20

In the Audit Report, what is the Auditor’s responsibility?

Answer 20

Express an opinion in accordance with GAAS
Obtain reasonable assurance that F/S are free from material misstatement
Does not express an opinion on internal control
Audit evaluates accounting policies and significant estimates

Question 21

In the Audit Report, what is the Management’s responsibility?

Answer 21

Fair presentation of financial sheets in accordance with GAAP
Design, Implementation, and Maintenance of Internal Controls
The financial statements are free from material misstatement whether due to error or fraud.

Question 22

What are the sections of the report for a Unqualified Opinion for an Issuer?

Answer 22

Title
Introduction
Scope
Opinion
Explanatory Paragraph to Reference to auditor's report on internal controls (If applicable)