Completing the Audit
Which of the following is NOT a place we would primarily look when auditing contingent liability?
A.BOD meetings
B. contracts
C. prior year audit notes
D. loan agreements
C. prior year audit notes
What are the 4 types of audit opinions?
Unmodified
Modified
Adverse
Disclaimer
Who created the PCAOB's code of conduct?
AICPA
Provide 3 examples of covered members as it pertains to independence
Individual on the attest engagement team
Individual who can influence the attest engagement team
A partner/manager who provides 10 hours of nonattest services to the attest client
Partner in the office associated with the attest engagement
The firm, including employee benefit plan
Entity whose operating, financial, or accounting policies can be controlled by individual(s)/entities described above
What is an auditors best defense against being sued for negligence?
Due care (bear)
When does a subsequent event need to be reported/recorded on the financials statements vs. just being disclosed?
If the subsequent event occured before the audit period end date (usually 12/31)
What type of audit opinion would include an Explanatory Paragraph?
Unmodified/unqualified
What is the term for an auditors ever questioning attitude and mentality?
Professional skepticism
What does the Act of 1933 apply to?
IPOs only
How does the auditor obtain the BOD Meeting Minutes?
Requested from the client in the PBC list, usually from the CFOs assistant
List 2 reasons why you would have an explanatory paragraph in your audit report.
1) Opinion based in part on the report of another auditor
2) Substantial doubt about the client’s ability to continue as a Going Concern
3) Lack of comparability of financial statement between periods (Δ or correction)
4) Other (including auditor adding “emphasis paragraph”)
5a) Audit of internal controls over financial reporting (ICFR)
5b) Management reports on ICFR, but not audited
Describe Due Care
A member should observe the profession’s technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member’s ability.
What are the letters that proceed PCAOB guidance?
Ex. _ _ 2100
AS (Audit Standard)
What is privity?
Direct/tangible relationship to the
Describe how our materiality thresholds impact the final analytical procedures.
Materiality dictates the degree of precision we need to evaluate the account changes within the final analytical procedures. Some high risk or balance sheet account may need to be viewed outside the scope of materiality depending on the level of risk.
Give an example of when it is appropriate to have an accounting departure from GAAP
New industry
GAAP is inappropriate and misleading to the user of the FS
Describe the difference between immediate and close family as it pertains to independence
Immediate family is subject to Rule 1.200.001 and its interpretations and rulings
• Spouse or spousal equivalent
• Dependent
A close relative with a material investment (to the relative) in, or control over, the client impairs your independence (if you are aware of it)
• Parents
• Siblings
• Nondependent children
What are the four items you need to prove with the exchange act of 1934?
Material Misstatement; Reliance; Loss; Scienter
What is the auditor required to communicate to the Audit Committee?
-critical estimates and significant unusual transactions -disagreements with management
-uncorrected misstatements
-significant audit adjustments
-significant deficiencies and material weaknesses
You have been auditing a client for the past two weeks and this week the client has been acting strangely. To the point where your professional skepticism is wondering if something is wrong. The client mentions nothing is wrong, but also continues to act strangley in a manner that something is up. The client then ghost all your requests and stops showing up to the office. Upon review of the current bank account all of the money in the company has been withdrawn from the client in the last week. What audit opinion would we issue?
Disclaimer
Describe if a contingent fee would be an issue from the auditor in regards to the professional code of conduct
Yes - impairs indendence
How does materiality impact an auditors independence with respect to investments?
-Direct financial interest (e.g., individual stock ownership) Materiality does not matter for independence to be impaired
-Indirect financial interest (e.g., mutual fund ownership) Materiality does matter for independence (i.e., immaterial=not impaired)
Materiality of family member investments
A company IPO in June of 2022 and then issued its first audited 10-K report on 2/15/2023 for the fiscal year 2022. In May of 2023 it was discovered that the financial statements were mistated due to fraud. Which act would be applicable in a legal case against the auditors?
Both, depending on the circumstances of the fraud