Home > Preview
The flashcards below were created by user
on FreezingBlue Flashcards.
Thomas, CPA, has audited the consolidated financial statements of Kass Corporation. Jones, CPA, has audited the financial statements of its sole subsidiary, which is significant in relation to the total audited by Thomas. It would be appropriate for Thomas to serve as the group auditor, but it is impracticable for Thomas to review the work of Jones. Assuming an unmodified opinion is expressed by Jones, Thomas should
Express an unmodified opinion on the consolidated financial statements and refer to the work of Jones.
The group engagement team should obtain an understanding of the component auditor, a process that includes determining the extent, if any, to which the team will be able to be involved in the component auditor’s work. The group engagement partner then may decide to refer to the component auditor if (1) the component auditor meets relevant independence requirements for the group audit, (2) the group engagement team has no serious concerns about his/her professional competence or other ethical issues, (3) the component’s statements are prepared using the same reporting framework as that of the group statements (or responsibility is taken for adjustments to the group framework), (4) the component auditor’s report is not use-restricted, and (5) the component auditor has performed an audit in accordance with PCAOB standards (if required by law or regulation) or GAAS. If these requirements are met, the group engagement partner may decide (1) not to assume responsibility for the audit of the component auditor and (2) to refer to that audit. Moreover, the reference to the component auditor does not prohibit an unmodified opinion.
A CPA firm has decided to rely on the audit work performed by another audit firm. What procedures should the CPA firm perform when taking responsibility for the other firm’s audit work?
The assumption of responsibility requires involvement in the work of the component auditor. Involvement may include (1) performing risk assessment procedures, (2) performing further procedures, and (3) reviewing the component auditor’s documentation
When the group engagement partner assumes responsibility for the work of a component auditor, the auditor’s report on the group statements does not refer to the component auditor. However, the group engagement partner still must be satisfied that those performing the engagement, including component auditors, collectively possess the necessary competence. Moreover, the assumption of responsibility requires involvement in the work of the component auditor. Involvement may include (1) performing risk assessment procedures, (2) performing further procedures, and (3) reviewing the component auditor’s documentation
The component auditor performed an audit in accordance with PCAOB standards would a group auditor be likely to refer to the component auditor who audited the subsidiary of the entity?
YES ---- The group engagement partner may not refer to the audit of the component auditor unless the component auditor performed an audit in accordance with (1) GAAS or (2), if required by law or regulation, PCAOB auditing standards.
If there is a change in the percentage used to calculate the provision for warranty expense should a change in consistency be recognized in the auditors report
no --- A change in the calculation of warranty expense is a change in accounting estimate. Changes that affect comparability but not the consistent application of accounting principles do not require recognition in the auditor’s report.
An auditor who qualifies an opinion because of an inability to obtain sufficient appropriate audit evidence should describe the limitation in a basis for qualified opinion paragraph. What other section(s) of the auditor’s report should be modified?
Auditor’s Responsibility Section
When a qualified opinion results from an inability to obtain sufficient appropriate evidence, the auditor describes the matter in the basis for qualified opinion paragraph, not in a note to the statements. The description of the audit scope is the responsibility of the auditor, not management. The opinion paragraph should indicate that the qualification pertains to the possible effects on the financial statements, not to the scope limitation itself. The wording “. . . except for the possible effects of the matter described in the basis for qualified opinion paragraph . . .“ is appropriate. The following are the other effects on the auditor’s report when the opinion is qualified due to an inability to obtain sufficient appropriate evidence with possible effects that are material but not pervasive: (1) The introductory paragraph is unchanged; (2) the management’s responsibility paragraph is unchanged; and (3) the auditor’s responsibility section ends with the sentence, “We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.”
An auditor concludes that there is substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time. The entity’s financial statements adequately disclose its financial difficulties. Under these circumstances, the auditor’s report is required to include an emphasis-of-matter paragraph that specifically uses the phrase(s)
“substantial doubt” and “going concern.”
The auditor has a substantial doubt about the firm’s ability to continue as a going concern for a reasonable period of time. Accordingly, the auditor should include an emphasis-of-matter paragraph after the opinion paragraph in the report. This paragraph should include the terms “substantial doubt” and “going concern.” The specific phrases included in the question are not required.