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2025 CPA Exam – AUD (Section 1) Auditing & Attestation Ethics, Audit Risk,
and Engagement Responsibilities Verified Questions & Notes AICPA Aligned
Becker-Based
Statements |on |Auditing |Standards |(SAS) |- |answersstandard-setting |body: |AICPA |auditing |standards | board SAS |provide |GAAS |for |audits |of |non |issuers |(private) & |provides |guidance |for |other |services, |such |as |review |of |interim |financials |and |letters |to | underwriters PCAOB |Auditing |Standards |- |answersstandard-setting |body: |PCAOB |accounting |oversight |board PCAOB |AS |provide |GAAS |for |the |audits |of |issuers |(public) |& |provides |guidance |for |other |services, | such |as |review |of |interim |financials |and |letters |to |underwriters Generally |Accepted |Government |Auditing |Standards |(GAGAS) |- |answersstandard-setting |body: | governmental |accountability |office |(GAO) GAGAS |provide |guidance |for |audits |of |government |orgs, |programs, |activities, |and |of |entities |that | receive |government |funds Statements |on |Standards |for |Attestation |Engagements |(SSAE) |- |answersstandard-setting |body: |AICPA applies |to: |examination, |a |review, |or |agreed-upon |procedures |report |on |a |subject |matter, |or |an | assertion |about |a |subject |matter, |that |is |the |responsibility |of |another |party Statements |on |Standards |for |Accounting |and |Review |Services |(SSARS) |- |answersstandard-setting |body: |AICPA |accounting |and |review |services |committee provide |guidance |for |UNaudited |financials |of |non |issuers |(private) Code |of |Professional |Conduct |- |answersstandard-setting |body: |AICPA provides |MEMBERS |with |guidelines |for |BEHAVIOR |in |the |conduct |of |their |professional |affairs. also |provides |assurance |to |the |public |that |the |profession |intends |to |maintain |high |standards |and |to | enforce |compliance |with |these |standards |by |its |members applies |to: |members |of |the |AICPA Statements |on |Quality |Control |Standards |(SQCS) |- |answersstandard-setting |body: |AICPA provides |guidance |to |CPA |FIRMS |about |a |quality |control |system. | applies |to: |CPA |firms |providing |auditing, |attestation, |and |accounting |and |review |services
quality |control |system |- |answersconsists |of |policies |and |procedures |deisgned, |implemented, |and | maintained |to |ensure |that |the |firm |complies |with |professional |standards |and |appropriate |legal |and | regulatory |requirements, |and |that |any |reports |issued |are |appropriate |in |the |circumstances The |GAAS |Hierarchy |(most |authoritative |to |least) |- |answersSAS |(nonissuers) |& |PCAOB |AS |(issuers) Interpretive |Publications Other |Auditing |Publications SAS |(non |issuers) |& |PCAOB |AS |(issuers) |- |answersauditor |should |use |professional |judgement |& |be | prepared |to |justify |any |departures |from |presumptively |mandatory |requirements SAS |(non |issuers) |& |PCAOB |AS |(issuers) |- |LANGUAGE |- |answersclarifies |the |auditor's |level |of | responsibility
- |"must" |or |"is |required" |indicates |and |unconditional |requirement, |which |must |be |followed |in |all | cases |in |which |the |requirement |is |relevant
- |"should" |indicates |a |presumptively |mandatory |requirement, |which |must |be |followed |in |all |cases | where |relevant |except |in |rare |circumstances |when |departure |is |permitted |if |justified
- |"may," |"might," |and |"could" |indicate |explanatory |material |that |does |not |impose |a |professional | requirement |for |performance Interpretive |Publications |- |answersare |recommendations |regarding |how |SASs |should |be |applied |in | specific |situations. |
- |not |considered |to |be |auditing |standards
- |ex: |auditing |interpretations |of |GAAS, |exhibits |to |GAAS, |auditing |guidance |provided |in |AICPA |Audit | and |Accounting |Guides, |& |AICPA |Auditing |Statements |of |Position |(SOP) Other |Auditing |Publications |- |answershave |NO |authoritative |status |but |may |be |helpful |to |the |auditor
- |ex: |Auditing |articles |in |the |Journal |of |Accountancy |(or |other |professional |journal), |auditing |articles |in |the |AICPA |CPA |Letter, |continuing |professional |education |materials, |textbooks, |and |other |auditing | publications purpose |of |an |audit |- |answersto |provide |financial |statement |users |with |an |opinion |on |whether |the | financial |statements |are |presented |fairly, |in |all |material |respects, |in |accordance |with |the |applicable | financial |reporting |framework |(GAAP, |IFRS, |& |special |purpose |frameworks) Management |and |those |charged |with |governance |are |responsible |for: |- |answers1. |the |preparation | and |fair |presentation |of |the |FS |in |accordance |w |the |applicable |financial |reporting |framework
- |the |design, |implementation, |and |maintenance |of |internal |control |relevant |to |the |preparation |and | fair |presentation |of |FS |that |are |free |of |material |misstatement |due |to |error |or |fraud; |and
- |providing |the |auditor |with |access |to |information |and |persons |within |the |entity |needed |to |complete |the |audit
-the |nature, |extent, |and |timing |of |audit |procedures |(NET) -evaluating |whether |sufficient |sufficient, |appropriate |evidence |has |been |obtained -evaluating |management's |judgements |in |applying |the |applicable |financial |reporting |framework -drawing |conclusions |based |on |audit |evidence |obtained compliance |with |GAAS |- |answersAuditor |shouldn't |represent |compliance |with |GAAS |in |auditor's | report |unless |auditor |has |complied |with |all |GAAS |relevant |to |audit If |objective |of |relevant |GAAS |section |cannot |be |achieved, |auditor |should |consider |whether |this | prevents |auditor |from |achieving |overall |objectives |of |auditor |thereby |requiring |modification |of | opinion/withdrawal |from |engagement Auditor |May |Conduct |Audit |in |Accordance |with |both |GAAS |and: |- |answers-auditing |standards |issued | by |the |PCAOB -international |standards |on |auditing |(ISAs) -government |auditing |standards |(GAGAS); |or -auditing |standards |of |a |specific |jurisdiction |or |country Reasonable |Assurance |- |answersIn |order |to |express |an |opinion, |the |auditor |obtains |reasonable | assurance |about |whether |the |FS |are |free |from |material |misstatement, |whether |due |to |error |or |fraud. Reasonable |assurance |is |a |high, |but |not |absolute, |level |of |assurance. |in |order |to |obtain |reasonable | assurance, |the |auditor |must:
- |plan |the |work |and |properly |supervise |any |assistants
- |determine |and |apply |appropriate |materiality |levels
- |identify |and |assess |risks |of |material |misstatement, |whether |due |to |error |or |fraud; |and
- |obtain |sufficient |appropriate |audit |evidence weak |internal |control |- |answersdoes |NOT |mean |adverse |opinion
- |just |means |it |needs |more |work |or |evidence |to |prove |it The |auditor |is |unable |to |obtain |absolute |assurance |due |to: |- |answers1. |the |nature |of |financial | reporting
- |accounting |estimates
- |the |nature |of |audit |procedures
- |fraud |is |concealed, |management |did |not |provide |complete |info, |intentionally |or |unintentionally, |etc
- |timeliness |of |financial |reporting |and |balance |between |cost |and |benefit Determining |the |Nature |& |Scope |of |the |Engagement |- |answersNonissuers |(private): When |auditing |non |issuers, |auditor |must |determine |if |an |audit |is |the |most |appropriate |engagement, | or |whether |a |review, |compilation, |or |preparation |may |be |more |appropriate. |if |audit |is |needed, |non | issuers |have |the |choice |of:
- |a |FS |audit |only |(one |opinion |is |rendered |on |the |fairness |of |the |FS); |or
- |an |integrated |audit |(TWO |opinions |are |rendered: |one |on |the |fairness |of |FS |& |one |on |the |operating |effectiveness |of |internal |controls |over |financial |reporting) Issuers |(public): |auditors |MUST |perform |an |integrated |audit |of |the |client's |FS |& |internal |controls |over |financial |reporting Objectives |of |the |Financial |Statement |Audit |- |answersobjective |of |the |auditor |(applies |to |audits |of | issuers, |non |issuers, |and |governmental |entities) |are:
- |to |obtain |reasonable |assurance |about |whether |or |not |the |FS |as |a |whole |are |free |from |material | misstatement, |whether |due |to |fraud |or |error; |and
- |to |report |on |the |FS |and |communicate |as |required |by |GAAS |based |on |the |auditor's |findings Objectives |of |the |Audit |of |Internal |Control |Over |Financial |Reporting |- |answersoverall |objectives |of |the |auditor |are:
- |express |an |opinion |on |the |effectiveness |of |the |company's |internal |control |over |financial |reporting; | and
- |plan |and |perform |the |audit |to |obtain |appropriate |evidence |that |is |sufficient |to |obtain |reasonable | assurance |about |whether |material |weaknesses |exist |as |of |the |date |specified |in |management's | assessment unmodified |(unqualified) |opinion |- |answersclean |opinion states |that |the |FS |present |fairly, |in |all |material |respects, |the |financial |position, |results |of |operations, | and |cash |flows |of |the |entity |in |conformity |with |the |applicable |financial |reporting |framework unmodified |/ |emphasis-of-matter/other-matter |- |answersnon |issuers |- |private unqualified |/ |explanatory |- |answersissuers |- |public modifications |to |the |auditor's |opinion |- |answersauditor's |report |should |be |modified |when: 1- |auditor |concludes |that |the |FS |as |a |whole |are |materially |misstated |(FS |issue); |or 2- |auditor |is |unable |to |obtain |sufficient |appropriate |audit |evidence |to |conclude |that |the |FS |as |a | whole |are |free |from |material |misstatements |(audit |issue)
for |each |CAM |identified, |the |audit |report |should |include: |- |answers- |identification |of |the |CAM;
- |description |of |the |principal |considerations |that |led |the |auditor |to |determine |that |the |matter |was |a | CAM;
- |description |of |how |the |CAM |was |addressed |in |the |audit; |and
- |reference |to |the |relevant |financial |statement |accounts |or |disclosures (IPAD) Documentation |of |CAMs |- |answersFor |each |matter |arising |from |the |audit |of |the |financial |statements | that:
- |was |communicated |or |required |to |be |communicated |to |the |audit |committee; |and
- |relates |to |accounts |or |disclosures |that |are |material |to |the |FS, the |auditor |must |document |whether |the |matter |was |determined |to |be |a |CAM |and |the |basis |for |such | determination when |management |is |required |to |report |on |the |comp's |internal |control |over |financial |reporting |but | such |a |report |is |not |required |to |be |audited, |and |the |auditor |has |not |been |engaged |to |perform |an | audit |of |management's |assessment |of |the |effectiveness |of |IC |over |financial |reporting, |the |auditor | must: |- |answersinclude |statements |in |the |auditor's |report |in |the |Basis |for |Opinion |section |that:
- |the |company |is |NOT |required |to |have, |nor |was |the |auditor |engaged |to |perform, |an |audit |of |its | internal |control |over |financial |reporting;
- |as |part |of |the |audit, |the |auditor |is |required |to |obtain |an |understanding |of |IC |over |fin. |reporting |but | NOT |for |the |purpose |of |expressing |an |opinion |on |the |effectiveness |of |the |company's |IC |over |fin. | reporting; |and
- |the |auditor |expresses |no |such |opinion when |examiners |require |us |to |respond |to |questions |concerning |the |unqualified |audit |opinion |(issuer), |you |must |remember: |- |answersPCAOB |Auditing |Standards |----> |Basis |for |Opinion GAAP |(or |other |financial |rep. |framework) |---> |Opinion |on |the |FS |section The |auditor |of |an |issuer |must |file |Form |AP |with |the |PCAOB |for |each |audit |report |issued. |This |form | includes |info |about |the |audit, |such |as: |- |answers- |name |of |the |firm
- |name |of |the |issuer |whose |FS |are |audited
- |date |of |the |audit |report
- |the |end |date |of |the |most |recent |period's |financial |statements |identified |in |the |audit |report
- |the |name |of |the |engagement |partner |on |the |most |recent |period's |audit |and |his/her |current |and | prior |ID |numbers
- |the |city |& |state |(or |country) |of |the |office |of |the |firm |issuing |the |audit |report
- |whether |the |audit |report |is |dual-dated
- |whether |other |accounting |firms |participated
- |whether |the |firm |divided |responsibility |for |the |audit
- |signature |of |partner |or |authorized |officer Form |AP |must |be |filed |by |the |____ |day |after |the |audit |report |is |first |filed |in |a |document |with |the |SEC |OR |within |___ |days |if |the |audit |report |is |included |in |a |registration |statement |- |answers35th |day within | 10 |days although |not |required, |the |auditor |of |an |issuer |may |elect |to |include |in |the |auditors |report |info | regarding |the |engagement |partner |and/or |other |accounting |firms |participating |in |the |audit. |if |they | do, |they |must |disclose |the |following: |- |answers- |the |engagement |partner's |full |name; |and/or
- |for |other |accounting |firms |participating |in |the |audit, |a |statement |that |the |auditor |is |responsible |for | the |audits |or |audit |procedures |performed |by |the |other |public |accounting |firms |& |has |supervised |or | performed |procedures |to |assume |responsibility |for |their |work |in |accordance |with |PCAOB |standards. | in |addition, |the |auditor |should |include |info |regarding |the |percentage |of |total |audit |hours |the |other | audit |firm |participated |in |the |audit most |common |GAAP |problems |examiners |say |you've |encountered: |- |answers1- |unjustified |GAAP | consistency |change 2- |inadequate |disclosure 3- |unjustified |departure |from |GAAP 4- |unreasonable |accounting |estimate a |material |misstatement |of |the |financial |statements |may |arise |in |relation |to |the |following: |- | answers1) |the |appropriateness |of |accounting |policies
- |the |application |of |accounting |policies
- |the |appropriateness |of |the |FS |presentation |or |the |appropriateness |or |adequacy |of |disclosures |in | the |FS Material |misstatements |related |to |(1) |the |appropriateness |of |accounting |policies |may |arise |when: |- | answers- |accounting |policies |are |not |in |accordance |with |the |applicable |financial |reporting |framework
- |the |FS |do |not |represent |the |underlying |transactions |and |events |in |a |manner |that |achieves |fair | presentation; |or
- |the |entity |has |not |complied |with |the |financial |reporting |framework |requirements |for |accounting |for | and |disclosing |changes |in |accounting |policies Material |misstatements |related |to |the |APPLICATION |of |accounting |policies |may |arise |when: |- | answers- |management |has |not |applied |accounting |policies |in |accordance |with |the |applicable |financial |reporting |framework |(expensing |rather |than |capitalizing)
3-refusal |of |management |to |provide |written |representation |and/or |acknowledge |its |responsibility |for | the |fair |presentation |of |the |FS |in |conformity |w/ |GAAP 4-refusal |of |client's |attorney |to |respond |to |inquiry the |inability |to |perform |a |specific |procedure |is |not |a |limitation |on |the |scope |of |the |audit |if |the | auditor |is |able |to |obtain |sufficient |appropriate |audit |evidence |by |performing |alternative |procedures |- | answersif |alternative |procedures |cannot |be |performed, |the |auditor |should |express |a |qualified |opinion |or |a |disclaimer |of |opinion GAAS |problems |can |be: |- |answersinsufficient |evidence, |going |concern, |not |independent if |management |will |not |remove |a |management-imposed |scope |limitation, |- |answersthe |auditor |should |communicate |with |those |charged |with |governance |and |determine |whether |it |is |possible |to |perform | alternative |procedures if |the |auditor |is |unable |to |obtain |sufficient |appropriate |audit |evidence |due |to |a |management-imposed |scope |limitation |and |the |auditor |concludes |undetected |misstatements |could |be |both |material |and | pervasive, |- |answersthe |auditor |should |either |disclaim |an |opinion |or |withdraw |from |the |engagement. withdrawal |may |not |be |possible |if |the |auditor |has |substantially |completed |the |audit, |or |if |the |audit |is |required |by |law |or |regulation the |auditor |may |choose |to |add |an |"other-matter" |(explanatory) |paragraph |to |describe |the |reasons | why |the |auditor |cannot |withdraw |from |an |engagement |when |the |auditor |is |unable |to |obtain | sufficient |appropriate |audit |evidence |due |to |a |management-imposed |scope |limitation |& |the |possible | effects |on |the |FS |of |undetected |misstatements |could |be |both |material |and |pervasive when |the |auditor |is |NOT |independent |but |is |required |by |law |or |regulation |to |report |on |the |FS, |the | auditor |should: |- |answersdisclaim |an |opinion |and |should |specifically |state |that |the |auditor |is |not | independent. if |the |auditor |chooses |to |provide |the |reasons |for |the |lack |of |independence, |the |auditor |should | include |all |reasons an |accountant |who |is |associated |with |the |FS |of |an |engagement |that |is |conducted |in |accordance |with | PCAOB |standards |without |auditing |or |reviewing |them |should |issue |a |disclaimer |of |opinion. |other | requirements |for |this |type |of |disclaimer |on |unaudited |FS |include: |- |answers-the |accountant |must |read |the |FS |for |obvious |errors -the |disclaimer |may |accompany |the |unaudited |FS |or |it |may |be |placed |directly |on |them -"unaudited" |should |be |clearly |marked |on |each |page |of |the |FS
-if |client |refuses |to |correct |an |obvious |error, |the |auditor |should |add |a |paragraph |modifying |the | disclaimer |to |describe, |in |a |separate |explanatory |paragraph, |the |nature |and |effect |of |the |departure | from |GAAP if |the |client |refuses |to |accept |the |modified |disclaimer, |the |auditor |should |withdraw |from |the | engagement when |exam |questions |indicate |that |the |FS |are |false, |fraudulent, |deceptive |or |misleading, |that | management |refuses |to |correct |them, |and |that |the |modification |of |the |CPA's |report |is |not |sufficient | to |correct |the |item, |the |CPA |should |- |answersconsider |withdrawing |from |the |engagement Nonissuer |Reports |(modified |opinion-audit |issue/GAAS |problem) |- |answerswhen |the |auditor |expresses |a |qualified |opinion |or |a |disclaimer |or |opinion, |the |auditor's |responsibility |paragraph |is |modified |and | the |auditor's |report |will |include |a |Basis |for |Modification |paragraph |and |a |Qualified |Opinion |or | Disclaimer |of |Opinion |paragraph, |as |appropriate a |disclaimer |of |opinion |will |also |include |a |modification |to |the |introductory |paragraph when |the |auditor |expresses |a |qualified |opinion |due |to |a |scope |limitation, |the |opinion |paragraph | states |that |the |qualification |relates |to |the: |- |answerspossible |effect |of |the |matter |on |the |FS |and |not | the |scope |limitation |itself exam |trick: |use |exact |wording, |additional |words |or |phrases |are |wrong Issuer |Report |(modified |opinion-audit |issue/GAAS |problem) |- |answerswhen |the |auditor |expresses |a | qualified |opinion |or |disclaimer |of |opinion, |a |paragraph |immediately |following |the |opinion |paragraph | is |added |and |the |opinion |paragraph |is |modified. |A |qualified |opinion |and |disclaimer |of |opinion |will | include |modified |language |in |the |Basis |for |Opinion |section. Emphasis-of-Matter |paragraph |(nonissuers) |- |answersused |when |referring |to |a |matter |that |is | appropriately |presented |or |disclosed |in |the |FS |and |is |of |such |importance |that |it |is |fundamental |to |the |users' |understanding |of |the |FS -the |inclusion |of |an |emphasis-of-matter |paragraph |does |not |affect |the |auditor's |opinion when |an |emphasis-of-matter |paragraph |is |included |in |the |auditor's |report, |the |auditor |should: |- | answers1-place |the |paragraph |immediately |after |the |opinion |paragraph 2-use |the |heading |"emphasis-of-matter" |or |other |appropriate |heading 3-describe |the |matter |being |emphasized |and |the |location |of |relevant |disclosures |about |the |matter |in | the |FS; |and 4-indicate |that |the |auditor's |opinion |is |not |modified |with |respect |the |the |matter |emphasized an |emphasis-of-matter |paragraph |is |required |in |the |following |circumstances: |- |answersGAASP
-prior |to |the |audit |report |date, |the |auditor |identifies |a |material |inconsistency |in |other |info |that |is | included |in |a |document |containing |audited |FS |that |requires |revision |of |the |other |info |& |management | refuses |to |make |the |revision -when |the |auditor |chooses |to |report |on |supplementary |info |presented |with |the |FS |in |the |auditor's | report, |rather |than |in |a |separate |report -to |refer |to |required |supplementary |info |that |a |designated |accounting |standards |setter |requires |to | accompany |an |entity's |basic |FS -to |restrict |the |use |of |the |auditor's |report |when |special |purpose |FS |are |prepared |in |accordance |with | a |contractual |or |regulatory |basis |intended |for |general |use -a |report |on |compliance |is |included |in |the |auditor's |report |on |the |FS An |other-matter |paragraph |MAY |be |necessary |in |the |following |circumstances: |- |answers-to |describe | the |reasons |why |the |auditor |cannot |withdraw |from |an |engagement |when |the |auditor |is |unable |to | obtain |sufficient |appropriate |audit |evidence |due |to |a |management-imposed |scope |limitation |and |the | possible |effects |on |the |FS |of |undetected |misstatements |could |be |both |material |and |pervasive, |but | the |auditor |is |unable |to |withdraw |from |the |engagement -law, |regulation, |or |generally |accepted |practice |require |or |permit |the |auditor |to |provide |further | explanation |of |the |auditor's |responsibilities -the |auditor |has |been |engaged |to |report |on |more |than |one |set |of |FS |when |each |set |of |FS |has |been | prepared |in |accordance |with |a |different |general-purpose |framework Explanatory |Paragraph |(issuers) |- |answersthe |explanatory |paragraph |generally |should |include |an | appropriate |title. |the |paragraph |should |describe |the |matter |being |emphasized |and |the |location |of | relevant |disclosures |about |the |matter |in |the |FS an |explanatory |paragraph |is |required |in |the |following |circumstances: |- |answers-there |is |substantial | doubt |about |the |entity's |ability |to |continue |as |a |going |concern -there |has |been |a |material |change |between |periods |in |accounting |principles |or |in |the |method |of |their |application -there |has |been |a |change |in |reporting |entity -there |has |been |a |change |in |an |investee |year-end |that |has |a |material |effect |on |the |company's |FS -a |material |misstatement |in |previously |issued |FS |has |been |corrected -other |info |in |a |document |containing |audited |FS |is |materially |inconsistent |w |info |appearing |in |the |FS -selected |quarterly |financial |data |required |by |SEC |Regulation |S-K |has |been |omitted |or |has |not |been | reviewed -supplementary |info |required |by |an |applicable |financial |reporting |framework |has |been |omitted an |explanatory |paragraph |is |required |in |the |following |circumstances: |NO |TITLE |IS |REQUIRED |- | answers-the |prior |year |audit |report |is |not |presented
-the |prior |year |opinion |is |updated -management |is |required |to |report |on |the |company's |internal |controls |over |financial |reporting |but | such |report |is |not |required |to |be |audited, |and |the |auditor |has |not |been |engaged |to |perform |an |audit |of |management's |assessment |of |the |effectiveness |of |the |company's |internal |control |over |financial | reporting Consistency |deals |with |the |comparability |of |the |FS |from |year |to |year |- |answersunless |the |auditor's | report |explicitly |states |otherwise, |the |auditor's |report |implies |that |the |FS |are |comparable |between | periods -the |auditor |should |evaluate |whether |the |comparability |of |consistency |of |the |FS |between |periods |has |been |affected |by |a |change |in |accounting |principle |or |by |an |adjustment |to |correct |a |material | misstatement |in |previously |issued |FS the |following |situations |require |an |emphasis-of-matter |(explanatory) |paragraph: |- |answers-a |change | in |accounting |estimate |that |is |inseparable |from |a |change |in |accounting |principle |(change |in | depreciation |method) -corrections |of |an |error |in |accounting |principle |(cash |to |accrual) -a |change |in |reporting |entity |that |results |in |FS |that |are, |in |effect, |those |of |a |different |reporting |entity -correction |of |a |material |misstatement |in |previously |issued |FS if |an |entity's |FS |include |a |significant |investment |accounted |for |using |the |equity |method, |- |answersthe |auditor's |evaluation |of |consistency |should |include |consideration |of |the |investee. -if |the |investee |makes |a |change |in |accounting |principle |that |is |material |to |the |investing |entity, |the | change |should |be |described |in |an |emphasis-of-matter |(explanatory) |paragraph if |the |effect |of |a |change |in |accounting |principle |is |immaterial, |no |revision |to |the |report |is |necessary |- | answersif |the |effect |is |material, |an |emphasis-of-matter |(explanatory) |paragraph |should |be |added |& |it | should |describe |the |change |in |principle |and |provide |reference |to |the |entity's |disclosure |about |the | change. -emphasis-of-matter |(explanatory) |paragraph |should |be |included |in |the |auditor's |report |in |the |period | of |the |change |and |all |subsequent |periods, |until |the |new |principle |is |applied |to |all |periods |presented. -if |the |change |in |principle |is |retroactive, |the |emphasis-of-matter |(explanatory) |paragraph |is |only | needed |in |the |period |of |change alert |that |restricts |the |use |of |the |auditor's |written |communication |is |included |in |a(n) |- |answersother- matter |(explanatory) |paragraph an |auditor's |written |communication |should |include |an |alert |that |restricts |its |use |when |the |subject | matter |of |the |auditor's |written |communication |is |based |on: |- |answers-measurement |or |disclosure | criteria |that |are |suitable |for |only |a |limited |number |of |users |who |have |an |adequate |understanding |of | the |criteria
(explanatory) |paragraph: |- |answers1. |that |the |FS |of |the |prior |period |were |audited |by |a |predecessor | auditor
- |the |type |of |opinion |expressed |by |the |predecessor |auditor |and, |if |the |opinion |was |modified, |the | reasons |for |the |modification
- |the |nature |of |any |emphasis-of-matter, |other-matter, |or |explanatory |paragraph |included |in |the | predecessor |auditor's |report
- |the |date |of |the |predecessor |auditor's |report whenever |unaudited |FS |are |presented |in |comparative |form |with |audited |FS, |- |answersthe |unaudited | FS |should |be |clearly |marked |to |indicate |their |status when |the |current |period |FS |are |audited |and |presented |in |comparative |form |with |prior |period |FS |that | were |reviewed |or |compiled, |and |the |report |of |the |prior |period |is |not |reissued, |the |auditor |should: |- | answersinclude |an |other-matter |(explanatory) |paragraph |in |the |auditor's |report |that |includes:
- |the |service |(review |or |compilation) |performed |in |the |prior |period
- |the |date |of |the |prior |period |report
- |a |description |of |any |material |modifications |described |in |the |report; |and
- |a |statement |that |the |service |was |less |in |scope |than |an |audit |and |does |not |provide |basis |for | expressing |an |opinion |on |the |FS |as |a |whole if |the |prior |period |statements |were |not |audited, |reviewed |or |compiled, |- |answersthe |FS |should |be | clearly |marked, |and |the |auditor's |report |should |include |an |other-matter |(explanatory) |paragraph |to | indicate |the |auditor |did |not |audit, |review, |or |compile |the |prior |period |FS |and |that |the |auditor | assumes |no |responsibility |for |them a |component |auditor |is: |- |answersan |auditor |who |performs |work |on |the |financial |information |of |a | component |that |will |be |used |as |audit |evidence |for |the |group |audit. a |component |auditor |may |be |part |of |the |group |engagement |partner's |firm, |a |network |firm, |or | another |firm group |engagement |partner |(as |named |by |the |AICPA) |- |answersprincipal |auditor |(as |named |by |the | PCAOB) is |the |partner |or |other |person |in |the |firm |who |is |responsible |for |the |group |audit |engagement |and |for |the |auditor's |report |on |the |group |FS if |the |component |auditor |is |not |independent |or |the |group |engagement |team |has |serious |concerns, |- | answersthey |should |NOT |use |the |work |of |the |component |auditor |or |make |reference |to |the | component |auditor |in |the |auditor's |report
Make |no |reference |in |the |audit |report: when |the |group |engagement |partner |decides |to |assume |responsibility |for |the |work |of |the |component |auditor, |- |answersno |reference |to |the |component |auditor |should |be |made |in |the |auditor's |report | because |to |do |so |may |cause |a |reader |to |misinterpret |the |degree |of |responsibility |being |assumed Make |Reference |in |the |Audit |Report: reference |to |the |component |auditor |should |not |be |made |unless |the |following |two |requirements |are | met: |- |answers1. |the |component |auditor |has |performed |an |audit |in |accordance |with |the |relevant | requirements |of |GAAS, |or |when |required, |the |PCAOB
- |the |component |auditor's |report |is |NOT |restricted |use when |making |reference |to |the |component |auditor, |it |should |be |discussed |in |the |auditor's |report | under: |- |answersthe |auditor's |responsibility |paragraph |(nonissuer) |or |the |Opinion |on |the |FS |and |Basis | for |Opinion |sections |(issuer) an |audit |of |a |single |FS |or |of |specific |elements, |accounts, |or |items |of |a |FS |may |be |performed |as: |- | answersa |separate |engagement | OR in |conjunction |with |an |audit |of |an |entity's |complete |set |of |FS when |auditing |a |single |FS |or |a |specific |elect |of |a |FS, |the |auditor |should |obtain |an |understanding |of: |- | answers1. |the |purpose |for |which |the |single |FS |or |specific |element |of |a |FS |is |prepared
- |the |intended |users; |and
- |the |steps |taken |by |management |to |determine |that |the |applicable |financial |reporting |framework |is | acceptable |in |the |circumstances when |auditing |a |single |FS |or |a |specific |element |of |a |FS, |the |auditor |should |perform |procedures |on: |- | answersany |interrelated |items |as |necessary ex: sales |and |receivables inventory |and |payables fixed |assets |and |depreciation when |auditing |both |a |single |FS |or |a |specific |element |and |an |entity's |complete |set |of |FS, |the |auditor | can: |- |answersuse |audit |evidence |obtained |during |the |audit |of |the |complete |set |of |FS |in |the |audit |of | the |single |FS |or |specific |element when |the |specific |element |is, |or |is |based |on, |stockholders' |equity, |the |auditor |should: |- | answersperform |procedures |necessary |to |express |an |opinion |about |the |financial |position |because |of | the |interrelationship |between |SH |equity |and |the |balance |sheet |accounts
-settlement |of |litigation |(if |litigation |arose |after |the |BS |date) -loss |of |plant |or |inventory |due |to |fire |or |natural |disaster -changes |in |the |FV |of |assets |or |liabilities |or |foreign |exchange |rates -entering |into |significant |commitments |or |contingent |liabilities **nonrecognized |subsequent |events |should |be |disclosed |if |disclosure |is |necessary |to |keep |the |FS | from |being |misleading public |companies |and |other |entities |that |intent |to |widely |distribute |FS |must |evaluate |subsequent | events |through |the |date |that |the |FS |are |ISSUED |- |answersFS |are |considered |to |be |issued |when |they | have |been |widely |distributed |to |FS |users |in |a |form |and |format |that |complies |with |GAAP all |other |entities |must |evaluate |subsequent |events |through |the |date |the |FS |are |AVAILABLE |to |be | issued |- |answersFS |are |available |to |be |issued |when |they |are |in |a |form |and |format |that |complies |with | GAAP |and |all |approvals |for |issuance |have |been |obtained when |an |entity |reissues |its |FS, |the |entity |should |NOT: |- |answersrecognize |events |that |occurred | between |the |date |the |original |FS |were |issued |or |available |to |be |issued |and |the |date |that |the |FS |were |reissued |unless |an |adjustment |is |required |by |GAAP |or |other |regulatory |requirements NONissuers |must |disclose |the |date |through |which |subsequent |events |have |been |evaluated |- | answersthis |disclosure |is |NOT |required |for |issuers |to |avoid |potential |conflicts |with |current |SEC | guidance revised |FS |are |FS |that |have |been |revised |to |correct |an |error |or |to |reflect |the |retrospective |application |of |US |GAAP |- |answers-revised |FS |are |considered |reissued |FS. -a |NONissuer |should |disclose |in |its |revised |FS |the |dates |through |which |subsequent |events |have |been | evaluated |in |both |its |issued/available-to-be-issued |FS |and |its |revised |FS -this |disclosure |is |NOT |required |for |issuers the |period |between |the |date |of |the |FS |and |the |date |of |the |auditor's |report |is |called |the |subsequent | period |- |answersduring |this |period, |the |auditor |has |an |active |responsibility |to |investigate |certain | subsequent |events during |the |subsequent |period, |the |auditor |should |obtain |an |understanding |of |the |procedures | management |has |established |to |identify |subsequent |events |and |should |perform |the |following | procedures: |- |answers1. |Post |balance |sheet |transactions -review |for |proper |cutoff |and |to |better |evaluate |year-end |balances
- |Representation |letter -from |management |(CEO |and |CFO) |regarding |whether |any |events |occurred |during |the |subsequent | period |that |require |adjustments |to |or |disclosures |in |the |FS
- |Inquiry
-inquire |of |client's |legal |counsel |concerning |litigation, |claims, |and |assessments -also |inquire |of |management |and |those |charged |with |governance |about |any |subsequent |events |that | could |affect |the |FS
- |Minutes -review |the |minutes |of |stockholders, |directors, |and |other |committee |meetings |during |the |subsequent |period
- |Examine -examine |the |latest |available |interim |FS |and |compare |them |with |the |FS |under |audit the |auditor |has |NO |active |responsibility |to |make |any |inquiries |or |to |perform |any |further |auditing | procedures |to |discover |subsequent |events |AFTER |the |original |date |of |the |auditor's |report |except | when: |- |answers1. |auditor's |report |on |FS |is |included |in |an |exempt |offering |document |and |the |auditor |is |involved |in |the |offering |(extend |subsequent |procedures |to: |the |date |of |the |distribution, |circulation, |or |submission |of |the |exempt |offering |document)
- |auditor's |report |is |included |in |a |registration |statement |(extend |subsequent |procedures |to: |the |date |of |or |shortly |before |the |effective |date |of |the |registration |statement) if |information |that |materially |affects |the |report |and |other |persons' |reliance |on |it |is |discovered |(and | confirmed |by |the |auditor) |AFTER |issuance |of |the |report, |the |auditor |should: |- |answersadvise |the | client |to |immediately |disclose |the |new |information |and |its |impact |on |the |FS |to |persons |currently | relying |on |or |likely |to |rely |on |the |FS. This |may |be |accomplished |by: | -advising |the |client |to |issue |REVISED |FS |(along |w |a |new |auditor's |report) |describing |the |reasons |for | the |revision -advising |the |client |to |make |the |necessary |disclosures |& |revisions |to |any |imminent |FS |(accompanied | by |an |auditor's |report |for |a |subsequent |period); |or -if |the |effect |on |the |FS |cannot |be |determined |on |a |timely |basis, |providing |notification |that |the |FS |and |auditor's |report |should |not |be |relied |upon if |adjustments |or |disclosures |are |made |AFTER |the |original |date |of |the |auditor's |report, |the |auditor | may: |- |answersdual |date |the |report |to |extend |responsibility |ONLY |for |the |particular |subsequent | event. -the |original |date |of |the |report |is |retained |for |the |rest |of |the |FS ex: |"January |21, |20X2, |except |as |to |Note |2, |which |is |as |of |February |3, |20X2"
