...documentation the auditor should prepare and retain in connection with engagements conducted pursuant to the standards of the Public Company Accounting Oversight Board ("PCAOB"). Such engagements include an audit of financial statements, an audit of internal control over financial reporting, and a review of interim financial information. This standard does not replace specific documentation requirements of other standards of the PCAOB. Objectives of Audit Documentation 2. Audit documentation is the written record of the basis for the auditor's conclusions that provides the support for the auditor's representations, whether those representations are contained in the auditor's report or otherwise. Audit documentation also facilitates the planning, performance, and supervision of the engagement, and is the basis for the review of the quality of the work because it provides the reviewer with written documentation of the evidence supporting the auditor's significant conclusions. Among other things, audit documentation includes records of the planning and performance of the work, the procedures performed, evidence obtained, and conclusions reached by the auditor. Audit documentation also may be referred to as work papers or working...
Words: 9903 - Pages: 40
...to the many scandals in corporate financial reporting, the United States Congress passed legislature in 2002 that required publicly traded companies to contain within each annual report an internal control report. The internal control report requires companies to state the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting. The internal control report must also contain an assessment of the effectiveness of the internal control structure and procedures of the issuer for financial reporting. These rules are referred to as and contained in Section 404 of the Sarbanes Oxley Act (“SOX”). This paper will touch upon an introduction to the SOX Act,...
Words: 1295 - Pages: 6
...commonly refers to audits in accounting, but similar concepts also exist in project management, quality management, and energy conservation. Financial audits are typically performed by firms of practising accountants who are experts in financial reporting. The financial audit is one of many assurance functions provided by accounting firms. Many organizations separately employ or hire internal auditors, who do not attest to financial reports but focus mainly on the internal controls of the organization. External auditors may choose to place limited reliance on the work of internal auditors. Internationally, the International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board (IAASB) is considered as the benchmark for audit process. Almost all jurisdictions require auditors to follow the ISA or a local variation of the ISA. Auditing was developed by L. Ron Hubbard, and is described by the Church of Scientology as "spiritual counseling which is the central practice of Dianetics and Scientology". The auditor's report is a formal opinion, or disclaimer thereof, issued by either an internal auditor or an independent external auditor as a result of an internal or...
Words: 7789 - Pages: 32
...date of auditors report Auditor’s Report This report addresses the auditor's responsibilities relating to subsequent events and subsequently discovered facts in an audit of financial statements. It also addresses a predecessor auditor's responsibilities for subsequent events and subsequently discovered facts when reissuing the auditor's report on previously issued financial statements that are to be presented on a comparative basis with audited financial statements of a subsequent period. In addition this report also incorporates management representation and consideration of an entity’s ability to continue as a going concern. There may be times when new information may come to an auditor's attention subsequent to the date of their report of an audited financial statements, this might affect the previously issued report. With information form the PCAOB this report describes how a subsequent audits should be followed by any auditor who becomes aware that facts may have existed at that time of the original audit of the financial statement. When performing an integrated audit of financial statements and internal control over financial reporting, refer to paragraph 98 of PCAOB Auditing Standard No. 5, which relays that an audit of internal control over financial reporting should be integrated with an audit of financial statements, this will provide directions, with respect to the subsequent discovery of information existing on the date of the auditor's final report. Most of the...
Words: 2119 - Pages: 9
...Auditor’s Responsibility for Assessing Going Concern In auditing, going concern is identified as an entity’s capability to continue operating as a business entity. It is the auditor’s responsibility to evaluate the company’s financial statements to assess whether or not the going concern assumption is appropriate. An entity is obligated to include a disclosure in the footnotes of the financial statement stating if there is substantial doubt of the company to continue as a going concern. According to the Public Company Accounting Oversight Board, AU 341 describes the requirements for the auditor’s evaluation of an entity’s going concern. This standard states that an auditor’s responsibility is to evaluate if there is substantial doubt about an entity’s capability to carry on as a going concern for the next year. The period of substantial doubt is not to exceed twelve months. This evaluation is based upon any evidence that he or she has accumulated during the normal course of the audit. If there is substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time not to exceed one year, the auditor should review management’s plan to remedy the problems. If the substantial doubt goes unresolved, the auditor should add an explanatory paragraph to the audit report. In the event that an auditor receives a request to reissue his or her evaluation of going concern and remove the explanatory paragraph, one can refer to the PCAOB’s...
Words: 5831 - Pages: 24
...an audit report. An audit report is a crucial part in the auditing process. It is a guide for users of the financial information. Auditors issue opinions on the financial statements based on certain criteria. The main thing is if the financial statements are presented in accordance to GAAP. Also, modifications can occur after the opinion is issued. Modifications vary depending on the issue at hand. Changes in principles or a report involving other auditors are a few. More will be addressed in the paper. An audit report is different is many ways. Even for one company, the audit report may not be the same every year. Modifications and Opinions in Audit Reports Every publicly traded company gets audited. Pop Iuliana (2012) says, “The purpose of an audit is to improve the degree of trust of the users across the financial situations” (p.454). Companies must present their financial statements in accordance to Generally Accepted Accounting Principles (GAAP). The final stage of an audit is writing an audit report. An audit report “expresses an opinion over the audited financial situations so that any user of this information is able to take decisions based on it” (Iuliana, 2012, p. 453). A standard audit report contains eight parts. The eight parts are report title, audit report address, introductory paragraph, management’s responsibility, auditor’s responsibility, opinion paragraph, name and address of CPA firm, and audit report date. The...
Words: 2456 - Pages: 10
...Complete overview of an Audit Executive summary A financial audit refers to the verification of the financial statements of a company by an audit firm in order to express a professional opinion regarding their credibility. This process begins when a client approaches the auditor if deemed reputable the auditor accepts he begins by planning how to carry out the audit. This is done by assessing several factors such as risk, materiality etc. and then obtaining feedback in order to draw up the audit plan. At this point an audit team is assembled based on the audit strategy who visit the clients premise to carry out the procedures agreed upon in the planning stage through practical work or field work. Once enough evidence is accumulated to support the auditor’s opinion a draft audit report is drawn up. The client is contacted after this and feedback is obtained to make final necessary adjustments. Once finished the final audit report is issued which expresses the auditors professional opinion and recommendations, depending on the issues at hand a follow-up review may be carried out afterwards to see clients progress in adopting the suggested changes thus concluding the audit process. Table of Contents Particulars | Page # | Introduction | 3 | Stage 1: Planning | 3 | Step 1: Notification/Engagement Letter | 4 | Step 2: Audit Strategy | 4 | Step 3: Initial Meeting | 4 | Step 4: Planning Analytical Procedures | 5 | Step 5: Risk, Materiality and Control assessment...
Words: 3488 - Pages: 14
...Journal of Finance and Accountancy The Effect of the Sarbanes-Oxley Act on Auditors’ Audit Performance Tae G. Ryu Metropolitan State College of Denver Barbara Uliss Metropolitan State College of Denver Chul-Young Roh East Tennessee State University ABSTRACT The issue of audit reporting for financially distressed firms continues to be of interest to the public and to legislators. Previous studies have consistently shown that auditors fail to issue going-concern opinions to more than half of bankrupt firms one year prior to bankruptcy. The Enron and Arthur Andersen failures in late 2001 and early 2002, respectively, led to the enactment of the Sarbanes-Oxley Act (SOX) in July 2002. Audit firms now claim that they have become much more conservative with respect to client retention and acceptance decisions because the risks associated with auditing increased significantly after the enactment of the SOX. The primary purpose of this study is to provide a basis for a proper evaluation of auditors’ performance. We conducted performance comparisons between the pre- and post-SOX periods. Although auditors are now expected to use a more vigorous audit process in deciding whether to issue going-concern or other qualified opinions to financially distressed firms, our preliminary results show that there is no significant difference between the two periods. Key words: Audit Decision, Going-Concern, Opinion, Z-score, Industry Failure Rate The Effect of Sarbanes Oxley...
Words: 2631 - Pages: 11
...Accountants’ Reports 1. (N95,62) Which of the following statements is a basic element of the auditor’s standard report? a. The disclosures provide reasonable assurance that the financial statements are free of material misstatement. b. The auditor evaluated the overall internal control structure. c. An audit includes assessing significant estimates made by management. d. The financial statements are consistent with those of the prior period. 2. (N95,68) The fourth standard of reporting requires the auditor’s report to contain either an expression of opinion regarding the financial statements taken as a whole or an assertion to the effect that an opinion cannot be expressed. The objective of the fourth standard is to prevent a. An auditor from expressing different opinions on each of the basic financial statements. b. Restrictions on the scope of the audit, whether imposed by the client or by the inability to obtain evidence. c. Misinterpretations regarding the degree of responsibility the auditor is assuming. d. An auditor from reporting on one basic financial statement and not the others. 3. (N95,78) March, CPA, is engaged by Monday Corp., a client, to audit the financial statements of Wall Corp., a company that is not March’s client. Monday expects to present Wall’s audited financial statements with March’s auditor’s report to 1st Federal Bank to obtain financing in Monday’s attempt to purchase Wall. In these circumstances, March’s auditors report would usually...
Words: 9285 - Pages: 38
...Chapter 3 Audit Reports Key objectives: 1. Describe the parts of the standard unqualified audit report for non-public entities under AICPA auditing standards. 2. Specify the conditions required to issue the standard unqualified audit report. 3. Understand reporting on financial statements and internal control over financial reporting required under PCAOB auditing standards. 4. Describe the five circumstances when an unqualified report with an emphasis-of-matter explanatory paragraph or modified wording is appropriate. 5. Identify the types of audit reports that can be issued when an unqualified opinion is not justified. 6. Explain how materiality affects audit reporting decisions. 7. Know the key terms that identify different audit reports. 8. Determine the appropriate audit report for a given audit situation. 1. Purpose of audit report • Communicates auditor's work and conclusions reached. • It's the auditor's product, and the only visible outcome of the audit process. 2. Short-form report (unqualified or "clean" opinion) A. When appropriate 1. All 4 statements and appropriate disclosure (An opinion can be issued on less than a full set of financial statements - see Ch. 24). GAAS specifically provides that in the case of omission of the cash flows statement, a qualified opinion is issued. 3. Auditor has gathered sufficient appropriate evidence in accordance with GAAS ...
Words: 2397 - Pages: 10
...affected the incidence of lawsuits against CPAs in recent years. a. “Growing awareness of the responsibilities of public accountants by the users of financial statements. b. An increased consciousness on the part of the SEC for its responsibility for protecting investors’ interested c. The complexity of auditing and accounting functions caused by the increasing size of businesses, the globalization of business, and the complexities of business operations d. The tendency of society to accept lawsuits by injured parties against anyone who might be able to provide compensation, regardless of who was at fault, coupled with the joint and several liability doctrine e. Large civil court judgments against CPA firms awarded in a few cases, encouraging attorneys to provide legal services on a contingent-fee basis, which offers the injured party a potential gain when the suit is successful, but minimal losses when it is not. f. Many CPA firms being willing to settle legal problems out of court in an attempt to avoid costly legal fees and adverse publicity, rather than pursuing resolution through the judicial process g. The difficulty judges and jurors have understanding and interpreting technical accounting and auditing matters.” (Arens, Elder, & Beasley, 2012) 10. Compare and contrast traditional auditors’ legal responsibilities to clients and third-party users under common law. How has that law changed in recent years? a...
Words: 1812 - Pages: 8
...Chapter 3 Audit Reports Key objectives: 1. Describe the parts of the standard unqualified audit report for non-public entities under AICPA auditing standards. 2. Specify the conditions required to issue the standard unqualified audit report. 3. Understand reporting on financial statements and internal control over financial reporting required under PCAOB auditing standards. 4. Describe the five circumstances when an unqualified report with an emphasis-of-matter explanatory paragraph or modified wording is appropriate. 5. Identify the types of audit reports that can be issued when an unqualified opinion is not justified. 6. Explain how materiality affects audit reporting decisions. 7. Know the key terms that identify different audit reports. 8. Determine the appropriate audit report for a given audit situation. 1. Purpose of audit report • Communicates auditor's work and conclusions reached. • It's the auditor's product, and the only visible outcome of the audit process. 2. Short-form report (unqualified or "clean" opinion) A. When appropriate 1. All 4 statements and appropriate disclosure (An opinion can be issued on less than a full set of financial statements - see Ch. 24). GAAS specifically provides that in the case of omission of the cash flows statement, a qualified opinion is issued. 3. Auditor has gathered sufficient appropriate evidence in accordance with GAAS 4. Statements in accordance...
Words: 2398 - Pages: 10
................................................................................. Definitions ................................................................................................ Requirements Events Occurring between the Date of the Financial Statements and the Date of the Auditor’s Report ........................................................ Facts Which Become Known to the Auditor after the Date of the Auditor’s Report but before the Date the Financial Statements are Issued ........................................................................................... Facts Which Become Known to the Auditor after the Financial Statements Have Been Issued ............................................................ Application and Other Explanatory Material Scope of this ISA ...................................................................................... Definitions ................................................................................................ Events Occurring between the Date of the Financial Statements and the Date of the Auditor’s Report ................................................. Facts Which Become Known to the Auditor after the Date of the Auditor’s Report but before the Date the Financial Statements are Issued...
Words: 4089 - Pages: 17
...CHAPTER 18 REPORTS ON AUDITED FINANCIAL STATEMENTS Answers to Review Questions 18-1 An auditor is associated with financial statements when he or she has consented to the use of his or her name in a document such as an annual report. 18-2 Accounting changes can be categorized into changes that affect consistency and those that do not affect consistency. The word “consistency” refers to the application of accounting principles. If a change in accounting principle or in the method of its application has a material effect on the comparability and consistency of the financial statements and the auditor concurs with the change, the auditor should refer to the change in an explanatory or emphasis-of-matter paragraph. Accounting changes that affect comparability but do not affect consistency, such as a change in an estimate or the correction of an error that does not involve a change in accounting principle, are normally disclosed in the footnotes to the financial statements but do not require an explanatory or emphasis-of-matter paragraph in the auditor's report. An accounting change can affect comparability but not consistency because an accounting principle can be consistently applied even when the underlying data used to apply it may change. For example, when the estimate of the useful life of a building changes, the company may still consistently apply straight-line depreciation, but the depreciation expense will not be comparable to that of the previous year due to the...
Words: 1670 - Pages: 7
...stakeholders would have in a corporation’s implementation of good business practices and adherence to laws and regulations in the administration and operations of the company. The Sarbanes-Oxley Act revised a significant portion of the federation securities laws which had been in place for 60 years already (Sarbanes-Oxley Information). Before SOX, there is a self-regulation in the accounting profession whereby the Securities and Exchange Commission was “given statutory authority to set accounting standards and oversight over the Activities of the auditors…the role of establishing standards was left to the accounting profession” (CPCAF). One of the key changes in internal audits is that the “Act requires all financial reports to include an internal control report” (Sarbanes Oxley Basics). The key is the provision of adequate controls so that the company is confident about the financial statements that they are producing. The controls are in place so that the financial data of company is safeguarded. The role of auditing firms is to attest that the assessment of internal controls is effective. Examine an auditing issue that is impacted by Sarbanes-Oxley....
Words: 1522 - Pages: 7
