For Audit Students!!!! Ch.

Here you go guys, these are the notes from the 18th.

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Please excuse the question marks but I use microsoft office and there is a note taker that never really translates. If you need anymore help with the notes I can send them directly, email me via ao22156n@pace.edu.


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Standard Opinion
• Is called the the Standard Report/Standard Unqualified Opinion
o This is the best opinion given
o Why Called Unqualified?
• Unqualified has a different definition
 Opinion without reservations, nothing is holding the opinion back.
o Every word of the opinion has been litigated and the main point of the opinion is sent to the court
THE OPINION
• The Opinion should be addressed to the Board of Directors
o Management must be included in the audit
o Auditing from the top of the company down.
• ***Board of Directors should be audited too, so says Newman. They should be looking at the internal control in the board of directors.
o Every CPA firm rearranges except PWC.
• Report Characteristics
o Title
• If for a non public company, it say independent auditor’s report
• If for a public company, then the report says Registered Independent Auditor’s Report
o 1 Paragraph
• Introductory paragraph
 You will find
• The company being audited
• The financial statements and their dates
• Management is responsible for the financial statements
• The auditors are responsible for the audit.
• Comparative Statements
• Statements from a prior year as well as the current years, assuming you are the auditor from the prior year
• Must change opinion from prior year if necessary
• Most Current year is listed first
• The name of the company, you must be precise!
*A corporation is incorporated in a state
• If they’re not a national company
• Our Responsibility is Opinion

• You are allowed to just audit balance sheet, however you need to be able to audit the accounts on the balance sheet.
o Have to be able to audit the sub-system of that statement
• i.e. Accounts receivable
• Second Paragraph
 Outlines the scope of what the audit contained
 Audit is in accordance with (always write out) Generally Accepted Accounting Standards (GAAS)
• Qualitative, conceptual foundation for performing audit
• These standards have existed for many years
• There are ten standards
o The first professional standard incorporated these standards
o Not like GAAP, where there a lot of debate on the make up of the standards
When SOX was passed the PCAOB was created.
o The Organization that was supposed to oversee auditing
o They had to require an audit of internal control
o Section 404 of the act, stated that there was to be an audit of financial controls, as well as of the statements
o The PCAOB, immediately decided to aggrandize themselves, they decided that they would issue new standards.
• “We’ll take your[auditing standards board] standards and call them interim standards”
• So the ASB decided to apply their standards to non-public companies.
• But the PCAOB, could not write the standards
 They wrote number 2
 The US Chamber of congress was upset about standard 2, (which requires two audits)
 Then standard 2 was replaced with standard 5
• Which advocates a top down approach
• Start by studying the internal controls that effect the whole company
 The PCAOB has 5 standards
• We conducted our audit in accordance with Generally Accepted Accounting Standards or PCAOB standards.
• Reasonable Assurance whether free of material mistakes
o REASONABLE ASSURANCE
• With due care, the with careful preparation
• Appropriate Procedures
• What a reasonable business person would expect
o FREE OF MATERIAL MISTAKES
• Only auditing at the materiality level
• At one time we used to take 5% of net income, and say that’s what’s material for this company.
• Qualitative aspects that are important in relation to materiality
 A company has an upward trend
 A small adjusting entry would lead to a change in earnings per share could result in a loss of EPS
 Currently there is a whole new area of materiality in regards to the public service
 Staff Accounting Bulletin 99 (SAB99)
o Examine on Test Basis Evidence
• Why on a test basis, 3 presumptions
• You only have a certain number of days after the end of the year before you need to turn in the financial reports
1. Evidence produced where there is good internal control is more powerful than the opposite
2. Evidence from outside the company is stronger than information then information that’s on the books
3. Anything that the auditor does, is presumed to be stronger than anything the client does.
• You do not just accept what the client does, you need to clarify the expectations and goals.
 Less Testing is done then before, because of mechanical progress. The clients and the auditor’s materials can be compared much easier
 Because of this presumption, something that we have done cannot be thrown out at the first sight of non-agreement.
o Assess Principals Used and Estimates
• We are expected to be the experts in GAAP
• If you are a supervisor, and certain entries are not making sense, you have to show on a flow chart the illustration of the transaction.
• Assessing the Estimates
o Financial Statement Presentation
• Based on GAAP
o Reasonable Basis for our Opinion
• We are not saying that we are doing a forensic audit
o Opinion Paragraph
• The financial statements present fairly in accordance with GAAP
o Signature
• Always of the firm
o The Date
• The last day you are at the client’s office
• Why the last field day?
 Because we are responsible from the end of the last field day

End of the Year----------------Subsequent Period------------------Last Day
Subsequent Events
o The time between the last field day and the end of the year.

o Unless the client has initially asked us to send their results to the their bank, we do not. And if we do agree, then the level of risk of the audit increases.
o Also get a Management Representation Letter
• Signed by the CFO and CEO
 It says, that these financial statements are our[Management’s] responsibility
o The Client is Required to put in the stock holder’s report a Management Discussion and Analysis.