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ACC 312 Study Guide - Midterm Guide: Financial Reporting Council, Financial Services Authority, Listing Rules

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greenwalrus59
29 Nov 2017
School
UT-Austin
Department
Accounting
Course
ACC 312
Professor
B Lendecky

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Document Summary

There is a statutory requirement for the audit of the accounts of limited companies, except for smaller limited companies. It is the responsibility of the shareholders to elect suitably qualified, independent auditors, to whom they are responsible. The report of the auditors is usually very short and additionally includes: Refere(cid:374)(cid:272)e to the dire(cid:272)tor"s respo(cid:374)si(cid:271)ility for preparation of the annual report and accounts. Reference to the responsibility as auditors being established by: uk statute, the auditing practices board (apb, the listing rules of the financial services authority, the a(cid:272)(cid:272)ou(cid:374)ta(cid:374)(cid:272)y professio(cid:374)"s ethi(cid:272)al guidance. The auditors are required to explain the basis of the audit, and report if in their opinion: The dire(cid:272)tors" report is (cid:374)ot (cid:272)o(cid:374)siste(cid:374)t with the a(cid:272)(cid:272)ou(cid:374)ts. The company has not kept proper accounting records. They have not received all the information and explanations required for the audit i(cid:374)for(cid:373)atio(cid:374) spe(cid:272)ified (cid:271)y law, or the listi(cid:374)g rules regardi(cid:374)g dire(cid:272)tors" remuneration and transactions with the company, are not disclosed.

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Related Questions

PLEASE ANSWER THE FOLLOWING QUESTIONS IN DETAIL

1. What is the duty of the auditor after the issuance ofthe financial statements?

2. Under what circumstances can an additional paragraphbe issued in an unqualified opinion? Where is this additionalparagraph presented in the auditor’s report?

3. When there is a group audit with a sharedresponsibility or when an auditor relies on the work of anotherauditor, what reference is contained in the audit report and whichparagraphs contain the reference?

4. Is it possible for the auditor to issue two differentopinions in the same year on the same financial statements? If yes,give an example?

5. What must be done by the auditor if internal controlsare found to be ineffective?

6. What are the opinions that can be issued by theauditor on the internal control report?

7. List 10 terms that can be used when performingsubstantive tests, ex. Trace, review, etc.

8. Give 2 examples of substantives tests for each of thefollowing: Inventory, A/R, A/P and cash.

9. What type of audit procedures are performed by anauditor? Why are they performed?

10. Why are auditors required to retain auditdocumentation?

11. What are audit working papers? Who owns thesedocuments? These papers must be kept confidential. Can they ever bereleased to other parties?

12. How long is the auditor required by the PCAOB toretain the audit working papers of public companies? Of privatecompanies?

13. What is required of an auditor for the varioussubsequent events?

14. What two criteria must be met for the financialstatements to be adjusted for a subsequent event?

15. What is the auditor’s responsibility after the endof field work but before the financial statements have been issued?After the financial statements have been issued?

16. What reports are filed with the SEC by publiccompanies? Under what circumstances are they filed?

2-30 2–30. Multiple Choice Questions
Select the best answer for each of the following items and give reasons for your choice.
A a. Which of the following organizations can revoke the right of an individual to practice as a
CPA?
(1) The Public Company Accounting Oversight Board.
(2) The American Institute of Certifi ed Public Accountants.
(3) The Securities and Exchange Commission.
(4) The applicable state board of accountancy.
B b. The AICPA over time has played an important role in standards setting. Which of the following
standards are currently established by the AICPA?
(1) Accounting standards applicable to nonpublic companies.
(2) Auditing standards applicable to audits of nonpublic companies.
(3) Quality control standards applicable to audits of public companies.
(4) Standards for reviews of the interim fi nancial information issued by public companies.
C c. Which of the following does the FASB consider a source of nonauthoritative guidance for
use when there is no authoritative guidance available?
(1) The FASB Codifi cation.
(2) FASB Concepts Statements.
(3) SEC Rules.
(4) SEC Interpretive Releases
D d. Financial statement audits performed under PCAOB requirements are designed to provide
which type(s) of assurance with respect to the detection of material misstatements due to
errors or fraud?
Reasonable Absolute
1 Yes Yes
2 Yes No
3 No Yes
4 No No
E e. A basic objective of a CPA fi rm is to provide professional services that conform with professional
standards. Reasonable assurance of achieving this basic objective is provided through:
(1) Compliance with generally accepted reporting standards.
(2) A system of quality control.
(3) A system of peer review.
(4) Continuing professional education.
F f. Which of the following is not explicitly included in a standard report for a nonpublic
company?
(1) The CPA’s opinion that the fi nancial statements comply with generally accepted
accounting principles.
(2) That generally accepted auditing standards were followed during the audit.
(3) That internal control of the client was satisfactory.
(4) An identifi cation of the fi nancial statements audited.
G g. The general group of the 10 PCAOB Auditing Standards requires that:
(1) The auditors maintain an independent mental attitude.
(2) The audit be conducted in conformity with generally accepted accounting
principles.
(3) Assistants, if any, be properly supervised.
(4) The auditors obtain an understanding of internal control.
H h. Which AICPA quality control standard would most likely be satisfi ed when a CPA fi rm
maintains records indicating which partners or employees of the fi rm were previously
employed by the CPA fi rm’s clients?
(1) Professional relationship.
(2) Engagement performance.
(3) Relevant ethical requirements.
(4) Monitoring.
I i. An audit provides reasonable assurance of detecting material:
Fraudulent Financial Misappropriation
Reporting of Assets
1 Yes Yes
2 Yes No
3 No Yes
4 No No
J j. Which of the following is not included in an integrated audit report on the fi nancial statements
of a public company?
(1) The report states that the audit was performed in accordance with AICPA standards.
(2) The report indicates that the fi nancial statements are the responsibility of management.
(3) The report indicates that the auditors have also audited the effectiveness of the company’s
internal control.
(4) The report is signed in the name of the CPA fi rm.
K k. Audit fi rms that are subject to inspections by the PCAOB staff include:
(1) All audit fi rms.
(2) Audit fi rms that are registered with the SEC.
(3) Audit fi rms that are registered with the PCAOB.
(4) Audit fi rms that are registered with a state board of accountancy.
L l. Which of the following is not a difference noted when comparing the AICPA audit report
to the international audit report?
(1) The international audit report may use the phrase “true and fair view.”
(2) The international audit report may be signed using the personal name of the audit
partner, the audit fi rm, or both.
(3) The international audit report requires inclusion of the city of the CPA fi rm offi ce that
performed the audit.
(4) The international audit report includes an opinion on internal control.

Following are two independent situations.

A. Grinner and Greeter, CPAs, were engaged to perform an audit ofthe financial statements of Happy, Inc. Happy's management wouldnot allow Grinner and Greeter to confirm any of the accountsreceivable. All other auditing procedures were performed asconsidered necessary by Grinner and Greeter and no issues wereencountered. However, Grinner and Greeter were unable to satisfythemselves with regard to the balance in accounts receivable.

B. Tick and Tie, CPAs, were performing their annual audit ofJohnson Manufacturing Company. Johnson is currently being sued for$2,000,000 related to an alleged defective product that they soldto a customer. Johnson's legal counsel has told Tick and Tie thatit is probable that Johnson will lose the suit and have to pay theentire $2,000,000. Johnson's management has included information inthe footnotes about the lawsuit. However, they have not recordedany loss or liability in the income statement or balancesheet.

Required:

For each of the two independent situations, state what type ofopinion should be issued on the company's financial statements.Briefly explain your rationale. Finally, state which paragraphs, ifany, of the standard report would be modified.

Note : I have the answer but I want to paraphraseit.

​Tha answer is :

A. The company has imposed a scope limitationon Grinner and Greeter. Although it is possible to issue aqualified opinion for a less material scope limitation, disclaimersof opinion are more appropriately issued for client-imposed scopelimitations than for circumstance-imposed scope limitations. Forthe disclaimer of opinion, (1) the introductory paragraph would bemodified to state that auditors were engaged to audit thefinancial statements and delete the sentence referring to theauditors' responsibility for the financial statements, (2) thescope paragraph would be omitted, (3) an additional paragraph wouldbe added to describe the scope limitation, and, (4) the opinionparagraph would be modified to express a disclaimer ofopinion.

B. Because Johnson Manufacturing has not properlyrecorded a loss and a liability, the financial statements are notin conformity with generally accepted accounting principles.Therefore, depending on the overall materiality and pervasivenessof the misstatement, Tick and Tie should issue either a qualifiedor adverse opinion. In each case, a third paragraph would be addedto the report to explain the departure from GAAP and the opinionparagraph would be modified to express either a qualified opinionor an adverse opinion.