TOP AUDITING ISSUES FOR 2013 - CCH

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ANSWERS TO STUDY QUESTIONS — Module 4 — Chapter 12 173 c. Incorrect. It is correct that SAS 125 requires all identified instances of noncompliance to be reported. However, because there are additional reporting requirements associated with noncompliance, this is not the best of listed answers. d. Correct. SAS 125 requires that all identified instances of noncompliance to be reported. It also requires that the report refer to the specific covenants or paragraphs of the contract or regulation associated with the noncompliance. MODULE 4 — CHAPTER 12 1. a. Incorrect. Auditing Interpretations are codified with a 9000-series number, followed by the number of the AU-C section to which they pertain. For example, the auditing interpretation entitled Audit Documentation: Auditing Interpretations of Section 230 is numbered as AU-C Section 9230. This Interpretation appears directly after AU-C Section 230 in the new Codification. b. Correct. The AU-C numbers are a temporary designation, to distinguish these sections from the previous AU sections during the transition period. They will revert to AU numbers in 2014, by which time their content will be fully effective for all engagements. c. Incorrect. Application and Other Explanatory Material paragraphs are designated by the letter A followed by a number, so that they can be readily distinguished from the content of the main body of each AU-C section. d. Incorrect. The numbering sequence for the AU-C sections roughly follows the chronology of a typical audit engagement. Thus, the sections for risk assessment, for example, appear before the sections for audit evidence and reporting. 2. a. Incorrect. The clarified standard on audits of group financial statements focuses on how to conduct an effective audit of group financial statements, rather than on how to conduct an audit that involves other auditors. This standard better articulates the link between the risk assessment standards and group financial statement audits. It is significantly broader in scope than the previous standard. b. Correct. The clarified standard on related parties is actually frameworkneutral. It applies whether or not the entity’s financial reporting framework establishes requirements for related party disclosures.
174 TOP AUDITING ISSUES FOR 2013 CPE COURSE c. Incorrect. The clarified standard on opening balances states that the auditor is responsible for determining whether prior period closing balances are brought forward correctly and reflect appropriate application of accounting policies, and for evaluating whether current period audit procedures provide evidence about opening balances by means of either performing specific procedures related to opening balances or reviewing a predecessor auditor’s work. Reviewing a predecessor’s audit documentation cannot by itself provide sufficient appropriate evidence regarding opening balances. d. Incorrect. The clarified standard on communicating internal control matters requires auditors to include in their written communication an explanation of the potential effects of the significant deficiencies and material weaknesses identified. It does not, however, require them to quantify those effects. 3. a. Correct. The auditor is prohibited, under the new standards, from elaborating in the auditor’s report about management’s responsibility, or making any reference to another document that does so. This might lead users of the report to the erroneous conclusion that the auditor is expressing assurances about any representations made by management concerning its responsibilities. b. Incorrect. The emphasis-of-matter paragraph is a new concept in the clarified standards. It is used in the auditor’s report to refer to a matter that is appropriately presented or disclosed in the financial statements. c. Incorrect. The new auditor’s report contains paragraphs that expand significantly on the auditor’s responsibilities as contrasted with those of management. d. Incorrect. Other-matter paragraphs are a new concept in the clarified standards. When present in the auditor’s report, they are required to follow the opinion paragraph and to be included in a separate section under the caption “other-matter.” 4. a. Incorrect. Engagement letters will need to be updated to reflect changes in standards, particularly as they pertain to management’s responsibilities in the audit. b. Incorrect. If the firm is relying on outdated practice aids after the effective date of the new standards, it will most likely be out of compliance with the new standards. Thus, maintaining current subscriptions to third-party practice aids is crucial during the implementation of the new standards. c. Incorrect. The firm’s quality control document will likely need to be updated to reflect changes in the firm’s audit methodologies resulting from the new standards. d. Correct. The new standards do not contain significant substantive changes in the requirements for auditing cash; thus the audit program would be unlikely to change significantly.
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CCH LEARNING CENTER At CCH, we reco
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