Auditing Final Exam Thorough Review

Contingent Liability - ----Uncertainty which exists for a company that will be resolved by the occurrence of future events. (An existing condition, situation, or set of circumstances, involving an uncertainty as to possible loss to an entity that will ultimately be resolved when some future event occurs or fails to occur.) Subsequent Event - ----An event or transaction which occurs after the balance sheet date but prior to the issuance of the financial statements and the auditor's reports that may materially affect the financial statements. Types of Subsequent Events - ----Type 1, and Type 2 Type 1 - ----Impacts the balance sheet and requires adjustments. Type 2 - ----Events/ circumstances which occur after the balance sheet date but must be disclosed. Management Representation Letter - ----A letter which reduces the misunderstanding between the company and the client. (A letter that corroborates oral representations made to the auditor by management or by other auditors and documents the continued appropriateness of such representations) Going Concern - ----An auditor is required to communicate two things: 1) significant deficiencies and 2) material weaknesses. (An entity that is expected to continue in existence on an ongoing basis. The entity's responsibility is to determine whether there issubstantial doubt about its ability to continue as a going concern; the auditor independently evaluates management's assessments). Letter of Audit Inquiry - ----An audit inquiry sent to the entities attorneys in order to obtain or corroborate information about litigation, claims, and assessments for the purpose of corroborating management identification and assessment of potential contingent liabilities. Types of Audit Reports - ----1) Clean 2) Qualified 3) Adverse 4) Disclaimer Clean (Unqualified/ Unmodified) - ----Given when the auditor concludes the financial statements are presented fairly in accordance with GAAP (the auditor's opinion that the financial statements presented fairly, in all material respects, the client's financial position, results of the operations, and cash flows in accordance with GAAP - that is a clean opinion. "Unqualified" is the term used for audits confused for public companies under the PCAOB standards, while "unmodified" is the term used for audits conducted for other entities under ASB standards.) Qualified - ----When there is a departure from GAAP/ Scope Limitation a) auditors say financial statements are fair except for... (the auditor's opinion that the financial statements presented fairly, in all material respects, in accordance with GAAP, EXCEPT FOR a material misstatement that does not, however, pervasive affect the users ability to realty on the financial statements). Adverse - ----Auditor says financial statements are not presented fairly. (the auditor's opinion that the financial statements do not present fairly in accordance with GAAP due to a pervasive material misstatement) Disclaimer - ----when an auditor can't perform an audit due to missing documents are things being messed up. (the auditors indication that no opinion is expressed on the financial statements. The auditor will disclaim an opinion if a pervasive scope of limitation arises or if it is determined that the auditor lacks independence. Scope of Limitation - ----A lack of evidence that may preclude the auditor from issuing a clean opinion, usually resulting in a lack of inability to conduct an audit procedure considered necessary.