TEST BANK FOR ANSWER KEY TO Applied Auditing, Ma. Elenita Balatbat Cabrera, 2011 Edition

Auditor’s reports are important to users of financial statements because they inform users of the auditor’s opinion as to whether or not the statements are fairly stated or whether no conclusion can be made with regard to the fairness of their presentation. Users especially look for any deviation from the wording of the standard unqualified report and the reasons and implications of such deviations. 1-2. Other requirements for an effective audit are: a. Comprehensive knowledge of GAAP; b. Understanding of internal control concepts; c. Understanding of the client’s unique system of internal control; and d. Knowledge of evidence gathering and evaluation methodology. 1-3. The scope paragraph tells what the auditor did, and whether or not the examination was conducted in accordance with generally accepted auditing standards (GAAS). The opinion paragraph tells what the auditor found, and whether or not the financial statements conform to generally accepted accounting principles (GAAP) in all material respects. 1-4. An engagement letter is the agreement or understanding between the CPA and his/her client concerning the nature of the engagement. It provides protection for the CPA in the event of subsequent legal action alleging negligence or breach of contract. By committing the agreement to writing, the engagement letter also minimizes future misunderstandings between the CPA and client concerning the services to be performed by the CPA. 1-5. The audit program is an important part of the systematic approach to auditing, and demonstrates that the audit was properly planned. 1-6. The pre-audit conference should be attended by all members of the audit team, including the partner in charge of the examination. The conference should cover the following areas: a. Nature of the client’s activities; b. General nature of the client’s system of internal control; c. Unique accounting practices; d. Duties of individual audit team members; and e. Known areas of high audit risk.