Professional Documents
Culture Documents
Aud June 2019
Aud June 2019
The purpose of this document is to provide you with a list of items that have been updated in the June
2019 Auditing textbook version (V 3.4).
Becker students who have an Auditing version 3.3 textbook may purchase the new version 3.4 textbook
for a nominal cost. Please see the Becker website for more details.
Table of Contents
Updates 2
Replacement Textbook Pages 3
V 3.4 A1 Module 4 pp. 21–27 4
V 3.4 A1 Module 5 pp. 35–38 11
V 3.4 A1 Module 6 pp. 45–49 15
V 3.4 A1 Module 8 pp. 62–63; 71 20
V 3.4 A2 Module 7 pp. 49–51 23
V 3.4 A3 Module 6 pp. 49–52 26
V 3.4 A3 Module 9 p. 89 30
V 3.4 A5 Module 2 p. 25 31
V 3.4 A5 Module 7 pp. 74–75 32
V 3.4 A6 Module 1 p. 6 34
V 3.4 A6 Module 5 pp. 46–47 35
V 3.4 A6 Module 6 pp. 60–62 37
1
Becker Professional Education
Auditing Course Updates—June 2019
Updates
Unit
Location Update
(and Module)
Added a bullet under 6.2:
A2 M1 p. A2–11 • Evaluate the engagement team's determination,
communication, and documentation of critical audit
matters.
Added a sentence under 2.2.6:
A2 M5 p. A2–38 In addition, an auditor may reference the specialist if it
helps the users understand a critical audit matter.
Added a bullet under 2.3:
A6 M4 p. A6–34 • The entity's ability to continue as a going concern (and,
if applicable, management's plans to mitigate the going
concern issue)
A6 M5 pp. A6–41, 42, 43 Deleted references to going concern issues.
2
Becker Professional Education
Auditing Course Updates—June 2019
Below are details on the replacement textbook pages included in the remainder of this document.
3
AUD 1 4 Unmodified (Unqualified) Opinion
The auditor of an issuer should express an unqualified opinion when the auditor concludes that
the financial statements are presented fairly, in all material respects, in accordance with the
applicable financial reporting framework (e.g., generally accepted accounting principles). The
report should be in writing.
Addressee The report must be addressed to the shareholders and the board of directors. It
generally is not addressed to management.
Opinion The first section of the auditor's report must include the section title, "Opinion on the
Section Financial Statements," and the following elements.
yyThe name of the company whose financial statements were audited.
yyA statement identifying each financial statement and any related schedule that has
been audited.
yyThe date of, or period covered by, each financial statement and related schedule
identified in the report.
yyA statement indicating that the financial statements were audited.
yyAn opinion that the financial statements present fairly, in all material respects,
the financial position of the company as of the balance sheet date and the results
of its operations and its cash flows for the period then ended in conformity with
the applicable financial reporting framework. The opinion should also include an
identification of the applicable financial reporting framework (e.g., GAAP).
Basis for The Basis for Opinion section contains the following:
Opinion
Section
yyA statement that the financial statements are the responsibility of the company's
management.
yyA statement that the auditor's responsibility is to express an opinion on the financial
statements based on the audit.
yyA statement that the auditor is a public accounting firm registered with the PCAOB
(United States) and is required to be independent with respect to the company
in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the SEC and the PCAOB.
yyA statement that the audit was conducted in accordance with the standards of
the PCAOB.
yyA statement that PCAOB standards require that the auditor plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud.
yyA statement that the audit included:
——performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures
that respond to those risks;
——examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements;
——evaluating the accounting principles used and significant estimates made by
management; and
——evaluating the overall presentation of the financial statements.
yyA statement that the auditor believes the audit provides a reasonable basis for the
auditor's opinion.
Critical Audit The auditor's report must include the section entitled "Critical Audit Matters" and should
Matters include discussion of any critical audit matters (CAMs) arising from the current period's audit
of the financial statements, or state that the auditor determined that there were no CAMs.
Pass Key
Pass Key
When the examiners require CPA candidates to respond to questions concerning the
unqualified audit opinion (issuer), you must remember:
The city and state (or city and country) of the office of the firm issuing the audit report.
Whether the audit report is dual-dated.
Whether other accounting firms participated in the audit.
Whether the firm divided responsibility for the audit.
Signature of partner or authorized officer.
Form AP must be filed by the 35th day after the audit report is first filed in a document with the
SEC or within 10 days if the audit report is included in a registration statement.
Question 1 CPA-02764
When financial statements contain a departure from U.S. GAAP because, due to unusual
circumstances, the statements would otherwise be misleading, the auditor should express
an opinion that is:
a. Unmodified.
b. Qualified.
c. Adverse.
d. Qualified or adverse, depending on pervasiveness.
3 Issuer Reports
(continued)
(continued)
Because of the departures from accounting principles generally accepted in the United
States of America identified above, as of December 31, 20X2 and 20X1, inventories
have been increased $_______ and $_______ by inclusion in manufacturing overhead
of depreciation in excess of that based on cost; property, plant, and equipment, less
accumulated depreciation, is carried at $_______ and $_______ in excess of an amount based
on the cost to the Company; and deferred income taxes of $_______ and $_______ have not
been recorded; resulting in an increase of $_______ and $_______ in retained earnings and in
appraisal surplus of $_______ and $_______, respectively. For the years ended December 31,
20X2 and 20X1, cost of goods sold has been increased $_______ and $_______, respectively,
because of the effects of the depreciation accounting referred to above and deferred
income taxes of $_______ and $_______ have not been provided, resulting in an increase in
net income of $_______ and $_______, respectively.
Basis for Opinion
[Basis for Opinion section same as standard issuer audit report]
[Signature]
We have served as the Company's auditor since [year].
[City and state or country]
[Date]
Question 1 CPA-02469
Which of the following phrases would an auditor of a nonissuer most likely include in the
auditor's report when expressing a qualified opinion due to inadequate disclosure?
a. Subject to the departure from generally accepted accounting principles, as
described above.
b. With the foregoing explanation of these omitted disclosures.
c. Except for the omission of the information described in the basis for qualified
opinion paragraph.
d. Do not present fairly.
(continued)
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on
conducting the audit in accordance with auditing standards generally accepted in the
United States of America. Because of the matters described in the Basis for Disclaimer
of Opinion paragraph, however, we were not able to obtain sufficient appropriate audit
evidence to provide a basis for an audit opinion.
Basis for Disclaimer of Opinion
We were not engaged as auditors of the Company until after December 31, 20X1, and,
therefore, did not observe the counting of physical inventories at the beginning or end of
the year. We were unable to satisfy ourselves by other auditing procedures concerning
the inventory held at December 31, 20X1, which is stated in the balance sheet at $XXX. In
addition, the introduction of a new computerized accounts receivable system in September
20X1 resulted in numerous misstatements in accounts receivable. As of the date of our
audit report, management was still in the process of rectifying the system deficiencies
and correcting the misstatements. We were unable to confirm or verify by alternative
means accounts receivable included in the balance sheet at a total amount of $XXX at
December 31, 20X1. As a result of these matters, we were unable to determine whether
any adjustments might have been found necessary in respect of recorded or unrecorded
inventories and accounts receivable, and the elements making up the statements of
income, changes in stockholder's equity, and cash flows.
Disclaimer of Opinion
Because of the significance of the matters described in the Basis for Disclaimer of Opinion
paragraph, we have not been able to obtain sufficient appropriate audit evidence to
provide a basis for an audit opinion. Accordingly, we do not express an opinion on these
financial statements.
[Auditor’s signature]
[Auditor’s city and state]
[Date of the auditor’s report]
3 Issuer Reports
Additional A paragraph should be placed immediately following the opinion paragraph. There is no
Paragraph heading for this paragraph.
This paragraph should describe the reasons for the inability to obtain sufficient
appropriate audit evidence.
Basis for Same as standard issuer audit report, except that the second paragraph in this section
Opinion should refer to the paragraph that describes the departure from the unqualified opinion.
Section
Critical Audit Same as standard issuer audit report.
Matters
(continued)
(continued)
The Company did not make a count of its physical inventory in 20X2 or 20X1, stated in the
accompanying financial statements at $_______ as of December 31, 20X2, and at $________
as of December 31, 20X1. Further, evidence supporting the cost of property and equipment
acquired prior to December 31, 20X1, is no longer available. The Company's records do
not permit the application of other auditing procedures to inventories or property and
equipment.
Basis for Disclaimer of Opinion
These financial statements are the responsibility of the Company's management. We are
a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
[Second paragraph within this section of standard issuer audit report should be omitted]
[Signature]
We have served as the Company's auditor since [year].
[City and state or country]
[Date]
We are not independent with respect to XYZ Company, and the accompanying balance sheet
as of December 31, 20XX, and the related statements of income, retained earnings, and
cash flows for the year then ended were not audited by us and, accordingly, we do not
express an opinion on them.
Pass Key
A commonly tested area is the concept of uncertainty. The chart below will assist you in
mastering this area.
Uncertainty
No material misstatement Material misstatement Insufficient evidence
and sufficient evidence related to the uncertainty (scope limitation)
Unmodified Qualified or adverse Qualified or disclaimer
Misstatement
Immaterial Unmodified Standard Standard Standard No Present fairly
Name type
Material and Do not
Adverse Standard Standard of modified Yes
pervasive present fairly
opinion
Scope Limitation
Immaterial Unmodified Standard Standard Standard No Present fairly
Misstatement
Immaterial Unqualified Standard No Standard Standard
Do not present
Material and pervasive Adverse Yes Standard Omit
fairly
Scope Limitation
Immaterial Unqualified Standard No Standard Standard
Lack of Independence
Disclaimer None None Disclaimer Omit
(continued)
(continued)
In our opinion, the balance sheets of the Company as of December 31, 20X2 and 20X1,
and the related statements of income, retained earnings, and cash flows for the year
ended December 31, 20X2, present fairly, in all material respects, the financial position of
the Company as of December 31, 20X2 and 20X1, and the results of its operations and its
cash flows for the year ended December 31, 20X2, in conformity with accounting principles
generally accepted in the United States of America. Because of the matter discussed in
the following paragraph, we were not able to obtain sufficient appropriate audit evidence to
provide a basis for an audit opinion on the results of operations and cash flows, and we
do not express an opinion on the results of operations and cash flows for the year ended
December 31, 20X1.
We did not observe the taking of the physical inventory as of December 31, 20X0, since
that date was prior to our appointment as auditors for the Company, and we were unable
to satisfy ourselves regarding inventory quantities by means of other auditing procedures.
Inventory amounts as of December 31, 20X0, enter into the determination of net income and
cash flows for the year ended December 31, 20X1.
Basis for Opinion
[Same first paragraph under Basis for Opinion as standard issuer audit report]
Except as explained above, we conducted our audits in accordance with the standards of
the PCAOB. [Remainder of paragraph same as standard issuer audit report]
Critical Audit Matters
[Critical Audit Matters section same as standard issuer audit report]
[Signature]
We have served as the Company's auditor since [year].
[City and state or country]
[Date]
Pass Key
When the prior year's financial statements were not audited and the current year's
financial statements are being audited, the auditor is in essence facing a scope limitation.
The beginning balances may not be ascertainable and therefore a disclaimer of opinion on
the statements of income, retained earnings, and cash flows may be required.
Question 3 CPA-02544
The group auditor decides not to refer to the component auditor who audited a subsidiary
of the group auditor's client. In this situation, the group auditor most likely would:
a. Add an emphasis-of-matter paragraph to the auditor's report indicating that the
subsidiary's financial statements are not material to the consolidated financial
statements.
b. Document in the engagement letter that the group auditor assumes no
responsibility for the component auditor's work and opinion.
c. Obtain written permission from the component auditor to omit the reference in
the group auditor's report.
d. Determine the type of work to be performed by the group auditor on the financial
information of the component.
An auditor is auditing a company that sells commercial copiers for the period of Year 4.
During the planning stage, the auditor decides to perform an ADA technique on the number
of sold copiers (analyzed at the product level) to evaluate any significant changes in the sales
mix of commercial copiers that might identify new or higher risks of material misstatement
for revenue. Based on discussion with management and on the prior year audit, the auditor
is aware that there was a fire in February Year 3 in the building where Type C copiers are
manufactured, which resulted in a significant decrease of Type C copiers available for sale
for that year. In addition, Type D copiers were introduced in March Year 2 and the company
introduced Copier E, which is very popular with consumers, in January Year 4.
Number of Copiers Sold by Year
30
Amount in Thousands
25 Y4
Y2
20 Y1 Y2 Y3 Y1 Y4
Y1 Y2
15 Y3 Y4 Y3 Y4
Y2
10
5 Y4 Y3
0
Type A Type B Type C Type D Type E
The ADA output (chart) confirmed the following activity that the auditor anticipated:
The number of copiers sold for Type B and Type D appears to be comparable to prior years.
The number of Type C copiers sold in Year 4 is comparable to the number sold in Year
1 and Year 2. (Year 3 is lower as a result of the decreased number of Type C copiers
available for sale in that year.)
Copier Type E started selling in Year 4 and appears to be a top seller.
The ADA output also showed a significant decline in Type A copiers that were sold in Year 4
compared with prior years. This leads to a higher risk that the inventory may be overvalued.
The auditor plans to respond to this higher risk by obtaining more persuasive evidence
regarding the valuation of the inventory.
Note: The auditor may decide to perform additional ADAs related to sales, such as creating a
line chart that shows sales by year, by month, etc.
Question 1 CPA-02426
Question 2 CPA-02799
4. Perform the analytical procedures and compare the results of the analytical procedures with
the expectations.
5. Investigate any significant differences by:
yy inquiring of management and obtaining appropriate evidence relevant to
management's responses; and
yy performing other audit procedures as necessary.
Ratio analysis Ratios are calculated Analyzing data at a Ratio analysis is often
based on known disaggregated level used with other audit
relationships among (e.g., by segment, procedures, as ratio
accounts or nonfinancial product, location). analysis results in a
information and relatively imprecise
compared with the same auditor's expectation
ratio for prior periods or that provides only a
with comparable entities. low level of assurance.
Regression analysis has several advantages over the other methods discussed in this chart
because it:
Provides an explicit, mathematically objective, and precise method for forming an expectation.
Allows inclusion of a large number of independent variables.
Provides direct and quantitative measures of the precision of the expectation.
VOUCH
Testing for existence
Testing for support
ouch
Financial statements
Trial balance
General ledger
Subsidiary ledger
Books of original entry
Source documents
Execution of event
Transaction approved
race
TRACE
Testing for completeness
Testing for coverage
A3_vouch trace_p51
AUD 3 9 Sampling: Part 2
(continued)
We conducted our audits in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud,
and whether effective internal control over financial reporting was maintained in all
material respects.
Our audits of the financial statements included performing procedures to assess the risks
of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial
statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
[Include critical audit matters]
[Signature]
We have served as the Company's auditor since [year].
[City and state or country]
[Date]
© Becker Professional Education Corporation. All rights reserved. Module 2 A5–25 Comm
7 Government Audits AUD 5
2. Internal Control
Audit objectives that relate to evaluating internal control over effective and efficient
operations, reliable reporting, or compliance with laws and regulations. Examples include:
yy Organizational missions, goals, and objectives are achieved efficiently and effectively.
yy Resources are used in compliance with laws, rules, and regulations.
yy Security over computerized systems is effective.
yy Disaster plans for computerized systems are adequate.
3. Compliance
Audit objectives that relate to evaluating compliance with criteria established by provisions
of laws, regulations, contracts, and grant agreements, or other requirements that could
affect the acquisition, protection, use, and disposition of resources and the quantity,
quality, timeliness, and cost of services provided in connection with programs. Compliance
requirements can be either financial or nonfinancial. Examples include:
yy Compliance criteria established by laws, regulations, contract, etc., have been met.
yy Appropriate target population has been served.
4. Prospective Analysis
Audit objectives to evaluate events that may occur in the future or to suggest actions an
entity may take in response to future needs.
yy Provide analysis or conclusions about information that is based on assumptions about
events that may occur in the future, along with possible actions that the entity may take
in response to the future events.
In the 2018 Revision of Yellow Book, the GAO added guidance that auditors should consider
whether internal controls are significant to the audit objectives and, if so, should determine
which of the five COSO components are significant. Similar to a financial statement audit, the
auditors would then assess the design and implementation of internal controls and potentially
test the operating effectiveness of internal controls. Any deficiencies should be assessed and
used in the evaluation of identified findings.
Based on our review, except for the issue noted in the Known Departure From Accounting
Principles Generally Accepted in the United States of America paragraph, we are not aware
of any material modifications that should be made … .
Pass Key
The accountant should not modify the standard report to include a statement
that the financial statements are not in accordance with the applicable financial
reporting framework.
An opinion, even qualified or adverse, requires an audit. When an accountant performing a
compilation or review becomes aware of a GAAP departure, the report would be modified
or the accountant would withdraw. An opinion would not be expressed.
If after considering conditions or events that raise substantial doubt about the entity's ability to
continue as a going concern and management's plans, the accountant concludes that:
Going concern is alleviated—the accountant may, but is not required to, include an
emphasis-of-matter paragraph.
Going concern remains—the accountant should include an emphasis-of-matter paragraph
that includes the terms "substantial doubt" and "going concern."
If the accountant determines that the entity's disclosures are inadequate, the accountant should
treat the missing disclosures as a departure from the applicable financial reporting framework
that exists and follow the appropriate guidance.
Pass Key
An accountant may decide to restrict the use of a compilation or review report to certain
specified parties (e.g., when the subject matter of the report is based on criteria other than
GAAP or a special purpose framework). Because the accountant cannot control distribution
of his or her report after issuance, the report itself should clearly state that it is intended to
be used only by the identified parties.
When comparative financial statements are presented, the accountant's report should refer to
each period for which financial statements are presented.
2. a going concern emphasis-of-matter paragraph was not included in the prior year's
auditor report and management has included a statement that substantial doubt exits
in its financial statements.
For issuers: As long as disclosure about going concern is adequate, the auditor is not
required to include an explanatory paragraph.
For both nonissuers and issuers: If the auditor determines that the disclosure related to
substantial doubt about the entity's ability to continue as a going concern is inadequate,
resulting in a departure from the applicable financial reporting framework, the auditor
should modify the report.
4 Summary of Engagements