Question

3-30 Publicly traded companies must electronically file a variety of forms or reports with the SEC, including the Form 10-K, which includes the audited annual financial statements. The SEC makes most of these electronic documents available on the Internet via EDGAR, which stands for Electronic Data Gathering, Analysis, and Retrieval system. The primary purpose for EDGAR is to increase the efficiency and fairness of the securities market for the benefit of investors, corporations, and the economy by accelerating the receipt, acceptance, dissemination, and analysis of time-sensitive corporate information filed with the agency.

b. Visit the PCAOB’s website (www.pcaob.org) and use the link to “Auditing” under the heading for “Standards” to locate the PCAOB’s Auditing Standards. Search the links to the Auditing Standards to answer the following questions:

1. Where would the auditor locate guidance about changes to the auditor’s report if Facebook makes a change in accounting principle that is considered material? Identify the appropriate section in the Auditing Standards and identify the relevant paragraph(s) within that section that would be applicable to this situation. Assume that Facebook properly reports the change in the financial statements.

2. Where would the auditor locate guidance to determine the effect on the auditor’s report if he or she has substantial doubt about Facebook’s ability to continue as a going concern? Identify the appropriate section and the relevant paragraph(s) within that section that would be applicable to this situation.

3. Facebook’s Form 10-K contains information that is in addition to the financial statements and related footnotes. Where would the auditor locate guidance that addresses his or her responsibility for this other information and what is the auditor’s obligation related to that information? Identify the appropriate section and the relevant paragraph(s) within that section that would be applicable to this situation.

Answer 1

1.When there is significant change in accounting principle, the auditors report should refer to lack of consistency in an emphasis-of-matter paragraph following the Opinion paragraph. The emphasis-of-matter paragraph should identify the change and refer to the note in the FS that discusses the change in detail.

2.Substantial doubt about an entity ability to continue as a going concern exists when conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued.

The auditor's evaluation is based on his or her knowledge of relevant conditions and events that exist at or have occurred prior to the date of the auditor's report. Information about such conditions or events is obtained from the application of auditing procedures planned and performed to achieve audit objectives that are related to management's assertions embodied in the financial statements being audited, as described in AS 1105, Audit evidence.

3.Standard defines other information as financial or non-financial information (other than financial statements and the auditors report thereon) included in an entity's annual report.

Annual reports include a lot of qualitative and quantitative information.

Auditor shall follow rules and procedures as prescribed in AS 3101,The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion.