15 Reports - Opinions &B Disclaimers

Question 1

What qualitative aspects of the entity’s accounting practices should the auditor evaluate?

Answer 1

1. whether the statements adequately disclose the significant accounting policies
2. whether the accounting policies selected and applied are consistent with the framework and are appropriate
3. whether management’s accounting estimates are reasonable
4. whether the information in the statements is relevant, reliable, comparable, and understandable
5. whether the statements provide adequate disclosures to enable the intended users to understand the effect of material transactions and events
6. whether the terminology used, including the title of each statement, is appropriate
7. whether the statements adequately refer to or describe the framework

Question 2

What should the auditor’s evaluation of fair presentation also consider?

Answer 2

1. the overall presentation, structure, and content of the statements
2. whether the statements, including the related notes, represent the underlying transactions and events in a manner that achieves fair presentation

Question 3

If the auditor concludes that the statements are presented fairly what type of opinion should the auditor express?

Answer 3

unmodified (unqualified) opinion

Question 4

What is are the terminology differences between AICPA and PCAOB opinions?

Answer 4

AICPA uses unmodified, PCAOB uses unqualified

Question 5

What should the auditor do if they conclude that the statements are not fairly presented?

Answer 5

They should discuss the matter with management, and depending on how the matter is resolved, the auditor should determine whether the opinion should be modified

Question 6

What is a modified opinion?

Answer 6

A qualified opinion, an adverse opinion, or a disclaimer o opinion

Question 7

When is an opinion considered modified?

Answer 7

1. If the auditor concludes that, based on the audit evidence obtained, the financial statements as a whole are materially misstated (qualified or adverse opinion)
2. If the auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement (qualified opinion or disclaimer of opinion)

Question 8

Who defines the standards for the format of the standard auditor’s report for nonissuers?

Answer 8

AICPA

Question 9

Who defines the standards for the format of the standard auditor’s report for issuers?

Answer 9

PCAOB

Question 10

What does Generally Accepted Auditing Standards, AICPA standards, for an audit of a nonissuer, require to be included in the report?

Answer 10

1. title
2. addressee
3. opinion
4. basis for opinion
5. responsibilities of management for the financial statements
6. auditor’s responsibilities for the audit of the financial statements
7. signature of the auditor
8. auditor’s address
9. date of the auditor’s report

Question 11

Why should the title include the word “independent”?

Answer 11

To clearly indicate that the report is by an auditor who is independent of the entity

Question 12

Who should the report be addressed to?

Answer 12

It should be addressed as appropriate for the circumstances of the engagement, for corporations, the addressee is most often the shareholders or the board of directors

Question 13

What is the first section of the auditor’s report?

Answer 13

It should be the auditor’s opinion and should have the heading “Opinion”

Question 14

What should be included in the Opinion section of the auditor’s report?

Answer 14

1. identify the entity audited
2. state that the financial statements have been audited
3. identify the title of each statement
4. refer to the notes
5. specify the dates of, or periods covered by, each financial statement
6. express an opinion

Question 15

What should an unmodified opinion state?

Answer 15

That in the auditor’s opinion the accompanying financial statements are presented fairly, in all material respects, in accordance with the applicable reporting framework (ex - in accordance with accounting principles generally accepted in the United States of America)

Question 16

What is the second section of the auditor’s report?

Answer 16

Basis for Opinion

Question 17

What is stated in the Basis for Opinion section of the auditor’s report?

Answer 17

That the audit was conducted in accordance with auditing standards generally accepted in the United States of America, it refers to the section of the report that describes the auditor’s responsibilities under GAAS, it includes a statement that the auditor is required to be independent of the entity and to meet the auditor’s other ethical responsibilities, and it states whether the auditor believes that the audit evidence the auditor has obtained is sufficient and appropriate to provide a basis for the opinion

Question 18

What is the third section of the auditor’s report?

Answer 18

Responsibilities of Management for the Financial Statements

Question 19

What should be included in the Responsibilities of Management for the Financial Statements section of the auditor’s report?

Answer 19

It should describe management’s responsibility for:

1. preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework
2. design, implementation, and maintenance of internal control
3. fair presentation of financial statements that are free from material misstatement, whether due to fraud or error

Question 20

What is required by US GAAP (and other certain financial reporting frameworks) to be included in the Responsibilities of Management for the Financial Statements section of the auditor’s report regarding going concern?

Answer 20

Management is required to evaluate conditions or events, considered in the aggregate, that may raise substantial doubt about the entity’s ability to continue as a going concern, and this responsibility should be included in this section of the report

Question 21

What is the fourth section of the auditor’s report?

Answer 21

Auditor’s Responsibilities for the Audit of the Financial Statements

Question 22

Is the risk of not detecting a material misstatement resulting from fraud higher than for one resulting from error?

Answer 22

yes

Question 23

What may be involved in fraud?

Answer 23

• collusion
• forgery
• intentional omissions
• misrepresentations
• override of internal control

Question 24

When are misstatements considered material?

Answer 24

If individually or in the aggregate, a substantial likelihood exists that they would influence the judgment of a reasonable user based on the financial statements

Question 25

What responsibilities should the Auditor's Responsibilities section of the Auditor's Report include?

Answer 25

The auditor's responsibilities to: - exercise professional judgment and maintain professional skepticism - identify and assess the risks of material misstatement of financial statements, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements - obtain and understanding of internal control relevant to the audit to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control - evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements - conclude whether, in the auditor's judgment, conditions or events, considered in the aggregate, raise substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time

Question 26

Does an auditor express an opinion on the effectiveness of the entity's internal control?

Answer 26

No, unless they are engaged to issue a report on internal control in which an opinion may be expressed.

Question 27

What should the Auditor's Responsibilities section of the Auditor's Report state regarding communication?

Answer 27

That the auditor is required to communicate with those charged with governance regarding, among other matters: - the planned scope and timing of the audit - significant audit findings - certain internal control-related matters that the auditor identified during the audit

Question 28

Can the signature on the auditor's report be printed on an unmodified report for a nonissuer?

Answer 28

Yes, it can be manual or printed

Question 29

What is important when listing the auditor's address on the Auditor's Report?

Answer 29

That the report names the city and state where the audit report is issued

Question 30

If a separate statement by management is included in a document containing the Auditor's Report, should the description of Management's Responsibility refer to this statement?

Answer 30

No

Question 31

If financial statements are comparative, should the report refer to all the years in the statements?

Answer 31

Yes

Question 32

What are the basic elements of an unqualified report for an audit of the financial statements of an issuer in accordance with PCAOB standards?

Answer 32

1. title 2. addressee 3. opinion 4. basis for opinion 5. critical audit matters 6. signature of the auditor 7. tenure 8. auditor's address 9. date

Question 33

For an unqualified report for an issuer what must the title be on the report?

Answer 33

Report of Independent Registered Public Accounting Firm

Question 34

Who are the addressees on the unqualified report for issuers?

Answer 34

shareholders and the board of directors, or equivalents for noncorporate entities - other addressees may be added

Question 35

What is the first section of the Auditor's Report for an unqualified report for issuers?

Answer 35

Opinion - titled "Opinion on the Financial Statements"

Question 36

What should be included in the opinion section of an unqualified report for issuers?

Answer 36

1. identify the entity audited 2. state that the statements have been audited 3. identify each statement and any related schedules 4. specify the date or period covered by each statement 5. express an opinion the statements are presented fairly, in all material respects, in conformity with the applicable financial reporting framework, and it should identify the reporting framework (typically US GAAP)

Question 37

What is the second section of the Auditor's Report for an unqualified report for an issuer?

Answer 37

"Basis for Opinion"

Question 38

What should the Basis for Opinion section of the Auditor's Report for an unqualified report for an issuer state?

Answer 38

1. the statements are the responsibility of the company's management 2. the auditor's responsibility is to express an opinion on the statements based on the audit 3. the audit was conducted in accordance with PCAOB standards 4. PCAOB standards require the auditor to plan and perform the audit to obtain reasonable assurance about whether the statements are free of material misstatement, whether due to error or fraud 5. that the audit included performing procedures to assess the risks of material misstatement and performing procedures that respond to those risks, examining on a test basis evidence regarding the amounts and disclosures in the statements, and evaluating the overall presentation 6. the auditor believes that the audit provides a reasonable basis for the opinion 7. the auditor is a public accounting firm registered with the PCAOB (United States) and is required to be independent with respect to e=the company in accordance with US federal securities laws and the applicable rules and regulations of the SEC and the PCAOB

Question 39

What should the Basis for Opinion section of the Auditor's Report for an unqualified report for an issuer state?

Answer 39

1. the statements are the responsibility of the company's management 2. the auditor's responsibility is to express an opinion on the statements based on the audit 3. the audit was conducted in accordance with PCAOB standards 4. PCAOB standards require the auditor to plan and perform the audit to obtain reasonable assurance about whether the statements are free of material misstatement, whether due to error or fraud 5. that the audit included performing procedures to assess the risks of material misstatement and performing procedures that respond to those risks, examining on a test basis evidence regarding the amounts and disclosures in the statements, and evaluating the overall presentation 6. the auditor believes that the audit provides a reasonable basis for the opinion 7. the auditor is a public accounting firm registered with the PCAOB (United States) and is required to be independent with respect to e=the company in accordance with US federal securities laws and the applicable rules and regulations of the SEC and the PCAOB