A1- Audit reports

Question 1

M7- Emphasis of matter and other matter and explanatory paragraph

When will an auditor use the emphasis of matter paragraph?

Answer 1

1.Consistency- To describe lack of consistency because of:
1a. Change in accounting principle that has material effect.
1b. Change in reporting entity
2. Audit opinion change from subsequently discovered facts
3. Purpose - FS are prepared in accordance with special purpose framework
4. When there is a going concern that is alleviated by management

Question 2

M5 - Modified opinions due to financial statements issues

List the type of audit opinions of a non issuer

Answer 2

1.Unmodified
2.Modified
3.Adverse
4.Disclaimer

Question 3

M5 - Modified opinions due to financial statements issues

When will a adverse opinion be adequate to be issued on an audit report?

Answer 3

1. When there is a misstatement that is both material and pervasive.
2. The Financial statements are not presented in accordance with GAAP (A departure from GAAP exist).
3. There is inadequate disclosures that are material and pervasive to the FS.

Question 4

M5 - Modified opinions due to financial statements issues

When will a disclaimer of opinion be adequate to be issued on an audit report?

Answer 4

1. When there is limitation on the scope of work (i.e management refuses the auditor to access the legal counsel, refuses access to the BOD minutes)

Question 5

M5 - Modified opinions due to financial statements issues

In what part of the audit report the auditor should report the entity’s ability to continue as a going concern.

Answer 5

1. Emphasis of matter-of matter- paragraph when the doubt is alleviated or
2. a separate section of the audits report when the doubt has not being alleviated.

Question 6

M5 - Modified opinions due to financial statements issues

When will an auditor issued a qualified opinion

Answer 6

1. When there is a material but not pervasive misstatement.
2. When there is inadequate disclosures.
3. When there is not a reasonable justification for a change in accounting principles.

Question 7

M5 - Modified opinions due to financial statements issues

When will the auditor’s responsibility paragraph be modify in an audit report?

Answer 7

When the auditor issues a disclaimer of opinion.

Question 8

M5 - Modified opinions due to financial statements issues

What is the phrase that an adverse opinion will include in the auditor report?

Answer 8

“In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion section of our report, the accompanying consolidated financial statements do not present fairly the financial position…”

Question 9

M5 - Modified opinions due to financial statements issues

What is the phrase that an disclaimer of opinion will include in the auditor report?

Answer 9

“Because of the significance of the matters described in the Basis for Disclaimer of Opinion section of our report, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements.”

Question 10

M5 - Modified opinions due to financial statements issues

What is the phrase that a qualified opinion will include in the auditor report?

Answer 10

“In our opinion, except for the omission of information described in the Basis for Qualified Opinion section of our report…”

Question 11

M8 - Reporting with different opinions and other auditors

What are the procedures that a predecessor auditor should do when its FS of prior year are presented for comparative purposes with the FS of the successor auditor?

Answer 11

1. Read the current year FS
2. Compare prior years FS with current year FS
3. Obtain letters of representation from Management and from the successor auditor.
   Representation letters from Management- Should indicate whether there has been subsequent events that affects prior year FS.
   Successor auditor representation letter - Should state whether successors audit disclosed any issues of material nature that affect prior years FS.