Why is it unacceptable to address the audit report to Management?
Management is the party the auditor is reporting ON
(Management is not the party who the auditor is reporting TO)
What is the ﾓcleanﾔ report for non-issuers?
Unmodified Report (AICPA & ISA)
What is the ﾓcleanﾔ report for Issuers?
What is required for all sections in an unmodified report?
Heading for each section
List the sections of an unmodified report
* Title: ﾓIndependent Auditor's Reportﾔ
1. Introductory (or Report on the F/S)
2. Management's Responsibility for the F/S
3. Auditor's Responsibility
Unmodified report ﾖ Describe Section 1
Title: Introductory or ﾓReport on the F/Sﾔ
1. Entity whose F/S are being audited
2. F/S ﾓAuditedﾔ
3. Title of each statement (& related notes)
4. Date or Period covered by each F/S
Unmodified report ﾖ Describe Section 2
Title: ﾓManagement's Responsibility for the F/Sﾔ
1. Prep & Fair Presentation of the F/S
2. DIM of I/C relevant to reliable financial reporting
Unmodified report ﾖ Describe Section 3
Title: ﾓAuditor's Responsibilityﾔ
1. to Express an opinion on the F/S
2. accordance with GAAS in the USA
3. plan/perform the audit to obtain reasonable assurance that F/S are free of material misstatement
4. Describes an Audit
- procedures for audit evidence
- auditor's judgement, assess RMM (fraud or error)
- I/C is considered (no opinion)
- evaluating appropriateness, reasonableness, overall pres.
5.ﾓwe believeﾔ S.A. Audit evidence
Which section(s) is the Audit described in the standard unmodified report?
Under the Auditor's Responsibility Section
Which section(s) is the AFRF (GAAP) mentioned in the standard unmodified report?
2 Times Total:
- Management's Responsibility
What determines the form and content of the F/S?
the AFRF (system of accounting used to prepare the F/S)
- Gen Purpose or Special Purpose Frameworks
Which report is consistency & adequacy of disclosures explicitly mention?
Modified Report: they require comment only when there are new principles or inadequate disclosure
*implicit in the standard unmodified report (ﾓno news is good newsﾔ)
*explicit in the modified report
Which section(s) are the individual financial statements mentioned in the unmodified report?
Explicitly mentioned in the Intro Section BY NAME
*opinion: financial position, results of operations (I/S & S/E), cash flows
Who signs an unmodified audit report?
In-Charge Auditor (with city & state of practice)
When should the auditor's report be dated?
ON or AFTER the date on which S.A. Audit evidence to support the opinion has been obtained
(report date could be close to the report release date)
*** NOT THE DATE ON WHICH THE REPORT IS SIGNED
When sufficient appropriate audit evidence obtained?
1. the audit documentation has been reviewed
2. F/S (+ disclosures & notes) have ben prepared
3. Management has asserted responsibility for the F/S
What is the last day on which any evidence about the client is obtained?
The date the audit report is signed
When is audit report dual dated?
auditor discovers information after the date that sufficient appropriate audit evidence but prior to signing the report
*refers ﾓExcept for note Xﾔ... NO CHANGE TO BODY of Audit Report
*dual date must always be LATER than the basic (original) date
What does a dual date represent?
an extension of the auditor's responsibility on a single note to the F/S
List the sections of an unqualified report
* title: ﾓReport of Independent Registered Public Accounting Firmﾔ
1. Introductory: ﾓauditedﾔ, F/S, dates, period, mgmt responsibility, auditor responsibility
2. Scope: PCAOB audit (NOT GAAS), audit procedures, reasonable assurance, ﾓwe believeﾔ
3. Opinion: fin position, results of ops, c/f, GAAP
***4. Ref. To Report on I/C (explanatory) ﾖ ICFR, COSO, report date & opinion
(***only required when the audit reports are separate)
Which adjustments are required to an unmodified report under PCAOB? Which type of reports does they apply to?
PCAOB: Applies to all audit reports of issuers & reviews of INTERIM financial information
1. Title: ﾓReport of Independent Registered Public Accounting Firmﾔ
2. Scope Paragraph: refer to ﾓstds of PCAOB USﾔ (not GAAS)
3. Below the auditor-in-charge signature must be listed CITY & STATE of the office where the auditor is based (city&country for non-US auditors)
Which section(s) is GAAP & GAAS mentioned in an unqualified report?
GAAP: Opinion section (section 3)
GAAS: not mentioned at all (PCAOB instead)
What are the major differences between the audit report under GAAS & ISA?
1. ISA: expanded descriptions of management's the auditor's responsibilities
2. ISA: addressed as required by the engagement circumstances
3. ISA: name the location in the country or jurisdiction where the auditor practices
4. ISA: If audit is conducted in accordance with ISA & another set of standards, may refer to both sets ONLY IF:
- there is no conflict between them that would impact the report &
& - Audit report includes ALL elements required by ISA (full accordance)
Does an immaterial disagreement, scope limit, emphasis, or uncertainty have an effect on the opinion?
No... An Unmodified opinion will be issued
in the auditor's judgement, ﾓvery materialﾔ
- the effects are NOT confined to a specific element, account, or item of the F/S
- Could represent a substantial portion of the F/S or disclosures that are fundamental to users' understanding of the F/S
- relates to the ﾓscopeﾔ of the effect on the F/S (ﾓmaterial but not pervasiveﾔ vs ﾓmaterial & pervasiveﾔ)
What are the types of a modified opinion?
- Qualified: ﾓExcept forﾔ
- Adverse: ﾓdo not present fairlyﾔ
- Disclaimer: ﾓwe do not express an opinionﾔ
** all must include ﾓBasis Forﾔ paragraph with heading before modified opinion
What are the types of a unmodified opinion?
- Unmodified - clean opinion
- Unmodified with emphasis/other matter paragraph
When is a ﾓbasis forﾔ section required? Where is its place in a non-issuer audit report?
*ONLY for MODIFIED audit reports & is placed before the modified opinion paragraph
- any MATERIAL misstatements regarding Disagreements or Scope Limits
(** not uncertainty/emphasis unless EXTREME going concern)
If a misstatement is considered material & NOT pervasive, how would it affect the unmodified audit report?
MODIFIED with a Qualified ﾓexcept forﾔ opinion & ﾓBasis forﾔ paragraph (before)
- only affects Disagreements & Scope limits
- Disagreements: misstatements are material but not pervasive
- Scope Limit: **unable to obtain S.A. Audit evidence** & Material, but not pervasive
If a disagreement is material and pervasive, how does it affect the unmodified report?
MODIFIED with an Adverse opinion & ﾓBasis for Adverseﾔ paragraph (before)
- ﾓmisstatements are both material & pervasiveﾔ
If a scope limitation is material & pervasive, how does it affect the unmodified report?
1. MODIFIED with a Disclaimer of opinion & ﾓBasis for Disclaimerﾔ paragraph (before)
- ﾓunable to obtain S.A. Audit evidenceﾔ
- ﾓmisstatements are both material & pervasiveﾔ
2. Withdraw from the engagement (ONLY if scope limitation is imposed by the client)
How does the pervasiveness ﾓscopeﾔ affect an opinion in regards to a disagreement with management?
- Material but NOT Pervasive: Qualified "except for" opinion
- Material & Pervasive: Adverse Opinion
When is an adverse opinion warranted?
when a disagreement is MATERIAL & PERVASIVE
** disagreement: Non-GAAP, Inconsistency (improperly handled), or Inadequate disclosures
When is a disclaimer of opinion warranted?
when a scope limit is MATERIAL & PERVASIVE
EXTREME going concern doubt
How does the pervasiveness ﾓscopeﾔ affect an opinion in regards to a scope limit?
- Material but NOT Pervasive: Qualified "except for" opinion
- Material & Pervasive: Disclaimer of Opinion
***if it does not affect ending balance of a B/S account, Unmodified on Fin Position & Disclaim an opinion on results of operations
What is purpose of an emphasis of matter paragraph?
when the client PROPERLY ACCOUNTED for & DISCLOSED an item of importance (complies with GAAP), but the auditor feels that they are fundamental to the users understanding of the F/S (users may overlook)
ﾖ sometimes optional & mandatory
Circumstances in which an emphasis of matter paragraph is OPTIONAL
- significant related party transactions
- material uncertainty (contingent liab.)
- important subsequent events
- lack of consistency in applying accounting principles
Emphasis of Matter Section
Immediately AFTER the opinion section (before other-matter paragraph, if any)
- Appropriate heading
- Clear reference to the matter & where the matter is addressed in the F/S (ﾓNote Xﾔ)
- INDICATE the opinion is NOT modified with respect to the matter
What circumstances do NOT modify an opinion?
- Everything that is Immaterial (immaterial = clean)
- Emphasis of Matters
- Other Matter
When is an emphasis of matter paragraph MANDATORY?
1. opinion on revised F/S differs from previously expressed opinion (other matter paragraph may be used instead)
2. ﾓSUBSTANTIAL doubtﾔ about client to continue as a ﾓgoing concernﾔ (include wording)
3. a JUSTIFIED change in accounting principles affecting consistency
- change in reporting entity (not owner)
- change in accounting principle by an investee under equity method
- adjustments to correct a misstatement in previously issued F/S
- GAAP departure that is more appropriate than GAAP (usually from new transaction type or legislation)
4. F/S prepared in accordance with a SPECIAL PURPOSE FRAMEWORK (other than GAAP)
5. F/S prepared in accordance with a regulatory basis that are intended for GENERAL USE (not limited)
What is purpose of an other-matter paragraph?
to communicate matters that are appropriately report or disclosed in the F/S but (in the auditor's judgement) ENHANCES a user's ability to understand the audit, auditor's responsibilities, or the auditor's report
***after opinion & emphasis of matter paragraphs (AFTER AFTER)
***optional & mandatory
When is an other matter paragraph mandatory?
1. opinion on revised F/S differs from previously expressed opinion (EoM paragraph may be used instead)
2. The report of another auditor who reported on the prior period F/S is NOT presented with comparative F/S
3. When prior periods presented in comparative F/S were review or compiled
4. When PP presented Comparative F/S have NOT been audited, reviewed, or compiled
5. When other information accompanying audited F/S contains MATERIAL inconsistency, which management refused to revise (unless auditor withholds report or withdraws from engagement)
6. When the entity presents supp. Information with the F/S (unless auditor issues separate report on the SI)
7. When the F/S are accompanied by RSI (req. supp. Info)
8. F/S are prepared in accordance with a SPECIAL PURPOSE FRAMEWORK (other than GAAP) that are LIMITED USE (not general)
9. If reporting on auditing compliance & F/S in a combined report
What is the treatment for reporting on compliance* when included in the auditor's report on F/S?
(*reporting on compliance with contractual agreements or regulatory requirements)
Other Matter Paragraph & ***ﾔRestricted Useﾔ alert
- reference to the specific covenants/paragraphs of the contractual agreements or regulatory requirements to the extent that they relate to accounting matters
- Negative assurance OR identify the instances of noncompliance
- indicate the communication is being provided in connection with F/S audit
- audit not directed primarily toward compliance (add'l procedures may mean add'l matters)
- description & source of significant interpretations made by mgmt
- ***restricted use.. ﾓintended solelyﾔ
ﾓRestricted Use Relating to the Other Matterﾔ statement if performed in accordance with Government Auditing Standards
- "purpose of this communication is related to compliance" described in the other matter paragraph
- solely to describe the scope of our testing
- This communication is an Integral part of a GAS audit in considering compliance
- This communication is not suitable for any other purpose
What is the authoritative source of GAAP For Non Issuers
FASB Accounting Standards Codification (ASC)
What is the authoritative source of GAAP for Issuers
SEC requirements & FASB ASC
What is the first step when auditor discovers the F/S are not prepared in conformity with GAAP?
1. Suggest to management that the statements be correct
2. If management refuses, issue a qualified opinion (ﾓexcept forﾔ) or adverse opinion, based on pervasiveness & materiality
Accordance with Framework for reporting (& Disagreements with)
Implicit or Explicit (in Audit Report)?
Explicitly stated in the opinion paragraph (GAAP)
- If Justified Departure, include EoM paragraph (with explanation & reason for being more appropriate than GAAP)
- If unjustified departure, qualified (ﾓexcept forﾔ) opinion or adverse opinion, based on pervasiveness & materiality (auditor's judgement).... with ﾓbasis for qualified opinion paragraphﾔ (BEFORE)
Consistency (& Disagreements with)
Implicit or Explicit (in Audit Report)?
Implicit (assume consistency unless reported in the Auditor's report)
Auditor is REQUIRED to evaluate the consistency* of F/S for the periods presented & communicate in the auditor's report when the comparability of F/S from one period to the next is affected (implicit)
*Consistency: assume continued use of same standards
What may cause inconsistency?
- Change in Accounting Principle (4 conditions)
- Adjustment to Correct a Material Misstatement in previously issued statements
What should an auditor determine when there is a change in accounting principle (inconsistency)?
1. All conditions must be met to issue an unmodified opinion with EoM paragraph (which is included in future reports until new principle applies to ALL PERIODS presented)**except if considered retroactive restatement
A - If new principle is in accordance with the AFRF
P - if the change is proper (conforms to requirements)
D - If Disclosures are appropriate & adequate
J - if there is justification that the change is preferable
2. If not all met, evaluate if the change is a AFRF-departure (which requires a qualified or adverse opinion)
What are ﾓaccounting changesﾔ that would result in an unmodified opinion & emphasis of matter paragraph?
- change from one acceptable principle to another PREFERABLE acceptable principle
- change in accounting estimate that is inseparable from a change in accounting principle (change in depreciation method or useful life)
- Change in reporting entity (including or excluding entities from consolidated F/S) which does not include a change in ownership
- Significant change in accounting principle by an investee under equity method
- Adjustment to correct a material misstatement in previously issued F/S
- Change in classification of an item (resulting from an change in acctg principle or error correction)
According to AS6 (PCAOB), what is a change from an unacceptable accounting principle to an acceptable one?
Correction of a misstatement in a previously issued F/S
** NOT a change in accounting principle
When will an inconsistency NOT require identification on the auditor's report?
If it does not have a MATERIAL impact on the comparability of the current & preceding years (immaterial)
Connection between Inconsistency & GAAP-departure
Not equivalents as long as:
1. The auditor CONCURS with the change (preferable)
2. Properly accounted & disclosed
* unmodified opinion with EoM
- if do not satisfy above, qualified or adverse opinion (pervasiveness) with ﾓbasis forﾔ paragraph (before)
What is important in the EoM paragraph regarding a justified change in principle (consistency)?
- Reference to the client's footnote that discusses the change
- ** auditor does NOT explicitly state they concur with the change (implicit an through unmodified opinion)
- indicate opinion is not modified (implicit)
According to AS6 (PCAOB), what should the Auditor do if a material misstatement in a previously issued F/S is corrected?
An explanatory paragraph should be added to the auditor's report describing the situation?
What are examples of inconsistency that would be considered a GAAP Departure?
- Change to an unacceptable principle
- Change that is not properly accounted for or disclosed
- change made without sufficient justification (unjustified)
What is required for a change that was treated as a retroactive restatement?
Explanatory paragraph in year of occurrence but not for subsequent years (other changes that affect periods presented in F/S should carry the explanatory paragraph until all years apply)
How would a first year audit treat consistency?
- verify with predecessor, F/S, & predecessor audit reports
- if successor auditor concurs with consistency, NO REFERENCE (implicit)
When are disclosures mentioned in the audit report?
Introductory paragraph (implies among the F/S being audited)
*** unless disclosures are considered incorrect, incomplete, or unsatisfactory
Disclosures (& Omissions/Inadequacy)
Implicit or Explicit (in Audit Report)?
Implicit: Disclosures are considered correct/adequate unless auditor indicates otherwise
** if adequate, disclosures are only mentioned in the introductory paragraph
What should an Auditor respond to the failure to include a statement of cash flows in a set of F/S?
- REQUIRED by GAAP to be included when a company is presenting results of operation (i.e. I/S)
- treat it like an inadequate disclosure (not a scope limit)
- QUALIFIED opinion issued with Basis For qualification paragraph (precludes standard report & unmodified opinion)
- Delete references in the Intro & Opinion paragraphs
- Opinion Paragraph ﾓIn our opinion, except that omission of Cash Flows results in an incomplete presentationﾔ
What is a failure to include a statement of cash flows considered when a company presents its results of operation?
an Inadequate Disclosure, which warrants a qualified opinion with basis for paragraph
- delete references in intro & opinion
- include ﾓexcept thatﾔ statement in the opinion paragraph
How does an Auditor report on comprehensive income?
1 of 2 ways ﾖ ONLY affects the intro paragraph (NO change to Opinion)
1. Separate mention - ﾓstatement of comprehensive incomeﾔ
2. Combined - ﾓstatement of income & comprehensive incomeﾔ
If a client includes the name of a CPA firm in F/S report were NOT audited/reviewed/compiled by the CPA, what should be done?
1. Remove the name from the report
2. Mark each page of the F/S ﾓUnaudited. No opinion expressed on themﾔ
What is required by a CPA in order to attach any report to Financial Statements?
at least the level of work equivalent to a compilation
Group Engagement Partner
accounting firm that has examine the company having the largest impact on the overall report (i.e. PARENT COMPANY AUDITOR)
auditor of one or more of the subsidiary corporations
When must a group engagement partner consider component auditors?
When the related subsidiary has a material impact on the consolidated statements of the parent corporation
- Subsidiary accounted for under use of the equity method
- Consolidated F/S report (indicate in Intro & Opinion)
What will a group engagement partner consider when evaluating component auditors?
- CA's Understanding & willingness to comply with ethical requirements (includes independence)
- CA's Competence
- Extent of being involved in the CA's work
- Ability to obtain necessary consolidating information from the component auditor
- Whether the CA operates in an environment with appropriate oversight
*** if Group Engagement Partner has any reservations about these, should not use CA's work in forming an opinion & no reference
What should a Group Engagement Partner do when they have reservations about the Component Auditor?
- obtain S.A. audit evidence about the subsidiary (component) without using any of the CA's work
- No Reference to the component auditor in the Audit Report
A reference to a component auditor in the audit report indicates
Division of responsibility
When a Group Engagement Partner decides to reference the Component Auditor, what should be indicated in the Audit Report?
- Clearly indicate ﾓWe did NOT auditﾔ & statements were audited by ﾓother auditorsﾔ**
*name of CA if CA gives express permission & CA's report presented with the group F/S
- Magnitude of the portion of F/S audited by the CA
- Percentages of consolidated total or as Dollar Amounts of the largest individual numbers on the B/S & I/S (i.e. Total Assets, Total Revenues)
When should a reference not be made in regards to a component auditor?
- Component F/S were prepared according to same AFRF (GAAP) as the Group F/S
- CA has complied with GAAS
- CA's report is NOT RESTRICTED (Gen Use)
- group auditor decides to assume responsibility for the work of a component auditor
Guidelines on Group Financial Audits is a result of ___________
Relationship between component auditor's report & group auditor's report
- Group Engagement Auditor should consider whether modifications to the CA's report may warrant modifications to the GA's report
- If the Group Auditor is given permission to use the CA's name when referencing the CA in the audit report, the CA's report presented with the group F/S
If a group auditor decides to assume responsibility for the work a component auditor, how does it affect the Auditor's report?
It does not affect the Auditor's report
- NO REFERENCE made
Which sections of a Group Financial Audit report are affected if there is a division of responsibility/shared responsibility?
- ﾓconsolidated financial statementsﾔ
- ﾓwe did not auditﾔ, ﾓother auditorsﾔ, percentages/dollar amounts
- ﾓIn our opinion, based on our audit & the report of other auditors, the consolidated F/Sﾔ
What is the AICIPA limit for concerns about client's status to REQUIRE an EoM paragraph?
One year after the B/S date (maximum)
What is indicated by the denial or losses of licenses of patents?
Substantial Doubt as to the going concern of the client (EoM Paragraph)
What are the primary issues related to when considering doubt of going concern?
Cash Flow Issues... client is most likely unable to pay debts as they come due
What are certain audit procedures likely to ID conditions & events that could lead to substantial doubt of to the client's going concern?
- Inspection of debt agreements & third party commitments of financial support
- Inspection of minutes of BoD
- Inquiries of client's legal counsel (attorney)
- Analytical Procedures
What is indicated by defaults or restructurings of debts?
Substantial Doubt as to the going concern of the client (EoM Paragraph)
What should an Auditor consider when they have concluded that substantial doubt of going concern exists?
1. Consider If the client has proper disclosure of it
2. If so, UNMODIFIED opinion with EoM paragraph (includes ﾓsubstantial doubtﾔ & ﾓgoing concernﾔ)
3. If not, QUALIFIED opinion with Basis For Qualification paragraph (considered an inadequate disclosure ﾖ GAAP Departure)
4. Auditor is REQUIRED to communicate going concern issues to Governance
When is a an auditor required to add an EoM paragraph regarding an uncertainty (or contingent liability)?
Auditor is NOT REQUIRED to do so, it is optional for the Auditor to include an EoM paragraph
- Basis For Paragraph is required when not properly disclosed, accrued OR there is a scope limitation
When is a Basis for Paragraph warranted for an uncertainty (or scope limitation)?
- GAAP departure: basis for qualification or adverse
- Scope Limitation: Basis for qualification or adverse
What warrants a qualified opinion or disclaimer of opinion?
Scope limitation (aka GAAS departure)
- audit evidence is insufficient or inappropriate, therefore unable to draw a conclusion on certain accounts/disclosure or the as a whole (based on materiality & pervasiveness)
Connection between ﾓrequirementsﾔ & audit procedures
Scope Limitations & Alternative procedures
- If an Unconditional Requirement (ﾓmust doﾔ, ﾓrequireﾔ) is unable to be performed, then there are NO ACCEPTABLE ALTERNATIVE PROCEDURES (therefore, Scope Limitation ﾖ Scope restriction)
- If a presumptively mandatory require (ﾓshouldﾔ) is unable to be performed, document how alternative procedures were able to accomplish the objectives
Scope Limitations may result from
- Circumstances beyond the control of the Auditor & Client
- Circumstances related to the nature or timing of the auditor's procedures
- Management imposed limitations
If an alternative procedure is possible, what effect does it have on the Audit Report?
- NO EFFECT on the audit report
- Auditor's must document how alt. Procedures were able to accomplish the objective
*** unconditional requirements have NO ACCEPTABLE ALTERNATIVE PROCEDURES
When is a unmodified opinion on the financial position & a disclaimer on the results of operations and cash flows permitted?
if the item does not affect the ending balance of a B/S account
Fin Position: Unmodified
Results of ops & CF's: Disclaimer
How is the auditor's report affected if the auditor is unable to attend the year-end inventory count for valid reasons & is unable to satisfactorily obtain evidence using alternative procedures?
- considered a scope limitation due to circumstances (not management)
- Qualified opinion ﾓexcept for the possible effects of matter described in the basis forﾔ
**** does NOT refer to the omitted procedures themselves
- Basis for qualified opinion paragraph: explain the reasons for the qualified opinion
Limited Reporting Engagement
client asks auditor to report on only one F/S and not the others (not considered a piecemeal)
- acceptable by GAAS & not considered a scope limitation as long there are no client-imposed scope limitations (auditor is permitted access to examine any evidence, including the other financial statements not being audited)
Examples of Client Imposed Scope Limitations
- Inadequate records (includes statement omission)
- Client refuses permission to contact attorney (no letter of inquiry)
- Management will not sign Management Representation letter
What effect can inadequate accounting records have an audit?
- Auditor may choose to disclaim an opinion or withdraw from the engagement
Which statements are required to give an opinion on the results of operations?
Income Statement, Statement of Cash Flows (if one is missing, it is considered a scope limitation)
When would a omission of the statement of cash flows not preclude an unmodified opinion?
Limited Reporting Engagement on the financial position of an entity (opinion on B/S only)
What effect does a limited reporting engagement have on the standard unmodified report?
Intro: only ID F/S that is being audited
All of report: financial statement in singular form (statements to ﾓstatementﾔ) when referring to the F/S being audited
What warrants an adverse opinion (ﾓbecause ofﾔ)?
GAAP Departure that is material & pervasive (auditor's judgement)
- auditor disagrees with application of accounting principles
- Inadequate disclosure
- unreasonable accounting estimate
When does the auditor ALWAYS have the option of withdrawing from the engagement?
Anytime the auditor feels the statements are
What does a disclaimer of opinion result from?
- Very Material & Pervasive Scope Limitaion
- Ver Material & Pervasive Uncertainty
Which section(s) of the audit report are affected by a disclaimer of opinion?
- Intro: "We were engaged to audit"
- Auditor's Responsibility: ﾓbecause of matter described in basis forﾔ & ﾓwe were not able to obtain SA audit evidenceﾔ
**** OMIT: 2nd & 3rd paragraphs (2/3) in Auditor's Responsibility, Definition of Audit, & ﾓwe believeﾔ ****
- ADD Basis For Disclaimer of Opinion: reasons, ﾓunable to satisfy ourselvesﾔ
- Disclaimer of Opinion: ﾓBecause of the significanceﾔ, ﾓnot able to obtain SA audit evidenceﾔ, ﾓwe do not express an opinionﾔ
*** MGMT Responsibility is NOT affected
If unable to verify beginning inventory & able to verify ending inventory, what opinion would be issued?
- Financial Position: Unmodified (B/S)
- Other Statements that cover the entire year: Disclaimer
- to express an opinion on an individual account when issuing an adverse opinion or disclaimer of opinion on the statement
Disclaimer of Opinion on a Financial Statement applies to
All of the individual accounts on that whole statement
What effect does the auditor's acknowledged lack of independence have on the auditor's report?
1 Paragraph ONLY with Disclaimer of opinion (ﾓwe do not express an opinionﾔ)... omit all other paragraphs.
*** DO NOT give reasons for lack of independence
Comparative financial statements
Multi-year financial information & statements
Regarding comparative F/S, what is the effect on the audit report if all periods presented were audited by the same auditor (all unmodified opinion)?
It is the Comparative Standard Unmodified Report: One Audit Report for all periods (report is simply updated)
Identical to the Standard Unmodified with minor changes
- Intro & Opinion are modified to to include ﾓconsolidated F/Sﾔ, subsidiaries, related consolidated statements, & periods presented
Comparative F/S: Same Auditor (Change of Opinion)
What is the effect on the Audit Report?
One Audit Report
Intro: Include periods presented
**Opinion: reflects current year opinion (with appropriate report modifications ﾅ i.e. basis for)
**Other Matter Paragraph: refers to earlier report (date, opinion expressed, reason for change, & fact that the current opinion differs)
What should a successor auditor do when a predecessor auditor is involved while reporting on comparative F/S?
Two Ways to handle this
1. PA Reissue: Predecessor's report can be issued & included along with the Successor's report
- PA must read/compare F/S & obtain a rep letter for SA & Client
- if restate, reissue with dual date (after a 3 way meeting with client to apply procedures)
- if no adjustment/revision, reissue with original report date
2. PA does not reissue: (PA MUST NOT BE NAMED... ﾓother auditorﾔ)
- Other Matter Paragraph (PA previous report date, opinion, & reasons for any qualification of the opinion)
- OR include PA's explanatory paragraph (PA's basis for)
** if PA issued a different opinion on AMENDED F/S, other matter paragraph should indicate
What happens in comparative report when the PA has ceased operations?
Must state that the predecessor has ﾓceased operationsﾔ in Other-Matter Paragraph
What is required when different levels of service are provided for different periods while issuing a report on comparative F/S?
If the report on the prior period's F/S is NOT reissued, the current year report will include an OTHER MATTER paragraph indicating:
- the service performed
- date of the report on that service
- a description of conclusion provided (opinion, negative assurance, or no opinion)
*reports only apply to equivalent of at least a compilation (no opinion)