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