Flashcards in Auditing 1 (2) - REPORTS ON AUDITED FINANCIAL STATEMENTS Deck (21):
AUDITOR'S STANDARD REPORT
3- Introductory Paragraph
4- Scope Paragraph
5- Opinion Paragraph
6- Firm Name
7- Report Date
AUDITOR'S STANDARD REPORT - Report Date
1- The report should be dated on or after the date on which appropriate audit evidence,sufficient to support the opinion, has been obtained. Sufficient appropriate audit evidence includes evidence that:
a. Audit documentation has been reviewed,
b. FSs have been prepared, and
c. Management has taken responsibility for FS .
2. The report date shows the final date of the auditor's responsibility.
TYPES OF OPINIONS
A. Unqualified (Clean) Opinion
B. Qualified Opinion (except for)
C. Adverse Opinion
D. Disclaimer of Opinion
BRIEF SUMMARY OF WHEN TO USE DIFFERENT OPINIONS
Ref W/P A1.1
Unqualified (Clean) Opinion - A. Uncertainty
An uncertainty involves a matter for which conclusive audit evidence concerning its outcome is not currently available and will not be available until such time in the future when the matter is resolved.
1- Estimate the effect of future events on the financial statements and record and present this estimate, or
2- Determine that a reasonable estimate cannot be made and make the required disclosures to that effect.
1- an Unqualified :- Auditor agree with the management after (GAAP - Evidence)
2- Qualified (GAAS) or Disclaimer :- Auditor unable to obtain evidence
3- Qualified (GAAP) or Adverse :- Auditor disagree with the management
Unqualified (Clean) Opinion - B. Modified
1- Modified Wording in Division of responsibility
2- Necessary and justified departure from GAAP
3- Going concern
4- emphasize a matter
5-A justified lack of consistency
6- Required SEC regulation S-K quarterly financial data
7- Supplementary information required by GAAP has been omitted or departs materially from GAAP
8. Other information in a document containing audited financial statements is materially inconsistent with information appearing in the financial statements.
Unqualified (Clean) Opinion - General Rule on Position of Explanatory Paragraph
Follow the opinion paragraph Except the following issues may be placed either before or after the opinion paragraph
a. Justified GAAP departure
b. Emphasis of a matter
Unqualified (Clean) Opinion -Reliance on Work of Other Auditors
1. Responsibilities - The principal auditor must always be satisfied regarding the reputation and independence
2- Division of Responsibility (reference in report)- The work done by the other auditors is expressed in terms of percentages, total assets, total revenue, etc.
3- Assumption of Responsibility (no reference to other CPA) - Additional Investigation of the Other Auditor Step
Unqualified Opinion - Necessary/Justified Departure from GAAP
Add explanatory that contain a description ,effects, and the reasons
Unqualified Opinion - Going Concern Procedures
1- Analytical procedures
2- Debt compliance-terms of debt and loan agreements
4- Inquiry of client's legal counsel
5- Third parties - confirm the details of financial support
6- Subsequent events review
Unqualified Opinion - Going Concern Conditions and Events.
1- Financial difficulties
2- Internal matters
3- Negative trends
4- External matters
Unqualified Opinion - Going Concern Mitigating Factors
1- Plans to borrow money or restructure debt
2. Plans to sell assets
3. Plans to delay or reduce expenditures
4. Plans to Increase ownership equity
Unqualified Opinion - Going Concern (Alleviation of Doubt)
Alleviation of Doubt - the auditor should still consider the need for disclosure of the conditions and events that initially gave rise to the substantial doubt.
Unqualified Opinion - Going Concern Documentation Requirements.
1-. The conditions or events for substantial doubt,
2-. Material mitigating factors
3-. Audit work for evaluating management's plans,
4-. The auditor's conclusion
5-. The effect of the auditor's conclusion on FS or report.
Unqualified Opinion - Emphasis of a Matter.
1.- A related-party transaction
2- A significant subsequent event
3- The entity is a component of a larger business enterprise
4-. Accounting matters (other than changes in accounting principles) that affect the comparability of the financial statements
e. Material uncertainties disclosed in the footnotes
Unqualified Opinion - Lack of Consistency
Unqualified opinion with an explanatory paragraph.
1- The change is to an acceptable principle,
2. The method of accounting for the acceptable
3. Management is justified in the change.
if effect of a change in GAAP is immaterial
no revision to the report is necessary.
Changes in accounting estimates or corrections of errors (i.e., mathematical mistakes, oversights, etc.)
not affect the consistency standard and would not affect the auditor's report
changes in depreciation method do require the addition of an explanatory paragraph.
If the year in which the change occurred is presented, the explanatory paragraph is required in subsequent years' reports. If the change was treated as a retroactive restatement, then the explanatory paragraph is not needed in subsequent years.
Corrections of an error in principle (e.g., from cash method to accrual method)
Affect consistency and would require a consistency modification.
If a material misstatement in the previously issued financial statements of an issuer is corrected,
PCAOB standards require the addition of an explanatory
paragraph (following the opinion paragraph) describing the situation and referring to the company's disclosure of the matter