Chapter 3 - Audit Reports Flashcards
Standard Unqualified Audit Report for Non-Public Companies
Contains eight distinct parts: 1. Report Title 2. Audit Report Address 3. Introductory Paragraph 4. Management’s Responsibility 5. Auditor’s Responsibility 6. Opinion Paragraph 7. Name and Address of CPA Firm 8. Audit Report Date
Report Title
Independent Auditor’s Report
Audit Report Address
Usually addressed to the company, its stockholders, or the board of directors.
Introductory Paragraph
“We performed and audit” list financial statements that were audited and their dates.
Management’s Responsibility
Prepare FINS in accordance with GAAP.
Internal Controls over financial reporting.
FINS are free of material misstatements.
Auditor’s Responsibility
- Our responsibility is to express and opinion… in accordance with GAAS that requires we plan and perform and audit to obtain reasonable assurance that the FINS are free of material mistakes.
- “Scope paragraph” Perform procedures to obtain evidence. Procedures selected depend on auditor’ judgement. Consider internal controls and evaluate policies, estimates and presentation of FINS.
- “We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
Provide an opinion on whether FINS are “presented fairly”.
In all material respects, the financial position of the company.
In accordance with GAAP.
Name and Address of CPA firm
Firm’s name is used because the entire CPA firm has the legal and professional responsibility.
Audit report date
the date the auditor completed the auditing procedures in the field.
Four categories of audit reports
- Unqualified
- Unqualified with explanatory paragraph or modified wording
- Qualified
- Adverse or Disclaimer
Unqualified Audit Report for Public Company
Contains 3 paragraphs: 1. Introductory Paragraph 2. Scope Paragraph 3. Opinion Paragraph
Reasons for Unqualified w/ explanatory paragraph
- Lack of consistent application of GAAP
- Substantial doubt about going concern
- Auditor agrees with a departure from accounting principles.
- Emphasis of a matter
- Reports involving other auditors (make no reference in the audit report, make reference in the report, qualify the opinion)
Reasons for a qualified opinion
- Scope limitation
- GAAP departure
- Auditor is not independent
Disclaimer
When a scope limitation is highly material or pervasive.
Adverse
When a GAAP issue is highly material or pervasive.
PAJE
Proposed Adjusting Journal Entry
PRJE
Proposed Reclassifying Journal Entry
Qualified Report has what differences
“We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.”
BASIS FOR OPINION
QUALIFIED OPINION - “Except for”
T/F An audit provides a high level of assurance, but is not a guarantee, that a material misstatement will exist in the FINS
TRUE
T/F AICPA auditing standards provide uniform wording for the auditor’s report to enable users of the FINS to understand the audit report
TRUE
The Introductory Paragraph states the auditor’s responsibility for the preparation, presentation, and opinion on financials.
FALSE - the auditor’s responsibility paragraph
The scope paragraph of the auditor’s responsibility section should refer to GAAS.
FALSE - 1st paragraph of auditor’s responsibility
The phrase generally accepted accounting principles can be found in the opinion paragraph.
TRUE
Scope Restriction Disclaimer has what differences
AUDITOR’S RESPONSIBILITY - “Because of the matter described in the Basis for Disclaimer of Opinion paragraph…”
BASIS FOR DISCLAIMER
DISCLAIMER OF OPINION - “Because of the significance of the matter… we have not bee able to obtain sufficient evidence…”
