two Flashcards
(6 cards)
Supplementary information
“When the entity presents the supplementary information with the financial statements, the auditor should report on the supplementary information in either (a) an other-matter paragraph in accordance with section 706…or (b) in a separate report on the supplementary information.”
review report
n a review report, the accountant has to be able to state, “I am not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States (or other financial reporting framework).”
regulatory basis other than gaap
When an auditor is asked to report on the fair presentation of financial statements prepared in conformity with a regulatory basis of accounting, he or she is required to issue a standard report modified for the departures from GAAP. An additional paragraph is added to this report which expresses the auditor’s opinion on whether the financial statements are presented in conformity with the prescribed basis of accounting.
principal
A division of responsibility between the auditors who conducted the audits of the components of the overall financial statements is shown by referring in the principal auditor’s report to the fact that part of the audit was performed by another auditor. If the portion of the financial statements audited by the other auditor is immaterial, then it is most likely that no reference would be made in the principal auditor’s report. The principal auditor should satisfy himself as to the competence, reputation, and professional certification of the other auditor, regardless of whether or not a division of responsibility is reported. Expressing different opinions on the components of the financial statements would result in piecemeal opinions, which is prohibited by AU-C 600.28.
standard audit opinion
The auditor’s standard report states that the financial statements present fairly, in all material respects, an entity’s financial position, results of operations, and cash flows in conformity with generally accepted accounting principles accepted in the United States of America. It also identifies the financial statements audited in an opening paragraph, describes the nature of an audit, and expresses the auditor’s opinion in a separate opinion paragraph. For an unmodified opinion, each of the following items must be satisfied:
A title must include the word “independent.”
Financial statements identified were audited.
Financial statements are the responsibility of the company’s management.
Auditor responsible for expression of an opinion on financial statements.
Audit conducted in accordance with GAAS and should identify the United States of America as the country of origin of those standards.
Audit includes examining evidence, assessing principles and significant estimates, and evaluating overall statement presentation.
An opinion about whether the financial statements are presented fairly, in all material respects, in conformity with GAAP.
types of opinions
A disclaimer of opinion is issued when a significant (sufficiently material or client-imposed) scope limitation prevents the auditor from forming an opinion on the financial statements. A disclaimer is a report that states the auditor does not express an opinion. If an auditor is unable to observe the physical inventory count (and the inventory is material to the financial statements) and cannot perform alternate procedures to verify the accounting assertions associated with the inventory account balance, then the auditor should issue a disclaimer of opinion.
An unmodified opinion is a clean opinion. It states that the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flow of the company. The auditor would be precluded from issuing an unmodified opinion in this circumstance.
A qualified opinion has an “except for” paragraph which highlights any material scope limitations or departures from an applicable financial reporting framework. These are items that are material, but not sufficiently material as to require a disclaimer or adverse opinion. Excepting the items mentioned in the report, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flow of the company.
An adverse opinion states that the financial statements do not present fairly the financial position or the results of operations or cash flow in conformity with an applicable financial reporting framework. Adverse opinions result from a sufficiently material departure from an applicable financial reporting framework. The auditor must disclose the reason(s) for the adverse opinion.
Relevant Terms
