Chapter 3 Audit Reports

Август 30, 2022

Содержание

2. Presentation Outline The Standard Audit Report Section 404 of the Sarbanes-Oxley Act Conditions Requiring an Explanatory
3. I. The Standard Audit Report The Seven Parts of the Auditor’s Standard Report Five Conditions for
4. A. The Seven Parts of the Auditor’s Standard Report Report title – Must include the word
5. B. Five Conditions for the Standard Report All 4 of the basic financial statements are included.
6. II. Section 404 of the Sarbanes-Oxley Act PCAOB Auditing Standard 2 The Time Period Covered The
7. A. PCAOB Auditing Standard 2 Section 404 requires the auditor of a public company to attest
8. B. The Time Period Covered Although the audit opinion on the financial statements addresses multiple reporting
9. C. The Audit Report The auditor may choose to issue separate reports or a combined report,
10. III. Conditions Requiring an Explanatory Paragraph or Modified Report Wording Lack of Consistency Going Concern Problem
11. A. Lack of Consistency The following affect consistency and require an explanatory paragraph when material (See
12. B. Going Concern Problem SAS No. 59 requires auditor to evaluate going concern for a reasonable
13. C. Auditor Agrees with a Departure from GAAP An auditor may issue an unqualified opinion when
14. D. Emphasis of A Matter The auditor may add an explanatory paragraph to emphasize items such
15. E. Reports Involving Other Auditors Assume Responsibility If you accept responsibility for the other auditor’s work
16. IV. Other Opinion Possibilities Qualified Opinion Adverse Opinion Disclaimer of Opinion
17. A. Qualified Opinion Use the term “except for” in the opinion paragraph to exclude a specific
18. B. Adverse Opinion Financials as a whole are not fairly presented. Used when auditor feels that
19. C. Disclaimer of Opinion Auditor can not express an opinion. Disclaimer of opinion is appropriate when:
20. V. Scope Limitation Scope Limitation Defined Effect of Scope Limitation on Audit Report – Qualified Opinion
21. A. Scope Limitation Defined An unqualified opinion can only be issued for an immaterial scope limitation.
22. B. Effect of Scope Limitation on Audit Report – Qualified Opinion Introductory paragraph is same as
23. C. Effect of Scope Limitation on Audit Report – Disclaimer of Opinion Introductory paragraph modified to
24. VI. GAAP Departure GAAP Departure Defined Effect of GAAP Departure on Audit Report – Qualified Opinion
25. A. GAAP Departure Defined An unqualified opinion can only be issued if GAAP departure is immaterial.
26. B. Effect of GAAP Departure on Audit Report – Qualified Opinion Introductory paragraph is same as
27. C. Effect of GAAP Departure on Audit Report – Adverse Opinion Introductory paragraph is same as
28. VII. Lack of Independence An accountant who is not independent is required to issue a special
29. VIII. Other Information In regard to other information included with the audited financial statements in the
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Presentation Outline
The Standard Audit Report
Section 404 of the Sarbanes-Oxley Act
Conditions Requiring

an Explanatory Paragraph or Modified Report Wording
Other Opinion Possibilities
Scope Limitation
GAAP Departure
Lack of Independence
Other Information

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I. The Standard Audit Report
The Seven Parts of the Auditor’s Standard

Report
Five Conditions for the Standard Report

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A. The Seven Parts of the Auditor’s Standard Report
Report title –

Must include the word independent.
Audit report address – Customary to address to board of directors and stockholders to demonstrate independence.
Introductory paragraph – States that an audit has been performed; identifies the financial statements and appropriate dates; states that the financial statements are the responsibility of the entity’s management.
Scope paragraph – States that auditor followed GAAS or PCAOB standards and indicates that the audit only provides reasonable assurance.
Opinion paragraph – Communicates the results of the audit.
Name of CPA firm or practitioner.
Audit report date showing last day of field work. Auditor is held accountable only through this date

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B. Five Conditions for the Standard Report
All 4 of the basic

financial statements are included.
Three General Standards have been followed.
Sufficient evidence has been accumulated and three Field Work Standards have been followed.
Financial Statements are in accordance with U.S. GAAP.
No circumstances require an explanatory paragraph or modified wording of the report.

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II. Section 404 of the Sarbanes-Oxley Act
PCAOB Auditing Standard 2
The Time

Period Covered
The Audit Report

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A. PCAOB Auditing Standard 2
Section 404 requires the auditor of a

public company to attest to management’s report on the effectiveness of internal control over financial reporting.
PCOAB Auditing Standard 2 requires the audit of internal control to be integrated with the audit of the financial statements.

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B. The Time Period Covered
Although the audit opinion on the financial

statements addresses multiple reporting periods, management’s assertion about the effectiveness of internal control is as of the end of the most recent fiscal year.

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C. The Audit Report
The auditor may choose to issue separate reports

or a combined report, such as the one shown in Figure 3-3 on page 50.
The combined report on financial statements and internal control over financial reporting addresses both the financial statements and management’s report on internal control over financial reporting.

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III. Conditions Requiring an Explanatory Paragraph or Modified Report Wording
Lack of

Consistency
Going Concern Problem
Auditor Agrees with a Departure from GAAP
Emphasis of a Matter
Reports Involving Other Auditors

Note: The first four reports above require an explanatory paragraph
following the opinion paragraph. There is no change in the wording
of the three standard paragraphs. For reports involving other
auditors, the three standard report paragraphs are modified but
there is not a separate explanatory paragraph.

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A. Lack of Consistency
The following affect consistency and require an explanatory

paragraph when material (See Fig. 3-4 on page 51):
Change in accounting principles (i.e., FIFO to LIFO)
Change in reporting entities (i.e., change is companies in combined financial statements)
Corrections of changing from unacceptable to acceptable accounting principles.

The following affect comparability but not consistency. If material these items may require disclosure, but not a explanatory paragraph:
Change in accounting estimate (i.e., asset’s depreciable life)
Error correction not involving accounting (i.e., math error)
Variations in format and presentation.
Changes due to substantially different events such as the sale of a subsidiary.

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B. Going Concern Problem
SAS No. 59 requires auditor to evaluate going

concern for a reasonable time (not over one year from date of financial statements).
Include an explanatory paragraph that includes the phrases “substantial doubt” and “going concern.” See Figure 3-5 on page 53.

Note: SAS No. 59 permits but does not require a disclaimer of opinion
when there is substantial doubt about ability to continue as a going
concern.

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C. Auditor Agrees with a Departure from GAAP
An auditor may issue

an unqualified opinion when a departure from GAAP is necessary to prevent financials from being misleading.
Modify report wording by adding an explanatory paragraph.

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D. Emphasis of A Matter
The auditor may add an explanatory paragraph

to emphasize items such as:
Significant related party transactions
Important subsequent events
Factors affecting comparability of financial statements.
Material uncertainties disclosed in the notes to the financial statements.

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E. Reports Involving Other Auditors
Assume Responsibility
If you accept responsibility for the

other auditor’s work (and it is unqualified) the standard report may be issued without modification.
If the other auditors report is qualified and the qualification is material to the financial statements taken as a whole, you must qualify your report.

Shared Responsibility
The opinion is unaffected (i.e. can be unqualified).
Modify all three paragraphs of the standard report (See Figure 3-6 on page 54).

Assume No Responsibility
A qualified opinion or disclaimer, depending on materiality, is required.

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IV. Other Opinion Possibilities
Qualified Opinion
Adverse Opinion
Disclaimer of Opinion

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A. Qualified Opinion
Use the term “except for” in the opinion paragraph

to exclude a specific item from the auditor’s opinion.
Qualified opinion is appropriate when there is a:
Material scope limitation (qualified scope, additional paragraph, and qualified opinion)
Material departure from GAAP (additional paragraph, qualified opinion)

Note: Materiality is defined in Table 3-1 on page 57.

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B. Adverse Opinion
Financials as a whole are not fairly presented.
Used

when auditor feels that financial statements contain contain a highly material departure from GAAP.

An auditor may have to play the bad guy to protect the public

Note: Materiality is defined in Table 3-1 on page 57.

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C. Disclaimer of Opinion
Auditor can not express an opinion.
Disclaimer of opinion

is appropriate when:
There is a highly material scope limitation.
There is a lack of independence

Note: Auditor has option to issue a disclaimer
of opinion for a going concern problem.

Note: Materiality is defined in Table 3-1 on page 57.

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V. Scope Limitation
Scope Limitation Defined
Effect of Scope Limitation on Audit Report

– Qualified Opinion
Effect of Scope Limitation on Audit Report – Disclaimer of Opinion

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A. Scope Limitation Defined
An unqualified opinion can only be issued for

an immaterial scope limitation.
If the scope is restricted by the client, the auditor will usually disclaim an opinion.
If scope is restricted by other conditions:
Qualified opinion if statements “as a whole” are not affected.
Disclaimer if scope limitation affects numerous financial statement items.

Note: Materiality is defined in Table 3-1 on page 57.

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B. Effect of Scope Limitation on Audit Report – Qualified Opinion
Introductory

paragraph is same as in standard report.
Scope paragraph identifies limitation by adding “except as discussed in the following paragraph.”
A separate explanatory paragraph is added to the report to describe the scope limitation.
Opinion paragraph wording is changed to express an “except for” qualified opinion.

Note: See Figure 3-7 on page 59.

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C. Effect of Scope Limitation on Audit Report – Disclaimer of

Opinion

Introductory paragraph modified to say “We were engaged to audit…” rather than “We have audited …”.
Scope paragraph is omitted.
A separate explanatory paragraph is added to the report to describe the scope limitation.
Opinion paragraph wording is changed to disclaim an opinion.

Note: See Figure 3-8 on page 60.

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VI. GAAP Departure
GAAP Departure Defined
Effect of GAAP Departure on Audit Report

– Qualified Opinion
Effect of Scope Limitation on Audit Report – Adverse Opinion

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A. GAAP Departure Defined
An unqualified opinion can only be issued if

GAAP departure is immaterial.
If financial statements “taken as a whole” are not misleading, then a qualified opinion can be issued. Required for omission of statement of cash flows (SAS 58).
If financial statements “taken as a whole” are misleading, then an adverse opinion must be issued. See Nature of Item on page 58.

How misleading are the financial statements?

Note: Materiality is defined in Table 3-1 on page 57.

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B. Effect of GAAP Departure on Audit Report – Qualified Opinion
Introductory

paragraph is same as in standard report.
Scope paragraph is the same as the standard report.
A separate explanatory paragraph is added to the report to describe the GAAP departure and its effect on the financial statements.
Opinion paragraph wording is changed to express an “except for” qualified opinion.

Note: See Figures 3-9 and 3-11 on pages 60-61.

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C. Effect of GAAP Departure on Audit Report – Adverse Opinion
Introductory

paragraph is same as in standard report.
Scope paragraph is the same as the standard report.
Separate explanatory paragraphs are added to the report to describe the GAAP departures and their effects on the financial statements.
Opinion paragraph wording is changed to express an adverse opinion .

Note: See Figure 3-10 on page 61.

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VII. Lack of Independence
An accountant who is not independent is required

to issue a special disclaimer of opinion.
One paragraph report with no title (See Figure 3-12 on page 61).
No opinion is expressed.

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VIII. Other Information
In regard to other information included with the audited

financial statements in the annual report, the auditor is required to read the information to ensure that it is not materially inconsistent with the audited financial statement.
Auditors are not currently responsible for information on a company’s web site, even if it includes audited financial statements.

Chapter 3 Audit Reports

Содержание

Presentation OutlineThe Standard Audit ReportSection 404 of the Sarbanes-Oxley ActConditions Requiring

I. The Standard Audit ReportThe Seven Parts of the Auditor’s Standard

A. The Seven Parts of the Auditor’s Standard ReportReport title –

B. Five Conditions for the Standard ReportAll 4 of the basic

II. Section 404 of the Sarbanes-Oxley ActPCAOB Auditing Standard 2The Time

A. PCAOB Auditing Standard 2Section 404 requires the auditor of a

B. The Time Period CoveredAlthough the audit opinion on the financial

C. The Audit ReportThe auditor may choose to issue separate reports

III. Conditions Requiring an Explanatory Paragraph or Modified Report WordingLack of

A. Lack of ConsistencyThe following affect consistency and require an explanatory

B. Going Concern ProblemSAS No. 59 requires auditor to evaluate going

C. Auditor Agrees with a Departure from GAAPAn auditor may issue

D. Emphasis of A MatterThe auditor may add an explanatory paragraph

E. Reports Involving Other AuditorsAssume ResponsibilityIf you accept responsibility for the

IV. Other Opinion PossibilitiesQualified OpinionAdverse OpinionDisclaimer of Opinion

A. Qualified OpinionUse the term “except for” in the opinion paragraph

B. Adverse OpinionFinancials as a whole are not fairly presented. Used

C. Disclaimer of OpinionAuditor can not express an opinion.Disclaimer of opinion

V. Scope LimitationScope Limitation DefinedEffect of Scope Limitation on Audit Report

A. Scope Limitation DefinedAn unqualified opinion can only be issued for

B. Effect of Scope Limitation on Audit Report – Qualified OpinionIntroductory

C. Effect of Scope Limitation on Audit Report – Disclaimer of

VI. GAAP DepartureGAAP Departure DefinedEffect of GAAP Departure on Audit Report

A. GAAP Departure DefinedAn unqualified opinion can only be issued if

B. Effect of GAAP Departure on Audit Report – Qualified OpinionIntroductory

C. Effect of GAAP Departure on Audit Report – Adverse OpinionIntroductory

VII. Lack of IndependenceAn accountant who is not independent is required

VIII. Other InformationIn regard to other information included with the audited

Похожие презентации

Presentation Outline
The Standard Audit Report
Section 404 of the Sarbanes-Oxley Act
Conditions Requiring

I. The Standard Audit Report
The Seven Parts of the Auditor’s Standard

A. The Seven Parts of the Auditor’s Standard Report
Report title –

B. Five Conditions for the Standard Report
All 4 of the basic

II. Section 404 of the Sarbanes-Oxley Act
PCAOB Auditing Standard 2
The Time

A. PCAOB Auditing Standard 2
Section 404 requires the auditor of a

B. The Time Period Covered
Although the audit opinion on the financial

C. The Audit Report
The auditor may choose to issue separate reports

III. Conditions Requiring an Explanatory Paragraph or Modified Report Wording
Lack of

A. Lack of Consistency
The following affect consistency and require an explanatory

B. Going Concern Problem
SAS No. 59 requires auditor to evaluate going

C. Auditor Agrees with a Departure from GAAP
An auditor may issue

D. Emphasis of A Matter
The auditor may add an explanatory paragraph

E. Reports Involving Other Auditors
Assume Responsibility
If you accept responsibility for the

IV. Other Opinion Possibilities
Qualified Opinion
Adverse Opinion
Disclaimer of Opinion

A. Qualified Opinion
Use the term “except for” in the opinion paragraph

B. Adverse Opinion
Financials as a whole are not fairly presented.
Used

C. Disclaimer of Opinion
Auditor can not express an opinion.
Disclaimer of opinion

V. Scope Limitation
Scope Limitation Defined
Effect of Scope Limitation on Audit Report

A. Scope Limitation Defined
An unqualified opinion can only be issued for

B. Effect of Scope Limitation on Audit Report – Qualified Opinion
Introductory

VI. GAAP Departure
GAAP Departure Defined
Effect of GAAP Departure on Audit Report

A. GAAP Departure Defined
An unqualified opinion can only be issued if

B. Effect of GAAP Departure on Audit Report – Qualified Opinion
Introductory

C. Effect of GAAP Departure on Audit Report – Adverse Opinion
Introductory

VII. Lack of Independence
An accountant who is not independent is required

VIII. Other Information
In regard to other information included with the audited