A1 Modified Opinions due to Audit Issues Flashcards
Module 6
when is a disclaimer of opinion expressed?
when auditor is unable to obtain sufficient audit evidence to base opinion and effects of misstatements are material and pervasive
-disclaimer of opinion also expressed if auditor not independent or F/S unaudited
what is a scope limitation?
when auditor is unable to fully complete audit because of missing audit evidence
two types of scope limitations
1) time constraints
2) inability to obtain sufficient appropriate audit evidence
3) refusal of mgmt to provide written representation or acknowledge responsibility of fair presentation of F/S
4) refusal of client’s attorney to respond to inquiry
examples of inability to obtain enough audit evidence
1) inability to observe inventory
2) inability to confirm receivables
3) inability to obtain audited F/S of consolidated investee
4) restrictions on use of audit procedures
5) inadequacy of accounting records
scope limitations due to circumstances
when circumstances prevent an auditor from performing a specific procedure.
-if can perform alternative procedures, not a limitation on scope
-if cannot be performed, express qualified or disclaimer of opinion
ex. unable to observe inventory
mgmt imposed scope limitation
1) ask mgmt to remove limitation
2) if mgmt does not, go to those charged with governance if possible to do alternative procedures
3) if cannot and unable to get audit evidence, disclaim an opinion or withdraw from engagement
4) if auditor substantially completed audit, cannot withdraw and put in other matter (explanatory) paragraph as to why cannot withdraw
what is an association with F/S?
when accountant either:
1) consents to use of their name in connection with F/S
OR
2) has prepared F/S, even if acctant name not used
requirements for a disclaimer on unaudited F/S
1) acctant must read F/S for obvious errors
2) disclaimer may accompany unaudited F/S or placed directly on them
3) “unaudited” should be clearly marked on each page of F/S
4) client refuses to correct error, explanatory paragraph used to explain departure from GAAP
5) if client refuses to accept modified disclaimer, withdraw from engagement (includes misleading or fraudulent F/S uncorrected)
what is included in disclaimer of opinion?
1) statement that auditor does not express an opinion on F/S
2) statement that due to significance of matters described in Basis of Disclaimer of Opinion auditor unable to obtain evidence to provide basis of opinion
3) amend statement that indicates F/S have been audited to auditor was engaged to audit F/S
Basis for Disclaimer of Opinion
1) include description of auditor’s inability to obtain sufficient appropriate audit evidence
2) do not include reference of auditor’s responsibilities
3) do not include statement of whether auditor able to obtain appropriate audit evidence
are KAMs and CAMs disclosed on disclaimer of opinion report?
No
auditor’s responsibilities for audit of F/S for disclaimer of opinion
1) statement that auditor’s responsibility is to conduct audit of entity’s F/S in accordance to GAAP
2) statement that matters per Basis of Disclaimer of Opinion, auditor could not get sufficient audit evidence for basis of opinion
3) statement that auditor required to be independent and meet other ethical responsibilities
additional paragraph for disclaimer of opinion
follows opinion paragraph and includes:
1) all of substantive reasons for disclaimer
2) disclosure of any reservations regarding fair presentation in conformity with GAAP
modifications for basis of opinion for a disclaimer
1) eliminate sentence “our responsibility is to express an opinion on company’s F/S based on our audits”
2) elimination of entire second paragraph beginning with “We conducted our audits in accordance…”
