A1-Modified Opinions Due to Financial Statement Issues (Qualified or Adverse)

Question 1

what are the 3 natures of material misstatements (GAAP issue)?

Answer 1

1. The appropriateness of accounting policies
2. The application of accounting policies
3. The appropriateness of the financial statement presentation or adequacy of disclosures in the financial statements

Question 2

What phrases to identify “qualified opinion” of material GAAP problems in the “Opinion paragraph? The material GAAP problem only affect the “Opinion” and “Basis for Opinion” paragraph.

Answer 2

Material misstatements:
- Nonissuers: ….except for the effects of the matters described in the “Basis for Qualified Opinion” section….
- Issuers: …In our opinion except for…(the GAAP problem in short)…as discussed in the following paragraph, the financial statements referred to above present fairly. After the Opinion paragraph, follow is the additional paragraph to state detail the GAAP problem

Inadequate Discloser:
- Nonissuers: …In our opinion, except for the omission of the information described in the Basis for Qualified Opinion section…
- Issuers: similar to the material misstatement

Question 3

What phrases to identify “adverse opinion” of material GAAP problems in the “Opinion paragraph? The material GAAP problem and pervasive only affect the “Opinion” and “Basis for Opinion” paragraph. The auditor do not include Key Audit Matters or Critical Audit Matters paragraphs

Answer 3

• Nonissuers (No KAM): …because of the significance of the matters described in the “Basis for Adverse Opinion” section…financial statements DO NOT PRESENT FAIRLY…
• Issuers (No CAM): …In our opinion, because of the effects of the matters discussed in the following paragraphs, the financial statements DO NOT PRESENT FAIRLY

Question 4

What part of the audit report of nonissuer would need to be modified when rendering disclaimer opinion?

Answer 4

opinion, basis for opinion, and auditor’s responsibility paragraph