AUD 1 - Modified Opinions Due to Financial Statement Issues Flashcards
Define modified opinion as it relates to materiality for qualified opinion and adverse opinion?
Qualified opinion - material BUT NOT pervasive
Adverse opinion - material AND pervasive (very material)
What are four common GAAP problems?
1) GAAP consistency change (you didn’t apply the same rules) (unjustified, which means there was no reason for doing it) = auditor disagrees
2) Inadequate disclosure in footnotes
3) Departure from GAAP (unjustified, which means there was no reason for doing it) = auditor disagrees
* *****If it’s justified you can give an unmodified opinion
4) Unreasonable accounting estimate
Define the following in a qualified opinion for nonissuer (GAAP problem):
- Introductory paragraph
- Management’s responsibility paragraph
Introductory paragraph
- stays the same
Management’s responsibility paragraph
- stays the same
Define the following in a qualified opinion for nonissuer (GAAP problem):
- Auditor’s responsibility paragraph
- Basis for qualified opinion paragraph
Auditors responsibility paragraph
- Modify the paragraph to state: “Auditor believes that the audit evidence obtained is sufficient and appropriate to provide a basis for the QUALIFIED audit opinion”
Basis for qualified opinion paragraph
* placed immediately BEFORE the opinion paragraph
- a description and quantification of the financial effects of any misstatement that relates to specific amounts in the financial statements
- an explanation of how disclosures are misstated
- a description of the nature of omitted information and inclusion of the omitted information, when practicable.
Define the following in a qualified opinion for nonissuer (GAAP problem):
- Qualified opinion paragraph
Qualified opinion paragraph
- should state that in the auditor’s opinion, EXCEPT FOR the effects of the matter(s) described in the basis for qualified opinion paragraph, the financial statements are PRESENTED FAIRLY
Define the following in an adverse opinion for nonissuer (GAAP problem):
- Introductory paragraph
- Management’s responsibility paragraph
Introductory paragraph
- stays the same
Management’s responsibility paragraph
- stays the same
Define the following in a adverse opinion for nonissuer (GAAP problem):
- Auditor’s responsibility paragraph
- Basis for adverse opinion paragraph
Auditors responsibility paragraph
- Modify the paragraph to state: “Auditor believes that the audit evidence obtained is sufficient and appropriate to provide a basis for the ADVERSE audit opinion”
Basis for adverse opinion paragraph
* placed immediately BEFORE the opinion paragraph
- a description and quantification of the financial effects of any misstatement that relates to specific amounts in the financial statements
- an explanation of how disclosures are misstated
- a description of the nature of omitted information and inclusion of the omitted information, when practicable.
Define the following in an adverse opinion for nonissuer (GAAP problem):
- Adverse opinion paragraph
Adverse opinion paragraph
- should state that in the auditor’s opinion, BECAUSE OF the effects of the matter(s) described in the basis for qualified opinion paragraph, the financial statements are DO NOT PRESENT FAIRLY
Define the following in a qualified opinion for issuer (GAAP problem):
- Introductory paragraph
- Scope paragraph
Introductory paragraph
- stays the same
Scope paragraph
- stays the same
Define the following in a qualified opinion for issuer (GAAP problem):
- Middle paragraph
- Qualified opinion paragraph
Middle paragraph
* placed immediately BEFORE the opinion paragraph
- All of the substantive reasons that lead the auditor to conclude that there has been a departure from GAAP
- Disclosure of the principal effects of the subject matter of the qualification on financial position, if practicable
Qualified opinion paragraph
- should state that in the auditor’s opinion, EXCEPT FOR the effects of the matter(s) described in the basis for qualified opinion paragraph, the financial statements are PRESENTED FAIRLY
Define the following in an adverse opinion for issuer (GAAP problem):
- Introductory paragraph
- Scope paragraph
Introductory paragraph
- stays the same
Scope paragraph
- stays the same
Define the following in an adverse opinion for issuer (GAAP problem):
- Middle paragraph
- Adverse opinion paragraph
Middle paragraph
* placed immediately BEFORE the opinion paragraph
- All of the substantive reasons that lead the auditor to conclude that there has been a departure from GAAP
- Disclosure of the principal effects of the subject matter of the qualification on financial position, if practicable
Adverse opinion paragraph
- should state that in the auditor’s opinion, BECAUSE OF the effects of the matter(s) described in the basis for qualified opinion paragraph, the financial statements are DO NOT PRESENT FAIRLY
