AUD 1 - Unmodified (Unqualified) Opinion

Question 1

Is unmodified opinion used for nonissuer (private company) or issuer (public company)?

Is unqualified opinion used for nonissuer (private company) or issuer (public company)?

Answer 1

Unmodified opinion = Nonissuer (private company)

Unqualified opinion - Issuer (public company)

Question 2

What standards do unmodified opinions use?

What standards do unqualified opinions use?

Answer 2

Unmodified opinion = GAAS standards

Unqualified opinion = PCAOB standards

Question 3

Define the following in an unmodified opinion for nonissuer:

1) Title
2) Addressee
3) Introductory paragraph

Answer 3

1) Title
- Must say that auditor’s report is “independent”
2) Addressee
- Addressed to the board of directors or stakeholders, NOT management
3) Introductory paragraph

• Identify the entity whose financial statements have been audited
• State that the financial statements have been audited
• Identify the title of each financial statement
• Specify the date(s) or period(s) covered by each financial statement

Question 4

Define the following in an unmodified opinion for nonissuer:

4) Management’s responsibility section

MR DIM

Answer 4

4) Management’s responsibility section
- an explanation that management is responsible for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework
- statement that management’s responsibility includes the DESIGN, IMPLEMENTATION, and MAINTENANCE (DIM) of internal controls relevant to the preparation of the financial statements

Question 5

Define the following in an unmodified opinion for nonissuer:

5) Auditor’s responsibility section

Answer 5

5) Auditor’s responsibility section
- statement that the responsibility of the auditor is to EXPRESS an opinion on the financial statements based on the audit
- statement that the audit was conducted in accordance with auditing standards generally accepted in the United States of America
- statement that those standards require the auditor to PLAN and PERFORM the audit to obtain reasonable assurance
- A description of the audit that states:

a) An audit involves PERFORMING procedures to OBTAIN audit evidence
b) There is an assessment of the risks of material misstatement of the financial statements
c) The auditor TESTs INTERNAL CONTROL
e) An audit includes EVALUATING the appropriateness of the accounting policies used and REASONABLENESS of significant accounting estimates made by management

Question 6

Define the following in an unmodified opinion for nonissuer:

6) Auditor’s opinion

Answer 6

6) Auditor’s opinion
- A statement that the financial statements present fairly, in all material respects the financial position in accordance with the applicable financial reporting framework - EXPLICIT STATEMENT
- Identification of the applicable financial reporting framework and its origin

Question 7

Define the following in an unmodified opinion for nonissuer:

Date of the auditor’s report

Answer 7

Date of the auditor’s report

• report should be dated no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the auditor’s opinion on the FS, including that:

a) the audit documentation has been reviewed
b) all the financial statements, including the related notes, have been prepared
c) management has asserted that is has taken responsibility for those financial statements

Question 8

What language must be used if two sets of audit standards are used?

Answer 8

Additional language should be added to the Auditor’s Responsibility paragraph

Question 9

How do you conduct an audit in accordance with GAAS and PCAOB standards for private companies?

Answer 9

1) Use the report required by the PCAOB

2) Amend the PCAOB (issuer) report to state the audit was also conducted in accordance with GAAS

Question 10

What elements of the unmodified (unqualified opinion do GAAS and GAAP relate to?

Answer 10

GAAS -> Auditor’s responsibility paragraph

GAAP -> Management’s responsibility paragraph AND opinion paragraph