AUD 1.3 - Forming An Audit Opinion

Question 1

The auditor refers to GAAS or guidance on what?
The auditor refers to the financial reporting framework (GAAP) for guidance on what?

Answer 1

GAAS for guidance on how to perform the audit (inventory count should be observed by the auditor).
GAAP for guidance on whether the transactions are recorded and reported fairly int he financial statements (land should not be depreciated).

Question 2

This opinion states that the financial statements present fairly, in all material respects, the financial provision, results from operations, and cash flows of the entity in conformity with the applicable financial reporting framework (GAAP).

Answer 2

Unmodified / Unqualified Opinion

Unmodified = nonissuers
Unqualified = issuers

Question 3

An auditor may decide necessary to add additional communications to the auditor’s report without modifying the auditor’s opinion. What is this called?

Answer 3

For nonissuers/private companies - emphasis of matter & other matter paragraphs
For issuers/public companies - explanatory paragraphs

Question 4

An auditors report should be modified when?

Answer 4

1. The financial statements as a whole are materially misstated (financial statement issue)
   Or
2. The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement (audit issue)

Question 5

What are the three modified opinions?

Answer 5

1. Qualified opinion
2. Adverse opinion
3. Disclaimer of opinion

Question 6

What opinion states that except for the effects of the matters to which the qualification relates, the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of the entity in conformity with the applicable financial reporting framework.

Answer 6

Qualified opinion (GAAP or GAAS)

Question 7

What opinion states that the financial statements do not present fairly the financial position, results of operations, or cash flows of the entity in conformity with the applicable financial reporting framework?

Answer 7

Adverse opinion (GAAP)

Question 8

What opinion states that the auditor does not express and opinion on the financial statements?

Answer 8

Disclaimer of opinion (GAAS)

Question 9

What is the flow of different opinions given by auditors based on materiality if the financial statements are materially misstated (GAAP problem):

Answer 9

None or immaterial - unmodified (unqualified)
Material but not pervasive - qualified opinion
Material and pervasive - adverse opinion

Question 10

What is the flow of different opinions given by auditors based on materiality due to the  inability to obtain sufficient appropriate audit evidence (GAAS problem):

Answer 10

None or immaterial - unmodified (unqualified)
Material but not pervasive - qualified opinion
Material and pervasive - disclaimer of opinion