AUD 1.5 - Modified Opinions Due To Financial Statement Issues

Question 1

What are the two modified opinions given due to financial statement issues (GAAP issues)?

Answer 1

Qualified opinion & adverse opinion

Question 2

When is a qualified opinion given?

Answer 2

When there are material but not pervasive misstatements of the financial statements

Question 3

When is an adverse opinion given?

Answer 3

When there are material and pervasive misstatements to the financial statements

Question 4

The 4 most common GAAP problems are:

Answer 4

1. GAAP consistency changes (unjustified)
2. Inadequate disclosures
3. Departure from GAAP (unjustified)
4. Unreasonable accounting adjustment

Question 5

The flow of contents for a qualified opinion due to material misstatement of a nonissuer:
(Private company, GAAP problem):

Answer 5

1. Title & addressee
2. Qualified opinion
3. Basis for qualified opinion
4. KAMS
5. Responsibilities of management
6. Responsibilities of the auditor
7. Other reporting responsibilities
8. Auditor signature, address, and date of audit report

Question 6

What language does a qualified opinion use in the qualified opinion section of the audit report?

Answer 6

Except for the effect of the matters described in the “basis for the qualified opinion” section

Question 7

What section of the qualified audit report should include the description of the matter giving rise to the modification of the opinion?

Answer 7

The basis for opinion section

Question 8

Means that the information is reasonably obtainable from managements accounts and records and that providing te information in the auditor’s report does not require the auditor to assume the position of a preparer of financial information:

Answer 8

Practicable
For example, the auditor is not expected to prepare a basic financial statement

Question 9

The flow of contents in an adverse opinion due to material misstatement of the financial statements for a nonissuer:
(VERY material GAAP problem, private company)

Answer 9

1. Title & addressee
2. Adverse opinion
3. Basis for adverse opinion
4. Responsibilities of management
5. Responsibilities of the auditor
6. Other reporting responsibilities
7. Auditors signature, address, and date of auditors report

Question 10

What language does an adverse opinion use in the adverse opinion section of the auditors report?

Answer 10

In the auditors opinion, because of the significance of the matters described in the “basis for adverse pinion” section, the financial statements do not present fairly in accordance with the applicable reporting framework

Question 11

The key audit matters are excluded from the auditors report for what opinion?

Answer 11

An adverse opinion for nonissuers

Question 12

The flow of contents for a qualified opinion due to material misstatement audit report for an issuer:
(GAAP problem, public company)

Answer 12

1. Opinion section
2. Additional paragraph including the reasons for the departure from GAAP
3. Basis for opinion section
4. Critical matters section

Question 13

The flow of contents for an adverse opinion due to material misstatement audit report for an issuer:
(VERY material GAAP problem, public company)

Answer 13

1. Opinion section
2. Additional paragraphs explaining the reasons for this opinion
3. Basis for opinion section

Question 14

The critical audit matters section of the audit report is removed for what opinion given?

Answer 14

Adverse opinion to issuers (public companies)