Audit Report 2 Flashcards
Modified opinions - Traitement
- Include a basis for modification paragraph that describes that describes the matter giving rise to the modification
- This paragraph is placed immediately BEFORE the opinion paragraph with a Heading “Basis for ….”
- The title of the paragraph becomes “Qualified Opinion or Adverse Opinion or Disclaimer Opinion”
Example of Departures from GAAP
Example of Departures from GAAP
- Principles not generally accepted
- Principles are not appropriates under the circumstances
- Information in the financial statement is not classified and summarized in reasonable matter - related-party transactions
- Financial statements do not fairly present financial position, results of operation, cash flow with a range of acceptable limite
The materiality of the departure from GAAP will determine the type of report
The materiality of the departure from GAAP will determine the type of report
- NOT material → Unmodified report
- Material → Qualified Opinion
- Material AND Persuasive → Adverse Opinion
Piecemeal Opinion
Piecemeal Opinion
- When an adverse opinion is being issued, an auditor may be asked to add a comment in the audit report indicating that certain identified accounts or disclosures in the financial statement are fairly presented.
- INAPPROPRIATE because overshadow or contradict the overall adverse opinion
Omission of the statement of cash flow
Omission of the statement of cash flow result in:
- Qualified opinion
- Omit “cash flows” in introduction paragraph
- Basis for qualified opinion is added BEFORE the opinion explaining that the company declined to present the statement as required by GAAP
- Opinion paragraph mentions, “except that omission of Cash Flows results in an incomplete presentation”
Type of scope Limitations:
Scope limitation are restrictions on the actions of the auditor
- Prevent auditor from performing procedures as planned
- May be imposed by client
- May results from 3 circumstances
- Circumstances beyond the client control (e.g. records destroyed by fired)
- Circumstances relating to timing of auditors’ work (e.g. hired too late to observe inventory)
- Client (e.g. refuses to allow auditor to confirm receivable)
Effect on report when auditor is not able to overcome scope limitation
Effect on report when auditor is not able to overcome scope limitation
- NOT material → Unmodified report
- Material → Qualified Opinion
- Material AND Persuasive → Disclaimer Opinion
Group Financial Statements
- This situation arises when more than one audit firms is involved in the audit of a particular year.
- A group engagement partner who is the auditor of a parent corporation that needs to rely on the work of component auditors who audited one or more subsidiaries
The group engagement partner and responsibility
The group engagement partner decides whether to take responsibility for work of component auditor
- If responsibility taken → the other auditors are not mentioned in the audit, should perform additional procedures
- If responsibility NOT taken → the other auditors are clearly mentioned in the audit: give the appropriate amount, obtain permission of other auditor to name, and present other auditor report – shared responsibility - The audit report is only modified when the group (principal) auditor does not wish to take responsibility for the component (other) auditor’s work
Unmodified Opinion with Other-Matter Paragraphs
Unmodified Opinion with Other-Matter Paragraphs
- Comparative financial statement
- Other information in documents containing Audited Financial statement
- Required Supplementary Information
- Supplementary information in Relation to the Financial Statement as a Whole
- Alerts as to report Intended Use (restricting the use of an Auditor’s report)
- Additional Circumstances
- Summary of Placement of Additional Paragraph
AFTER opinion paragraph, after emphasis of matter
Comparative Financial Statement - 700.
When financial statement for two or more periods are presented in comparative form, the auditor’s report applies to all of the financial statement presented
- Prior period financial statement not audited (that is, they are reviewed, compiled, or there is no CPA association) → an emphasis of matter paragraph is added
- Opinion on prior period statement different from opinion previously issued → other-matter paragraph is added
-
Prior period financial statement is audited by a predecessor auditor
- if predecessor do not reissued, other-matter paragraph is added: date of the report issued, audited by another auditor, the type of report issued and reason
- If the predecessor’s audit report is reissued, the financial statements will have two audit reports—one on year 1 (predecessor’s report) and one on year 2 (successor’s report). Before reissuing the prior year’s audit report the predecessor auditor should perform limited procedures such as reading the current financial statements, comparing them to the prior period financial statements and obtaining representation letters from both the client’s management and the successor auditor. The reissued report’s date is not changed unless the report is revised (e.g., due to subsequent events).
Other information in Audited Financial statement - 725
This is financial and non-financial information (other than required supplementary information) that is included in a document (e.g. an annual report) that has audited financial statements
The Professional Standards require that an auditor read the “other information” to determine whether it is inconsistent with the financial statements
- When NO inconsistencies identified - No modification of the audit report
-
When inconsistencies identified
- If financial statement are incorrect → this is a departure from GAAP: qualified or adverse
- If other information is incorrect → add an other-matter paragraph
Auditor’s responsibility for required supplementary information that is placed outside the basis financial statements
AU-C Section 730 - Required Supplementary Information
AU-C 730 requires that
- the auditor apply limited procedures ( e.g inquire of management how information was prepared, compare information for consistency with financials, obtain written presentations of management responsibility) and
- report deficiencies in , or
- the omission of the supplementary information
→ other matter paragraph added, but opinion paragraph not modified when supplementary information is not properly presented
Audit of financial statement prepared in accordance with special purpose financial reporting framework AU-C 800
The report should include an emphasis-of –matter paragraph alerting users that the financial statement are prepared in accordance with the special purpose financial reporting framework
Special purpose financial reporting framework
The Professional Standards define four special purpose financial reporting frameworks: (a) cash basis, (b) tax basis, (c) regulatory basis and (d) contractual basis.
example: Financial statements following a state’s insurance statutory basis
