Audit Reports Flashcards
Unmodified Opinion
Represents clean audit opinion.
Emphasis of Matter Paragraph
Add after the opinion paragraph, usually regarding the following:
1) Auditor has doubt about the entity’s ability to continue as a going concern.
2) Special accounting framework used
3) Change in accounting principle (consistency)
Other Matter Paragraph
Add after opinion paragraph or after the emphasis of matter paragraph. Usually something the auditor considers relevant but not crucial to the user’s understanding of the financial statements.
Qualified Opinion
Reasons for a qualified opinion:
1) Presentation- the financial statements are misstated (GAAP departure)
2) Scope Limitation
Adverse Opinion
Reasons for adverse opinion:
Financial Misstatements are both material and pervasive.
Disclaimer Opinion
Unable to obtain sufficient appropriate audit evidence and the effects can be material and pervasive.
Supplementary Information
1) Should include that the information is fairly stated in all material aspects in relation to the financial statements as a whole.
2) If auditing, should use some materiality as audited financial statements.
Special Purpose Framework Report
1) Should describe the purpose of the financials or refers to the note in the financials that describes the reporting framework (why they are using this framework as opposed to GAAP)
2) Should disclose reservations in report if schedules are not properly labeled.
Audit of Single Financial Statement
Allowed to opinion to opinion on single statement as long as information is not limited.
Comfort Letters
Prepared for underwriters as part of the due dillegence process to ensure there are no material omissions related to a securities offering.
Single Audits Under Government Auditing Standards
1) Audit of state and local agencies that spend at least $750,000 in federal funding.
2) Purpose of audit is to verify that federal funds have been spent according to the programs the funds were received for
Governmental Audit
Contains the following three reports:
1) An audit report
2) A report on internal control
3) A report on any applicable compliance
Fraud in Government Audit
Fraud is to be reported if managements fails to report the information as required by law, OR, if management fails to take timely action in response.
Review Engagement
1) Provides limited assurance that there are no material modifications to financial statements
2) Record to obtain an engagement letter
3) Report should include reference “See Accountant’s Review Report”.
Compilation Engagement
1) Does not provide any level of assurance
2) Does not require independence, but should be disclosed if not independent.
3) Only inquiry is performed
Preparation of Financial Statements
1) Account does not have to be independent
2) Should be an engagement letter
3) Each page should included statement no assurance is provided.
Structure of Opinion
1) Title
2) Addresse
3) Introductory Paragraph
4) Management Responsibility for the Financial Statements
5) Auditors Responsibility
6) Auditor’s Opinion
7) Signature of auditor
Difference between IFRS and GAAS Opinion
1) True and Fair view in Opinion paragraph for IFRS
2) IFRS requires intro paragraph to refer to accounting policies.
3) IFRS requires in auditor responsibiliities paragraph acknowledgement of ethical requirements met.
4) GAAP requires note of “significant appropriate audit evidence”.
Going Concern
Required on every audit to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern not to exceed the period of 1 year.
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Types of Going Concern Opinions
Adequate Disclosure-Unmodified with Emphasis of Matter
Inadequate Disclosure-Qualified or Adverse
Significant Going Concern Uncertainity-Disclaimer
Prior Period Financial Statements Audited by Predecessor Auditor is Presented with Comparative FS
1) Read the statements for the current period.
2) Compare the statements audited with the current period statements
3) Obtain rep letter from successor auditor.
4) Obtain rep letter from management if reissued
5) Dual date if report is revised.
Prior Period Financial Statements Audited by Predecessor Auditor is not Presented with Comparative FS
1) Indicate FS were audited by a predecessor auditor
2) Type of opinion expressed
3) Nature of emphasis of matter
4) Date of Predecessor Report
Prior Period Financial Statements not Audited when presented with comparative FS
In other matter paragraph:
1) service performed in prior period
2) Date of other report
3) Description of any modifications
4) Statement that service was less in scope than an audit
Facts Discovered After Report Release Date
Advise client to make necessary adjustments. If effect on FS is not readily determined, advise client to no longer rely on FS. If client does not make changes, begin process of distancing the firm from the financial statements and notify persons relying on financial statements that they can no longer be relied on.
