Audit Reports Flashcards
What are the requirements for an audit report?
Must conform to GAAP
Consistency with prior period reporting is implied (must state if inconsistent)
Adequacy of disclosure is implied (must state if disclosures are lacking)
Opinion is provided - provides assurance
Must be signed by the auditor- and dated.
How should an audit report be adjusted if reporting is not consistent with the prior period?
If inconsistent- an Unqualified Opinion is OK
Explanatory paragraph after Opinion is added
Otherwise- Qualified Opinion issued
When is consistency not violated with respect to changes in reporting between years?
Accounting Errors
Reclassifications
Prospective treatment of a new principle
Accounting Estimate Change
What assurance is provided in an audit opinion?
The opinion states that the financial statements are fairly presented in all material respects
The opinion states if the financials are in conformity with GAAP.
What are the sections of the audit report?
Title - States that the auditor is independent
Address - whomever hired the auditor
Introduction Paragraph
Mgmt resp
Auditor resp
Auditor opinion
Signed and Dated by Author
Which statements are included in the Scope Paragraph of the audit report?
GAAS was followed (IF SEC company- uses the standard of the PCAOB)
Reasonable assurance about material misstatements was obtained.
Financial statements and disclosures are supported by evidence.
Management estimates evaluated
Accounting principles evaluated
Financial Statement presentation evaluated
Reasonable basis exists for an opinion
If any scope limitations exist- the auditor tries to work around them and still issue an unqualified opinion if possible.
For an unqualified opinion to be issued- what must be the case with all periods presented?
A prior year’s Financial Statement used for comparative purposes must also meet criteria for an Unqualified Opinion
If an exception arises- the Explanatory and Opinion paragraphs will address the issue
If a prior year’s issue has been corrected- issue an Unqualified opinion and ignore the past issue
What is included in an unqualified opinion paragraph with an emphasis?
Includes:
Immaterial GAAP issues
Going Concern worries
Auditor shares responsibility
Emphasizing a particular aspect of Financial Statements
Unqualified Opinion/Assurances not affected
Explanatory paragraph added after opinion
What is the effect of a qualified opinion?
A qualified opinion creates reduced assurances.
It results from scope limitations or major inconsistencies.
It includes material problems with GAAP- disclosures- or segment reporting.
If there is an issue that causes a Qualified Opinion- the explanatory paragraph goes after the Scope and before the Opinion paragraphs and the Opinion paragraph refers to the issue as well.
How is the audit report changed if there is Scope Limitation?
Qualified opinion is issued.
Scope paragraph modified
Explanatory paragraph between Scope and Opinion paragraphs
Opinion paragraph points out scope limitation
How is the audit report modified for major inconsistencies found during the audit?
Qualified opinion is issued.
Scope paragraph remains unchanged
Explanatory paragraph between Scope and Opinion paragraphs
Opinion paragraph points out inconsistency
How does a Disclaimer of Opinion affect the audit report?
States that an opinion cannot be issued.
Includes severe Scope limitation
What would cause an Adverse Opinion?
Very material GAAP and Disclosure issues would cause an Adverse Opinion.
If there is an issue that causes an Adverse Opinion- the explanatory paragraph goes after
the Scope and Before the Opinion paragraphs and the Opinion paragraph refers to the issue as well
How is division of auditor responsibility disclosed?
Disclosed in Introductory Paragraph.
Doesn’t name the other auditor without permission.
Referenced in Opinion paragraph and division of responsibility indicated
If other auditor is not referenced- then you take responsibility for their conclusions- so consideration of independence- experience- credentials- etc required
What standards govern SSARS engagements?
Compilations are governed by SSARS (Statements on Standards for Accounting and Review Services)
