Audit Reports Flashcards
Adverse Opinion
“The financial statements do not present fairly the financial position, results of operations, or cash flows in conformity with generally accepted accounting principles.”
- Such an opinion is appropriate when financial statements are considered to be misleading.
- professional standards state that such an opinion is expressed when the financial statements taken as a whole are not presented fairly in conformity with generally accepted accounting principles.
Auditor Required Communication
An auditor’s required communication with those charged with governance of an audit client may occur before or after issuance of the auditor’s report
This communication should include discussion of any significant disagreements with management concerning the financial statements.
Auditors Responsibility Paragraph
Auditors Responsibility Paragraph of the audit report that includes a statement that the auditor believes that the audit evidence obtained is sufficient and appropriate to provide a basis for the audit opinion.
Change in Accounting Principles
When management does not provide reasonable justification of a change in accounting principles either a qualified or an adverse opinion is appropriate, not a disclaimer.
Comfort Letter
- A letter written by the auditor to an underwriter of securities, which expresses an opinion about whether the audited financial statements and schedules in the registration statement comply as to form with applicable accounting requirements of the SEC Act of 1933 and related rules and regulations adopted by the SEC.
- Procedures performed are specified by the underwriter.
- Letters for underwriters typically provide negative assurance on unaudited interim financial information
Consistency - Auditor s Opinon Paragraph
The following require recognition in the auditors opinion paragraph due to consistency :
- Changes in reporting entities
- Changes in accounting principles
- Correction of errors
- Changes in principles inseparable from changes in estimates
Changing from consolidating a subsidiary to carrying on the equity basis is a change in reporting entity.
Consistency - Auditor’s Opinon Paragraph
When the auditor has obtained assurance as to the consistency of application of accounting principles between the current and preceding year, no mention of consistency is included in the audit report.
Emphasis-of-Matter Paragraph as to Consistency
Emphasis-of-matter paragraph as to consistency is only necessary when a change in principles has occurred.
Changing from consolidating a subsidiary to carrying on the equity basis is a change in reporting entity.
All listed affect consistency and should be referred to in the auditor’s opinion.
- Changes in reporting entities,
- Changes in accounting principles
- Correction of errors
- Changes in principles inseparable from changes in estimates
Disclosure of Basis Adverse Opinion
Professional standards require that a basis for adverse opinion disclosing the substantive reasons for expressing an adverse opinion precede the opinion paragraph of the auditor’s report.
Doubts as to Going Concern
When, after considering management’s plans, the auditor concludes there is substantial doubt, he or she should consider the possible effects on the financial statements, and the adequacy of the related disclosure. In addition, an emphasis-of-matter paragraph should be added to the audit report.
Material GAAP Violation
Material disclosures required by GAAP, if omitted, cause the financial statements to be in violation of GAAP.
When the financial statements are materially affected by a departure from GAAP, the auditor should express a qualified or an adverse opinion.
Group Auditor Report
In making reference to another auditor in their examination report the other auditor may be named
- only if permission has been granted and
- the report of the other auditor is presented along with the principal auditor’s report.
Omission of a Statement of Cash Flows
The omission of a statement of cash flows is a departure from GAAP and an “except-for” qualified report with a basis for modification paragraph is appropriate.
Omission of Statement of Cash Flows
The omission of a statement of cash flows when an entity issues financial statements that present financial position and result of operations results in a qualified audit opinion with basis for qualified opinion paragraph.
Opening (Introductory) Paragraph
The opening (introductory) paragraph of the auditor’s standard report states that the auditor has audited the financial statements and then lists them.
Prospective financial statements:
Prospective financial statements are either financial forecasts or financial projections. Prospective financial statements may cover a period that has partially expired. Statements for periods that have completely expired are not prospective financial statements. Professional standards require that all significant assumptions used to prepare the financial statements be presented.
Report Presented on Comparative Statements
When financial statements of a prior period are presented on a comparative basis with financial statements of the current period, the continuing auditor is responsible to update his report on the financial statements of the one or more prior periods presented regardless of the opinion previously issued.
Restated Financial Statements
Previously expressed qualified opinion due to departure from GAAP - Whne F/S are restated to conform to GAAP the auditor should indicate that the statements have been restated and should express an unmodified opinion with respect to the restated financial statements.
An other-matter paragraph to the report should disclose
- (1) the date of the auditor’s previous report
- (2) the type of opinion previously expressed
- (3) the circumstances or events that caused the auditor to express a different opinion
- (4) that the updated opinion differs from the previous opinion.
Restated Financial Statements
When an auditor has previously expressed a qualified or an adverse opinion on financial statements of a prior period and those financial statements have been restated, the auditor’s updated report is changed.
Review of Interim Financial Information
A review of interim financial information consists primarily of inquiries and analytical procedures concerning significant accounting matters relating to the financial data being reported.
Scope Limitations
When restrictions that so significantly limit the scope of the audit are imposed by the client, the auditor generally will be required to disclaim an opinion on the financial statements.
SEC Registration Statement
When an independent audit report is incorporated by reference in a SEC registration statement, a prospectus that includes a statement about the independent accountant’s involvement should state ( as indicated in AU-C 920) that the independent accountant is an expert in auditing and accounting.
Four Trust Services Principle criteria
- policies
- communications
- procedures
- monitoring
Scope Limitations
scope limitations lead to either a qualified opinion or a disclaimer of opinion.
Required Communications
The auditor should communicate with those charged with governance (the audit committee):
- the auditor’s responsibilities under generally accepted auditing standards,
- an overview of the planned scope and timing of the audit, and
- significant findings from the audit.
The significant findings from the audit that should be communicated include:
- the auditor’s view about qualitative aspects of the entity’s significant accounting practices,
- significant difficulties encountered during the audit,
- uncorrected misstatements (that are not trivial),
- disagreements with management,
- other findings or issues that the auditor believes to be significant or relevant to the audit committee’s oversight of the financial reporting process,
- material, corrected misstatements that were brought to the attention of management as a result of audit procedures,
- representations the auditor is requesting from management,
- management’s consultations with other accountants about accounting and auditing matters
- significant issues arising from the audit that were discussed with management.
