Audit Reports

Question 1

What are the four types of audit opinions?

Answer 1

1. Unqualified
2. Qualified
3. Adverse
4. Disclaimer

Question 2

What three conditions must be satisfied for an auditor to issue an unqualified opinion?

Answer 2

1. The auditor is independent.
2. The auditor has gathered sufficient, appropriate evidence to evaluate the financial statements.
3. The financial statements are fairly stated in accordance with GAAP.

Question 3

In what situations would an auditor add an explanatory paragraph to an unqualified opinion?

Answer 3

Change in accounting principle.
Substantial doubt about going concern.
Material related party transactions.
A material subsequent event.
A material uncertainty.
Reliance on other auditors.

Question 4

What two conditions would lead an auditor to issue a qualified opinion?

Answer 4

1. A material (but not pervasive) GAAP violation.

2. A material (but not pervasive) scope limitation.

Question 5

What would lead an auditor to issue an adverse opinion?

Answer 5

The financial statements, as a whole, are not fairly stated.

Question 6

What would lead an auditor to issue a disclaimer of opinion?

Answer 6

The auditor is not independent.

The auditor experienced a pervasive scope limitation.

Question 7

What are the primary differences between an auditor’s report for a public company and an auditor’s report for a nonpublic company?

Answer 7

The auditor’s report for a public company:

• places the opinion at the top
• refers to PCAOB auditing standards
• Discusses auditor independence
• Discloses the auditor’s tenure