Chapter 18 - Reports on Audited Financial Statements Flashcards
What are Conditions that lead to Departure from Unqualified/Unmodified Reports?
Scope limitation
Departure from GAAP
Lack of auditor independence
!! What are the Types of Financial Statement Audit Reports other than Unqualified/Unmodified? !!
Qualified (“except for”)
Adverse
Disclaimer
When other types of financial statement audit reports are required, what is Scope Limitation on Inventory?
Results from an inability to obtain sufficient appropriate evidence about some component of the financial statements
When other Financial Statement Audit Reports are required, how are they disclosed?
Scope limitation - Issue a qualified opinion or a disclaimer
Departure From GAAP - Issue a qualified opinion or adverse opinion
Auditor Not Independent - Issue a disclaimer
What are the bases for Financial Statements prepared according to a Special Purpose Framework?
Regulatory basis
Tax Basis
Cash (or Modified Cash) basis
Contractual basis
!! When are unqualified/unmodified audit reports issued? !!
When the materiality is immaterial. Unqualified reports with explanatory/emphasis-of-matter/other matter paragraphs
!! When Materiality is Material, but not Pervasive, what types of Audit Reports are issued? !!
Qualified reports.
Either qualified for scope limitation if there’s client- or condition-imposed scope limitations
Or qualified for GAAP departure
!! When Materiality is Pervasively Material, what types of Audit Reports are Issued? !!
If it is for scope limitation, a disclaimer report is used.
If it is for GAAP departure, an adverse report is used.
!! When do auditors issue Unqualified Reports? !!
When the audit has been performed in accordance with applicable auditing standards, sufficient evidence was gathered, and there is reasonable assurance that the financial statements conform to GAAP in all material respects.
!! Who is ultimately responsible for the fairness of the financial statements? !!
The financial statements are the responsibility of the Company’s management. The auditor is responsible for providing reasonable assurance if the financial statements are materially misstated or not.
!! What kind of Paragraph would an auditor add to the audit report when there’s a problem with consistency? What kind of situation would cause that? !!
The auditor must add an Explanatory paragraph to the audit report following the opinion paragraph.
Examples that may create a lack of comparability is an entity changing its inventory valuation method from LIFO to FIFO or the correction of a material misstatement in previously issued financial statements.
!! Why would we issue an Adverse Opinion? !!
Because the financial statements are not presented fairly according to GAAP standards in a manner that is pervasively material.
!! What are the three types of Special Reporting issues that affect the financial statement audit report? !!
Reports on comparative financial statements
Other information in documents containing audited financial statements
Special reports
!! What are the Special Reporting situations that auditors are provided specific guidance for? !!
- Financial statements prepared on a comprehensive basis of accounting other than GAAP
- Specified elements, accounts, or items of a financial statement
- Compliance with aspects of contractual agreements or regulatory requirements related to audited financial statements
