Chapter 3: Audit Reports

Question 1

Adverse Opinion

Answer 1

A report issued when the auditor believes the financial statements are so materially misstated or misleading as a whole that they do not present fairly the entity’s financial position or the results of its operations and cashflows in conformity with GAAP.

Question 2

Combined Report on Financial Statements and Internal Control Over Financial Reporting

Answer 2

Audit report on the financial statements and the effectiveness of internal control over financial reporting for larger public companies under Section 404 of the Sarbanes-Oxley Act.

Question 3

Critical Audit Matters (CAMs)

Answer 3

Those matters during the audit of a public company that involved difficult, subjective, or complex auditor judgments or that posed difficulty to the auditor in obtaining sufficient appropriate evidence or in forming the opinion on the financial statements.

Question 4

Disclaimer of Opinion

Answer 4

A report issued when the auditor is not able to become satisfied that the overall financial statements are fairly presented or the auditor is not independent.

Question 5

Key Audit Matters

Answer 5

Those matters that, in the auditor’s professional judgment, were of most significance in the audit of financial statements of the current period of a nonpublic entity, and they are selected from matters communicated with those charged with governance.

Question 6

Material Misstatement

Answer 6

A misstatement in the financial statements, knowledge of which would affect a decision of a reasonable user of the statements.

Question 7

Pervasive Misstatement

Answer 7

A misstatement that affects multiple elements of the financial statements, or an account that is a significant portion of the financial statements, or a disclosure that is fundamental to understanding the financial statements.

Question 8

Qualified Opinion

Answer 8

A report issued when the auditor believes that the overall financial statements are fairly stated but that either the scope of the audit was limited or the financial data indicated a failure to follow GAAP.

Question 9

Separate Report on Internal Control over Financial Reporting

Answer 9

Audit report on the effectiveness of internal control over financial reporting required for larger public companies under Section 404 of the Sarbanes-Oxley Act that cross-references the separate audit report on the financial statements.

Question 10

Unmodified Opinion Audit Report with Emphasis-of-Matter Paragraph or non-standard report wording

Answer 10

An unmodified opinion audit report in which the financial statements are fairly presented, but the auditor believes it is important, or is required, to provide additional information or the wording of other paragraphs of the report require revision.