Comparative Financial Statements

Question 1

How does an auditor present his audit report for the current year when different levels of assurance are given on his and the predecessor auditors report?

Answer 1

the CPA must clearly define the difference in assurance to avoid misunderstanding

Question 2

How is a comparative statement audit report affected by the restatement of prior period to change the opinion from qualified to unqualified?

Answer 2

add an explanatory paragraph immediately before the opinion about adjustments made to prior period

Question 3

If 2 auditors are involved in the comparative F/S for 2 different years, how are the audit reports managed?

Answer 3

1. both reports can be included

2. current years report can refer to the previous year within the first paragraph

Question 4

What must an auditor do before reissuing a prior year report for comparative F/S?

Answer 4

1. must determine if the prior year report is still appropriate for comparative presentation, relevant subsequent events connected with prior year statements, any required modifications that may be necessary in the reissued report
2. Read the statements and report of the current period and compare the prior period statements being presented with those issued previously looking for obvious discrepancies exist between statements
3. obtain a rep letter from successor auditor indication nothing has been found to indicate that the earlier statements were misstated.
4. obtain an updated representation letter from management of the company with regard to the prior period F/S

Question 5

What changes might be seen in a reissued audit report?

Answer 5

Unless a problem has been discovered, the reissued report should have no changes from the original.

Question 6

Where is the reference to the prior year audit report made and what information must be included?

Answer 6

The successor auditor must include four items in the introductory paragraph of the current year audit report

1. ID the F/S that are now being presented in comparative form that were audited by a predecessor auditor.
2. Indicate the date of the prior year audit report
3. Specify the type of opinion that was rendered in the prior year audit report.
4. Explain the reason for any prior year audit opinion that was anything other than a standard unqualified opinion.

Question 7

When audited F/S of the prior year are presented with audited F/S of the current year, which year’s F/S should be reported on in the current year audit report?

Answer 7

Both years would be reported on in the current year’s audit report.