Forming an Audit Opinion A1 M3

Question 1

What are some key terms examiners use?

Answer 1

1. Assume the effect = GAAP Departure
2. Potential Effect = GAAS Departure
3. Unmodified = nonissuer/private company
4. Unqualified = issuer/public company
5. Emphasis of a matter or other matter paragraph = nonissuer/private company
6. Explanatory Paragraph = issuer/public company

Question 2

How does the Auditor report on a justified departure from GAAP?

Answer 2

An unmodified opinion with an emphasis-of-matter paragraph describing the situation should be used.

Question 3

When can you accept an engagement on specific transactions?

Answer 3

• When a specific element is stockholders’ equity, Auditor should perform procedures necessary to express an opinion about the balance sheet because of the interrelationship between stockholders’ equity and the balance sheet accounts.
• The auditor may be engaged to report on just a specific element if there was an audit of the complete financial statements.

Question 4

What type of report is issued on a change in estimate?

ex. Warranty Expense Estimate

Answer 4

• Clean Opinion if everything else states fairly
• Do not require an emphasis-of-matter paragraph.

Question 5

What type of report is issued on a justified change in accounting principle / GAAP Departure?

non justified change qualified or adverse

Answer 5

MATERIAL EFFECT
* Clean opinion with emphasis-of-the matter paragraph.
IMMATERIAL EFFECT
* Clean opinion no additional paragraphs