Other Modifications II

Question 1

What type of report should the auditor issue when there is substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time; and

-it has been adequately disclosed its financial difficulties?

Answer 1

The auditor should include an;

• emphasis-of-matter paragraph after the opinion paragraph

E.g. The specific phrases used should include “Substantial Doubt” and “Going Concern”

Question 2

What should the auditor do when they are satisfied that sufficient appropriate evidence supports management’s assertions about an uncertainty?

Answer 2

They should issue a “Unmodified” Opinion

If they concur, NO additional paragraph (i.e. Emphasis of Matter Paragraph) is needed

Question 3

What should an auditor do when a change in accounting principle has a material effect on comparability?

Answer 3

They should describe the change in a emphasis-of-matter paragraph; and

• Refer to the financial statement note that discusses the change in detail

Question 4

With respect to consistency of financial statements, what should an auditor who has audited a company’s financial statements for the current year but not the preceding year?

Answer 4

He should determine whether the current period’s accounting policies are consistently applied regarding opening balances

Question 5

What specific phrases should be included in the auditor’s report for a substantial doubt about an entity’s ability to continue as a going concern?

Where would this phrase go in the report?

Answer 5

The auditor should include an

• emphasis-of-matter paragraph AFTER the opinion paragraph in the report
• This paragraph should include the terms “substantial doubt” and “going concern”

Question 6

What should the group auditor do if;

• He concludes that he can neither assume responsibility for the work of a component auditor nor refer to the audit of the component auditor?

Answer 6

He should qualify the opinion or disclaim an opinion

E.g. The reasons should be stated, and the magnitude of the portion of the financial statements to which the qualification relates should be disclosed (i.e., a scope limitation exists)

Question 7

What should the group auditor DO when he decides not to refer to the audit of a component auditor?

Answer 7

He should consider making supplemental tests of accounts

E.g. He should consider coordinating audit activities with the component auditor if the component is significant