Reporting on the Audit Flashcards
What is an unmodified opinion?
The opinion expressed by an auditor when the auditor concludes that the f/s are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.
What are the components of an unmodified opinion audit report?
- Title: must include “independent”
- Address
- Introductory paragraph: identifies that the f/s that were audited
- Management’s responsibility paragraph
- Auditor’s responsibility paragraph
- Opinion paragraph
- Signature
- Date: end of fieldwork
What are the components of an unqualified audit report?
- Title
- Address
- Opinion paragraph
- Paragraph referencing the audit of internal control
- Basis for opinion paragraph
- Scope paragraph
- Signature
- Date
- Auditor tenure
Why does the “Title” component differ between the two audit reports?
The title of the audit report varies based on whether the client is a public or private company. The audit report is titled “Independent Auditor’s Report” because it is issued for a private company client. The audit report is titled “Report of Independent Registered Public Accounting Firm” because it is issued for a public company client, and the auditor must be registered with the PCAOB to perform the audit of a public company.
How are the audit report descriptions similar and different?
Both descriptions state that the auditor performs procedures to obtain reasonable assurance about whether the f/s are free from material misstatement, whether due to error or fraud. The audit evaluates the appropriateness of accounting polices used, reasonableness of significant accounting estimates by management, and the overall presentation of the f/s. The primary difference between both descriptions involves internal controls. In a private company audit, the auditor does not express an opinion on the effectiveness of i/c, but the auditor does express an opinion on I/c in a public company.
What is an emphasis-of-matter paragraph?
A paragraph included in the auditor’s report that is required by generally accepted auditing standards, or is included at the auditor’s discretion, and that refers to a matter appropriately presented or disclosed in the f/s that, in the auditor’s professional judgment, is of such importance that it is fundamental to users’ understanding of the f/s.
What are the two situations that can materially impact the consistency of the f/s?
- A change in accounting principle
- An adjustment to correct a material misstatement in previously issued f/s.
What is considered a change in accounting principle?
- Changing from one acceptable accounting principle to another acceptable accounting principle.
- Changing from on acceptable accounting principle to a newly adopted accounting principle.
- Changing the method of applying an acceptable accounting principle.
Where is an emphasis-of-matter paragraph placed in the auditor’s report?
It is placed immediately after the auditor’s opinion because it does not modify the auditor’s opinion on the f/s as a whole.
When would auditors use a component auditor?
An audit team may decided to use a component auditor when the client is a parent company with one or more subsidiaries. The component auditor may audit one or more subsidiaries to provide a more effective and efficient audit.
What is a modified opinion?
A qualified opinion, an adverse opinion, or a disclaimer of opinion.
What is pervasive?
It refers to the magnitude of a material misstatement or material scope of limitation. If a misstatement or scope of limitation has a pervasive effect on the f/s, it means that is it “super material”
What would cause auditors to modify their opinion on the audit report?
- The f/s are not presented fairly because one or more material misstatements. The client has departed from accounting standards and will not correct the departure.
- There is not enough sufficient evidence to draw a conclusion about the fair presentation of the f/s. The auditor cannot complete some portion of the planned audit procedures. This is called a scope limitation.
What is a qualified opinion?
Auditors state the f/s are fairly presented except for a material departure from the applicable financial framework or a material scope limitation.
What is an adverse opinion?
Auditors state the f/s are not fairly presented due to a pervasively material departure from the applicable financial reporting framework.
