Week 10 | Audit reporting and concluding

Question 1

What are the 4 audit opinions

Answer 1

unqualified, qualified, disclaimer and adverse

Question 2

What type of audit opinion is the best?

Answer 2

Unqualified - financial statement is presented fairly (clean)

Question 3

Apart from an unqualified opinion, describe the other 3 audit opinions

Answer 3

1. Qualified opinion: The financial statements are presented fairly EXCEPT FOR a:
   a) departure from GAAP (eg inventory not recorded according to GAAP)
   b) scope limitation (eg auditor couldn’t count inventory because company won’t let them)
2. Adverse opinion: The financial statement are not presented fairly
3. Disclaimer opinion: auditor does not express an opinion
   - Auditor lack independence (auditor might had independence at the beginning but circumstances changed)
   - There was an extensive scope limitation (they couldn’t do their job)
   - There is substantial uncertainty or doubts about company ability to continue as going concern (huge lawsuit or bankruptcy)

Question 4

What are the worse audit opinions

Answer 4

Disclaimer and adverse

Question 5

What kind of opinion does auditor issue commonly when going concern is in doubt

Answer 5

Unqualified opinion but add a note next to it expressing doubts about going concern

If serious doubt then they use disclaimer

Question 6

When would an auditor express an unmodified opinion

Answer 6

The auditor shall express an unmodified opinion when the auditor concludes that the financial report is prepared in all material respects, in accordance with applicable financial reporting framework.

Question 7

List the 2 conditions where auditor would issue a modified opinion

Answer 7

If the auditor:
a) concludes that based on the audit evidence obtained, the financial report as a whole is not free from material misstatement or
b) is unable to obtain sufficient appropriate audit evidence to conclude that the financial report as a whole is free from material misstatement

ASA 700.16 and 17

Question 8

What does the audit report table look like

Answer 8

at the top it says: material but not pervasive, material and pervasive
on left hand side: the financial report as a whole is materially misstated, the auditor is unable to obtain evidence
for each category:
- material but not pervasive + financial statement materially misstated = qualified
- material but not pervasive + auditor unable to obtain evidence = qualified
- material and pervasive + financial statement materially misstated = adverse
- material and pervasive + unable to obtain enough evidence = disclaimer opinion

Question 9

What are subsequent events?

Answer 9

events that occur between year end and the date of auditor’s report and facts discovered after date of
auditor’s report

Question 10

What types of subsequent events are there (and examples of each)

Answer 10

**Adjusting event:
* Can affect estimates in financial report, or indicate that going concern assumption is not appropriate.
* Accounting treatment - Adjust financial report for the effect of these events, where material

Example: bankruptcy, amount received for insurance at year end

Non-adjusting event:
Do not result in changes to amounts in the financial report.
* Might be so significant to require disclosure.
* Do not require accounts to be adjusted.

Examples:
– Uninsured loss of assets due to fire, flood, subsequent to year-end.
– Purchase of a business, issuance of shares or debt subsequent to year-end.