Week 7 -2 Flashcards
Opinions
Unmodified (Unqualified, Clean) Opinion: This is the best type of report a business can receive. It indicates that the financial statements present the financial position and performance of the company fairly, in all material respects, and in accordance with the applicable financial reporting framework (like GAAP).
Qualified Opinion: This opinion is given when the auditor has found only specific areas where the financial statements do not conform to GAAP. However, apart from these specific issues, the rest of the financial statements are presented fairly.
Adverse Opinion: This is the worst type of opinion and is given when the auditor determines that the financial statements materially misrepresent the company’s financial position and performance, and therefore do not conform to GAAP. The issues are not isolated but pervasive, affecting a large part of the financial statements.
Disclaimer: An auditor issues a disclaimer when they are unable to form an opinion on the financial statements, typically because they have not been able to gather sufficient appropriate audit evidence on which to base an opinion, or there are significant uncertainties affecting the financial statements.
Management letter
- (Minor) control problems that did not effect financial reporting other than trivially
- In private company audits and other audits where strict independence requirements of public company audits are not
followed, are sued to suggest ways that management can improve operations, normally with help of auditor’s
associated consulting arm.
Governance
- Plan: scope/timing of audit
- Process: significant difficulties
- Observations: findings
- Management influence: significant matters discussed with management
- Other: Misstatement, fraud, illegal acts, related party transactions, etc
The auditor’s reporting model: a literature overview an research synthesis – Church, Davix an McCracken (2008)
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Addressing information needs to reduce the audit expectation gap – Litjens, van Buuren, Vergoossen
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