most frequent

Attestation Service

The

Assurance Obtained

when performing an audit

Reports

on the financial statements include an opinion on..

Standard Report- NONPUBLIC

Details

-"Independent" in title

-addressed to company, shareholders, audit committee and/or BOD

-signed by CPA FIRM unless sole practitioner

-date when auditors obtained sufficient evidence

Standard Report

Introductory Paragraph

AICPA

Standard

Management Responsibility

AICPA

Preparation and fair presentation in accordance with accounting principles generally accepted in the US. 

Includes design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements free from material misstatement whether due to fraud or error

Standard Report

Auditor's Responsibility

AICPA

Express opinion based on our audits. Conducted in accordance with auditing standards generally accepted in US. Require that we plan and perform the audit to obtain reasonable assurance about whether they are free of material misstatement

procedures to obtain audit evidence about the amounts and disclosures . Procedures depend on the auditor judgement, assessment of the risks of material misstatement of statements. Consider internal control relevant to preparation fair presentation of stmts to design procedures that are appropriate but not to express an opinion on effectiveness of internal control. Evaluate accounting policies used and significant accounting estimates by management. Overall presentation of the stmts.

 we believe audit evidence we have obtained is sufficient and approprieat to provide a basis for opinion

Standard Report

Opinion Paragraph 

AICPA

Standard Report

Differences

for Public Clients

-"registered" and "independent" in title

-PCAOB standards not GAAS

-less detailed discussions of mgmt and auditor responsibilities

-additional paragraph: auditors have also issued a report on internal control over financial reporting (presented seperate or combined)

-No section headings

1. Unmodified opinion-standard report

2. Unmodified opinion-with emphasis of matter paragraph

3. Unmodified opinion-with other matter paragraph

4. Unmodified opinion on group financial statements

Unmodified Opinion-

Standard Report

Unmodified opinion-

with emphasis of matter paragraph

To emphasize a matter appropriately presented in the financial statements

(ie: change in acct. principles)

Unmodified Opinion-

Other matter paragraph

To emphasize a matter other than those presented or disclosed in the financial statements

(eg:other info in documents containing financial statements)

Unmodified Opinion on

Group Financial Statements

Reports with

Modified opinions

Qualified Opinion

Adverse Opinion

Disclaimer of Opinion

Qualified Opinion

Evaluation of Going Concern

(test procedures not required, but must be evaluated)

Conditions:

-Negative cash flows from operations

-Defaults on loan agreements

-Adverse financial ratios

-Work stoppages

-Legal Proceedings

If Going Concern is 

in doubt

Emphasis of matter paragraph. Usually an unmodified opinion w/emphasis of matter paragraph, but can issue disclaimer of opinion

"Have been prepared assuming will continue as a going concern. As discussed in note 1, company has suffered...conditions that raise substantial doubt about ability to continue as going concern. Stmts do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter"

Emphasis of matter paragraph

"As discussed in note 5, company adopted Statement of Financial Accounting Standards Update No. XXX (title) as of December 31, 20X8. Our opinion is not modified with respect to this matter"

-Risk or uncertainty

-Significant related party transactions described in a note   to the financial statements

-Company is a component of a larger business enterprise

-Unusually important significant events

-Accounting matters affecting comparability with those of the preceding year

-how their work will be used

-ethical requirements

-list of related parties

-significant risks of misstatements

Reporting Group Audit

Group Auditor Alternatives

-make no reference to the component auditors

-make reference to the component auditors

1. Group auditors or component auditors should perform an audit of the component, adapted to needs of group engagement team, using the materiality of the component.

2. Group engagement team should be involved in the risk assessment and should:

-discuss w/component auditors or component mgmt the components business activities of significance to the group 

-Discuss with component auditors the susceptibility of the component to material misstatement

-review the component auditors documentation of identified significant risk of material misstatement of the group financial statements

1. Group auditors or component auditors

-perform audit of component

-audit one or more component acct balances, classes  of transactions, or disclosures that relate to the risks

-perform specified audit procedures relating to the likely significant risks of the group statements

2. Be involved in risk assessment

Group Financial Statements 

Report

"[Standard Intro Language]We did not audit the financial statements which stmts reflect total sales constituting 27 percent of total consolidated sales for 2011. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to data  included for xx is based solely on the report of the other auditors"

"[Standard scope paragraph language] We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion"

"In our opinion, based on our audits and the reports of other auditors..."

No additional paragraph, modify existing

Materially Misstated (departure from GAAP) 

or

Inability to Obtain Suffiecient Evidence

Auditor Opinion 

if: Material but not pervasive

Materially Misstated

(departure from GAAP)

Auditor Opinion

if: Material and Pervasive

Inability to obtain sufficient appropriate audit evidence (scope limitation)

Auditor Opinion if:

Material and Pervasive

Departures from GAAP

Immaterial- Unmodified

Material- Qualified

Material and Pervasive- Adverse

When are Misstatements considered

Pervasive??

Any one of the following:

-not confined to specific accts

-if confined, represent a substantial proportion of the financial stmts

-in relation to disclosures, they are fundamental to users' understanding of the financial statements

Auditor report -

Qualified for departure from

GAAP

Extra paragraph before Opinion paragraph:

"Co. has excluded from property and debt in the accompanying balance sheet certain lease obligations that, in our opinion, should be capitalized in order to conform...If capitalized, property would increase by $$$ long term debt by $$$ and retained earnings by $$$..."

Opinion paragraph is modified:

"In our opinion except for the effects of not capitalizing lease obligationsas discussed in the Basis for Qualified Opinion paragraph, the financial statements referred to above present fairly, in all material aspects..."

Adverse Opinion

characteristics

-statements do not present fairly the financial position, results of operations and cash flows of client in conformity with GAAP

-Material and pervasive departures from GAAP

-Auditor believes departure causes financial statements taken as a whole to be misleading

What does an

Adverse Opinion

Say?

What causes a

Qualified Opinion?

(Lack of compliance with GAAS, scope limitations)

Scope limitations

• Imposed by circumstances. Could be no one's fault. (Important records destroyed)
• Due to nature of audit- eg:engaged too late in the year to observe client's beg. inventory
• Imposed by Client- eg: client refused to allow auditors to send confirmations to customers

What does a Qualified Report

for Scope limitation (noncompliance with GAAS) say?

Basis for Qualified Opinion

The company has excluded from property and debt in the...

Qualified Opinion

In our opinion, except for the possible effects of the matters described in the Basis for Qualified Opinion Paragraph... 

What is a

Disclaimer of Opinion?

-Auditor has (gives) no opinion!

-Issued when unable to form an opinion as to fairness of financial stmts

- Circumstances resulting in a disclaimer are those in which the possible misstatements are material and pervasive

(multiple uncertainties may also lead to a disclaimer)

NOT ALTERNATIVE TO ADVERSE OPINION!

What is stated in the 

Disclaimer of Opinion?

Auditors Responsibility

Our responsibility is to express an opinion... Because of the matter described in the Basis for Disclaimer of opinion paragraph, however, we were not able to obtain sufficient evidence.

Basis for Disclaimer of Opinion

We were unable to obtain audited financial stmts supporting the ...in Note 8 to the financial statements...nor were we able to satisfy ourselves as to the carrying value

Disclaimer of Opinion

Because of the significance of the matter described in the Basis for Disclaimer of Opinion paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on these financial statements. 

Where do

'Basis for Modification'

(Qualified, Adverse, Disclaimer)

Paragraphs go, in the Auditor's Report?

Before

the

Opinion Paragraph

Following the 

Opinion Paragraph!

What if there are 2 qualifications?

(ex:a scope limitation and a seperate departure from GAAP)

Include qualifying language and explanatory paragraphs for both

consider cumulative effects-disclaimer appropriate?

potentially add 2 paragraphs

YES!

Ex: Auditors retained after client has taken befinning inventory. Disclaimer may be issued on income statement (auditor doesn't know if income is reasonably stated), but an unqualified opinion may be issued on the year-end balance sheet

-Report should cover current year and prior period audited by their firm

-CAN express different opinions on different years 

-Auditor should update report for all prior periods presented for comparison (change prior opinion if they changed the problem)

-If prior period audited by another (predecessor) CPA firm:

~current year opinion only covers years the CPA firm audited

~Either: predecessor reissues report with original date or 

~current auditors refer to report of other auditors

A material departure from GAAP will result in auditor consideration of 

Whether to issue an adverse opinion rather than a disclaimer of opinion

*Departure from GAAP results in either a Qualified Opinion, or an adverse opinion!*

The Auditor's Report 

Should be Dated 

as of the date the __________

Adverse 

Which of the following ordinarily involves the addition of an emphasis of matter paragraph?

A consistency modification
An adverse opinion
A qualified opinion
Part of the audit has been performed by component auditors

Standards of the PCAOB (US)

Public Company Accounting Oversight Board

A change in accounting principles that the auditors believe is not justified is likely to result in what type of audit opinion?

Qualified, Unmodified with Emphasis of Matter paragraph, or both?

Which of the following is least likely to result in inclusion of an emphasis of matter paragraph in an audit report?

Company is a component

Unusually important significant event

Decision not to confirm A/R

Risk or uncertainty