Audit Report 1 Flashcards
Standard report - Unmodified Opinion – Nonpublic/Non Issuer
- Required title – “Independent” should be in the title
- Addressee: Company, BOD, Stockholder NOT management
- Introductory paragraph: identify the entity, financial statement has been audited, titles of financial statement, date or period covered by financial statement
- Management responsibility paragraph (section with heading):
- Auditor responsibility (section with heading):
- Opinion (section with heading): when expressing an unmodified opinion, that the financial statements present fairly, in all material respect, in accordance with the applicable financial reporting framework
- Manual or printed signature (firm name)
- Auditor address (city and state)
- Date (no earlier than date auditor has obtained sufficient appropriate audit evidence
Standard report - Unmodified Opinion – Nonpublic/Non Issuer
Management responsibility paragraph
Management responsibility paragraph:
- Responsibility for preparation and fair presentation of the financial statement, and
- Responsibility for the Design, Implementation and Maintenance of IC
Standard report - Unmodified Opinion – Nonpublic/Non Issuer
Auditor responsibility
Auditor responsibility:
- Express an opinion;
- Audit conducted in accordance with GAAS of the USA;
- Standards require auditor to plan and perform audit to obtain reasonable assurance financial statements free of material Misstatement;
- Discuss the nature of the audit procedures;
- Audit evidence sufficient and appropriate
Standard report - Unqualified Opinion – Public Company/Issuer -PCAOB
- The title on the page is “Report of Independent Registered Public Accounting Firm”
- Introduction: management and auditor responsabilities
- Scope: refer to standard of the PCAOB - audit definition
- Opinion:
- Reference of IC in the explanatory paragraph - combined
- Manual or printed signature (firm name)
- Auditor address (city and state)
- Date (no earlier than date auditor has obtained sufficient appropriate audit evidence
Main Differences between public and non company Audit Report
Main Differences between public and non company Audit Report
- Public company : The title on the page is “Report of Independent Registered Public Accounting Firm”
- Pubic company audit report refer to standard of the PCAOB rather than generallyaccepted audit standard GAAS
- Pubic company audit report less discussion on auditor and management responsibilities
- Pubic company audit report a paragraph refer to Internal Control ( whenthe reports on financial statement and Internal Control are separated)
Unmodified Opinion with Emphasis-of-Matter
Treatment
- Included AFTER the opinion paragraph
- Use the heading “Emphasis-of-matter”
- Include a clear reference to matter emphasized and where that matter is in the financial statements
- Indicate that the auditor’s opinion is not modified with respect to the matter
Circumstances resulting in unqualified opinion paragraph with an Emphasis of Matter paragraphs
Circumstances that may result in inclusion of Unmodified Opinion with emphasis of Matter paragraphs - WHEN MATERIAL
- Substantial doubt about the ability to continue as a Going Concern - AU-C507 - Note when management does not disclose such information in the financial statements, a departure from GAAP exists and lead to either a qualified or adverse opinion.
- Inconsistency in Application of Account Principles (justified) - AU-C708
-
Uncertainties** - **AU-C706** - Uncertainties are situations in which conclusive audit evidence concerning the ultimate
outcome cannot be expected to exist at the time of the audit since that outcome will occur in the future. (e.g.** unusually important litigation or regulatory action in process against the client) - Other Circumstances at the Discretion of the Auditor - AU-C706 - e.g. • A major catastrophe that affects the entity’s financial position. • Significant transactions with related parties. • Unusually important subsequent events
Conditions or events indicating Going concern doubts 4
including wordings 2
Conditions or events indicating that may Going concern doubts:
including wordings“substantial doubt” & “going concern”
- Negative trends (recurring losses, negative cash flows, recurring working capital shortages)
- Other financial difficulties (default on loan, arrearages in dividends, denial of usual credit from supplier)
- Internal matter (work stoppages, labor difficulties)
- External matters (obsolesce of patents, legal proceedings )
Procedures that may reveal Going concern doubts:
5
Procedures that may reveal Going concern doubts:
- Analytical procedures
- Review of subsequent events
- Examination of debt agreements to determine compliance
- Reading of minutes of board meetings
- Confirmation with related parties of the details of arrangement to provide or maintain financial support
Management’s plan for dealing with condition of going concern doubts:
4
Management’s plan for dealing with condition of going concern doubts:
- Disposition of assets
- Borrowing money or restructuring debt
- Reducing or delaying expenditures - e.e leasing instead of purchase
- Increasing ownership equity
Change in accounting principle that DO result in emphasis of matter paragraph
4
AU-C 708
- Change in accounting principal – 1) GAAP to GAAP; 2) non GAAP to GAAP
- Change in principle that is inseparable from a change in estimate
- Correction of an error
- Change in the companies included in consolidated financial statement
Change in accounting principle that DO NOT result in emphasis of matter paragraph
3
- Change in accounting estimate – judgmental adjustment (e.g., changing the life of a fixed asset)
- Changes in principles with an immaterial effect (even if expected to be material in the future)
- Changes in Entity - Adoption of new principal for new transaction
Change in Accounting Principle
708.07- The auditor should evaluate a change in accounting principle to determine whether
a. the newly adopted accounting principle is in accordance with the applicable financial reporting framework,
b. the method of accounting for the effect of the change is in accordance with the applicable financial reporting framework,
c. the disclosures related to the accounting change are appropriate and adequate, and
d. the entity has justified that the alternative accounting principle is preferable.
Other Circumstances at the Discretion of the Auditor AU-C706
- Major catastrophe that affect the entity’s financial statement
- Significant transaction to related parties
- Unusually important subsequent events
Circumstances resulting in Modified opinions
AU-C 705
- Material Misstatement of financial statements – Departures from GAAP
- Inability to obtain sufficient appropriate Audit evidence – Scope limitation
