1 Audit Reports AU-C Sections 700, 705, 706 & 708.

1

Audit Reports

AU-C Sections

700, 705, 706 & 708

Independent Auditor’s Report

Report on the Financial StatementsWe have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.2 Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

[Auditor's signature, city and state, date of report]

3

Phases of an Audit p. 67

Phase I Plan & design an audit approach

Understand the Entity, Environment, Internal Controls

Phase II Tests of Controls

Substantive Tests of Transactions

Phase III Analytical Procedures – substantive

Tests of Details of Balances

Phase IV Complete the audit

Issue Audit Report

4

What is the objective of AU-C 700?

Steph

AU-C 700 Forming an Opinion and Reporting on Financial Statements

.10 The objectives of the auditor are to a. form an opinion on the financial statements based on an evaluation of the audit evidence obtained, including evidence obtained about comparative financial

statements or comparative financial information, and

b. express clearly that opinion on the financial statements through a written report that also describes the basis for that opinion.

6

What are the four sections of the independent auditors’ standard unmodified report ?

Sam

7

sections in the standard report

• Report on the financial statements

• Management’s responsibility

• Auditor’s responsibility

• Opnion

8

Old editio

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Old editio

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An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.2 Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.




11

State the first sentence of each of the four sections of the auditor’s report.

Aleksandr


Report on the Financial Statements

We have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as

of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.2 Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.


Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.


13

What audit report do we issue if everything is OK ?

the financial statements are fairly presented

there are no material misstatements

Timothy


Report on the Financial Statements

We have audited the accompanying financial statements of ABC Company, which comprise the balance sheet

as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.2 Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.


Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.


15

Every

thin

g OK

Qualified Opinion

or

Disclaim an Opinion

Std Reports are Unmodified Opinions

We may add an Emphasis or Other Material paragraph

GAAS problem

We did not comply with auditing standards (GAAS)

Unmodified Opinion

Qualified Opinion

or

Adverse Opinion

GAAP problem

NOT fairly presented f/s do not conform to GAAP

16

Ricardo

the company refuses to adopt ASC 605-25-25Accounting Standards Codification 605-25-25

Revenue Recognition for Multiple-Element Arrangements

They argue that the amounts are immaterial

very immaterial

what opinion will you issue

Unmodified





An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.




18

What reporting issue does AU-C 708 address?

Ian

AU-C 708 Consistency of Financial Statements

.03 The objectives of the auditor are to

a.Evaluate the consistency of the financial statements for the periods presented and

b.Communicate appropriately in the auditor’s report when the comparability of financial statements between periods has been materially affected by a change in accounting principle or by adjustments to correct a material misstatement in previously issued financial statements.

20

Where in the independent auditor’s report do we address issues regarding consistency (AU-C708)?

Communicate appropriately in the auditor’s report when the comparability of financial statements between periods has been materially affected by a change in accounting principle or by adjustments to correct a material misstatement in previously issued financial statements

Romy

Emphasis-of-Matter Paragraph Because There Is Inconsistent Application of Accounting Principles






We believe that the audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

As discussed in Note X to the financial statements, the entity has elected to change its method of accounting for [describe accounting method change] in [insert

year(s) of financial statements that reflect the accounting method change]. Our opinion is not modified with respect to this matter.

[Auditor's signature]

22

Chen

the financial statements are fairly presented BUT the company will probably go bankrupt

the statements clearly indicate the company is in very serious financial trouble but…..

Emphasis-of-Matter Paragraph Because of going concern








Emphasis of Matter

If ABC Company continues to suffer recurring losses from operations and continues to have a net capital deficiency, there may be substantial doubt about its ability to continue as a going concern.


24

Fiona

the client faces a huge environmental liability

(very material)

they will probably incur a loss

they cannot estimate the amount of the loss

Although they have appropriately disclosed this contingent liability in a footnote, you wish to emphasize the matter

Emphasis-of-Matter Paragraph Because There Is Uncertainty Relating to a Pending Unusually Important Litigation

Independent Auditor’s ReportReport on the Financial StatementsWe have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements.






Emphasis of Matter

As discussed in Note X to the financial statements, the entity has elected to change its method of accounting for [describe accounting method change] in [insert year(s) of financial statements that reflect the accounting method change]. Our opinion is not modified with respect to this matter.


26

Marc

the company reports financial instruments using ASU 2013-11 for 2014, the current year

( Accounting Standards Update 2013-11 relates to Unrecognized Tax Benefits when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryfoward Exists)

different accounting principles are used in 2014 relative to 2013 because companies were not required to implement ASU 2013-11 until 2014

Emphasis-of-Matter Paragraph Because There Is Inconsistent Application of Accounting Principles








Emphasis of Matter




29

Somer

what does it imply about GAAP when no changes have been made to the first four paragraphs of the report

but there is a fifth paragraph following the opinion paragraph

30

unmodified Auditing Accounting

std Qual Disc Qual Adv

We audited std std std modify std std

Mgmt’s Resp std std std std std std

Auditor Resp Std std std* modify std* std*

Basis for Opinion no no yes yes yes yes

Fairly Present

conform w/ GAAPstd std except for because of except for because of

Emphasis para Other Matters

Consistency

Emphasis

Go Concern

Do Not

Pre

sent

Fair

lyWe N

ot

Expre

ss an

opin

ion

31

Rule 203 departure

• Justified Departures from GAAP

• Rule 203: Rules of Conductin the Code of Professional Conduct

32

Every

thin

g OK

Qualified Opinion

or

Disclaim an Opinion



GAAS problem


Unmodified Opinion

Qualified Opinion

or

Adverse Opinion

GAAP problem


33

Departure from GAAPmisstatement

34

Jonathan S

What opinions do we choose from if

the opinion paragraph isn’t true \\

there is a GAAP problem

35

• Qualified

• Adverse

36

Jena

the company refuses to adopt ASC 605-25-25Accounting Standards Codification 605-25-25

Revenue Recognition for Multiple-Element Arrangements

They argue that the amounts are immaterial

very immaterial

what opinion will you issue

Unmodified









38

Ashley

the client forgot to depreciate their building

they refuse to correct the error

although material, you can accurately estimate the effects of this misstatement

Unmodified








Qualified Opinion Due to a Material Misstatement


Report on the Financial StatementsWe have audited the accompanying financial statements of ABC Company, which comprise the balance sheets as of December 31, 20X1 and 20X0, and the related statements of income, changes in stockholders' equity, and cash flows for the years then ended, and the related notes to the financial statements.


Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.


We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.

Basis for Qualified OpinionThe Company has stated inventories at cost in the accompanying balance sheets. Accounting principles generally accepted in the United States of America require inventories to be stated at the lower of cost or market. If the Company stated inventories at the lower of cost or market, a write down of $XXX and $XXX would have been required as of

December 31, 20X1 and 20X0, respectively. Accordingly, cost of sales would have been increased by $XXX and $XXX, and net income, income taxes, and stockholders' equity would have been reduced by $XXX, $XXX, and $XXX, and $XXX, $XXX, and $XXX, as of and for the years ended December 31, 20X1 and 20X0, respectively.

Qualified Opinion

In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1 and 20X0, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

41

Iris

after you tell the client what opinion you are going to issue and they read your explanatory paragraph

they will most likely agree to correct the financial statements

what opinion will you issue if they correct their financial statements

42

Lauren

the client does not have the expertise to implement

715-30-25 Defined Benefit Plan Recognition

you can’t estimate the amounts

it is too complicated

but you are sure it is very material

Unmodified








Adverse Opinion Due to a Material Misstatement


Report on the Consolidated Financial StatementsWe have audited the accompanying consolidated financial statements of ABC Company and its subsidiaries, which comprise the consolidated balance sheet as of December 31, 20X1, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our adverse audit opinion.

Basis for Adverse OpinionAs described in Note X, the Company has not consolidated the financial statements of subsidiary XYZ Company that it acquired during 20X1 because it has not yet been able to ascertain the fair values of certain of the subsidiary's material assets and liabilities at the acquisition date. This investment is therefore accounted for on a cost basis by the Company. Under accounting principles generally accepted in the United States of America, the subsidiary should have been consolidated because it is controlled by the Company. Had XYZ Company been consolidated, many elements in the accompanying consolidated financial statements would have been materially affected. The effects on the consolidated financial statements of the failure to consolidate have not been determined.

Adverse Opinion

In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion paragraph, the consolidated financial

statements referred to above do not present fairly the financial position of ABC Company and its subsidiaries as of December 31, 20X1, or the results of their

operations or their cash flows for the year then ended.

45

What are the elements of the financial statements?

Janet

46

Where in the independent auditor’s report do we address inadequate disclosure?

When the auditor determines that informative disclosures are not reasonably adequate, the auditor must so state in the auditor’s report

Ciara

47

Gordon

The audit client supplies contractors. It deals primarily with home builders in South Florida. ASC 825-10-50 requires footnote disclosures when credit risk is concentrated in a certain geographic area or among a certain class of customer.

The company fails to disclose these credit risks.

Unmodified








Qualified Opinion for Inadequate Disclosure







Basis for Qualified OpinionThe Company's financial statements do not disclose [describe the nature of the omitted information that is not practicable to present in the auditor's report]. In our opinion, disclosure of this information is required by accounting principles generally accepted in the United States of America.

Qualified Opinion

In our opinion, except for the omission of the information described in the Basis for Qualified Opinion paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1 and

20X0, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

50

Every

thin

g OK

Qualified Opinion

or

Disclaim an Opinion



GAAS problem


Unmodified Opinion

Qualified Opinion

or

Adverse Opinion

GAAP problem


51

Briefly

What does AU-C 315 discuss?

What does AU-C 500 discuss?

Jonathan P

Objectives

AU-C 315 Understanding the Entity and Its Environment and Assessing the Risk of Material Misstatement

AU-C 330 Performing Audit Procedures in Response to Assessed Risks and Evaluating the audit Evidence Obtained

AU-C 500 Audit Evidence

53

Failure to comply with GAASscope limitation

54

Katherine

Which audit reports do we choose from if

there is a scope limitation

insufficient evidence

there is a GAAS problem

55

• Qualified

• Disclaimer

56

you are unable to perform all the auditing procedures that you would like …. because you accepted the engagement late you can not observe beginning inventory

the client had an outside service organization perform a physical inventory on 1/1/14

the bank that requested the audit is aware of the situation and is comfortable with the situation

57

Dillon

What opinion do we issue

there is a scope limitation

Unmodified







Qualified Opinion Due to the Auditor’s Inability to Obtain Sufficient Appropriate Audit Evidence







Basis for Qualified OpinionABC Company's investment in XYZ Company, a foreign affiliate acquired during the year and accounted for under the equity method, is carried at $XXX on the balance sheet at December 31, 20X1, and ABC Company's share of XYZ Company's net income of $XXX is included inABCCompany's net income for the year then ended.We were unable to obtain sufficient appropriate audit evidence about the carrying amount of ABC Company's investment in XYZ Company as of December 31, 20X1 and ABC Company's share of XYZ Company's net income for the year then ended because we were denied access to the financial information, management, and the auditors of XYZ Company. Consequently, we were unable to determine whether any adjustments to these amounts were necessary.

Qualified Opinion

In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of

December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.


Qualified OpinionIn our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the

financial statements referred to above present fairly, in all material respects, the financial position of

ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Qualified OpinionIn our opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements

referred to above present fairly, in all material respects, the financial position of ABC Company as of

December 31, 20X1 and 20X0, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Difference between Qualified Opinions

61

Julissa

you are unable to perform all the auditing procedures that you would like …. because you accepted the engagement late you can not observe beginning inventory …. inventory is very material

the client hasn’t taken a physical inventory in years

Unmodified



Disclaimer of Opinion Due to the Auditor’s Inability to Obtain Sufficient Appropriate Audit Evidence


Report on the Financial StatementsWe were engaged to audit the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the

related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements.


Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on conducting the audit in accordance with auditing standards generally accepted in the United States of

America. Because of the matter described in the Basis for Disclaimer of Opinion paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.

Basis for Disclaimer of OpinionThe Company's investment in XYZ Company, a joint venture, is carried at $XXX on the Company's balance sheet, which represents over 90 percent of the Company's net assets as of December 31, 20X1. We were not allowed access to the management and the auditors of XYZ Company. As a result, we were unable to determine whether any adjustments were

necessary relating to the Company's proportional share of XYZ Company's assets that it controls jointly, its proportional share of XYZ Company's liabilities for which it is jointly responsible, its proportional share of XYZ Company's income and expenses for the year, and the elements making up the statements of changes in stockholders' equity and cash flows.

Disclaimer of OpinionBecause 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.

64

Independence

• Ultimate scope limitation

65

Not Independent - Disclaimer

We are not independent with respect to Miller Motor Co. and the accompanying balance sheet of as of Dec. 31, 2014 and the related statements of income, retained earnings and cash flows were not audited by us. Accordingly, we do not express an opinion or any other form of assurance on these financial statements.

66






Basis for Opinion n/a n/a yes yes yes yes

Fairly Present



Consistency

Emphasis

Go Concern

Do Not

Pre

sent

Fair

lyWe D

o Not

Expre

ss an

opin

ion

67

AAM Section 10,000

ACCOUNTANTS REPORTSThese examples are for illustrative purposes only. They are included as conveniences for users of this manual who may wantpoints of departure when drafting reports to meet their individual needs. This manual is a non authoritative kit of practice aids andaccordingly, does not include extensive explanation or discussion of authoritative pronouncements. Users of this manual are urgedto refer directly to applicable authoritative pronouncements when appropriate.

These examples illustrate the body of various reports. For comment on addressing and dating of the report, see section 10,100.

Examples which are assembled from illustrative reporting language set forth in Statements on Auditing Standards (SAS) andStatements on Standards for Accounting and Review Services (SSARS) include citation of the particular source and its location inAICPA Professional Standards.

TABLE OF CONTENTSSection ..................................................................................................................................Paragraph10,100 Format of Accountants' Reports ........................................................................................01-.10

Addressing the Report..............................................................................................01-.05Dating the Report ..................................................................................................06-.10

10,210 Unqualified Opinions.....................................................................................................010-.240Auditor's Standard Report-Comparative Financial Statements ......................................010

Auditor's Standard Report-Single Year Financial Statements......................................020Report on a Single Statement Audit (Balance Sheet Only Presented)......................... .030Report on Balance Sheet Only Audit When Other Financial Statements are Also

Presented ............................................................................................................... .031Reference to Other Auditors-Successor Auditor's Report When Predecessor's

Report (Unqualified) Is Not Presented .040Reference to Other Auditors in Report .050Reference to Other Auditors-Successor Auditor's Unqualified Report When

Predecessor's Report That Included an Explanatory Paragraph Is Not Presented..... .060Reference to Other Auditors-Successor Auditor's Report When Prior Year

Financial Statements Have Been Restated Following Issuance of thePredecessor's Report .070

Reference to Other Auditors-Prior Year Financial Statements Restated Followinga Pooling of Interests .080

Reference to Other Auditors-Successor Auditor Report When Prior PeriodFinancial Statements Were Audited by a Predecessor Auditor Who Has CeasedOperations .083

Reference to Other Auditors-Successor Auditor Report When Prior PeriodFinancial Statements Were Audited by a Predecessor Auditor Who Has CeasedOperations Have Been Restated .084

Reference to Other Accountants-Report on Nonpublic Entity Presented WithPrior Period Financial Statements Reviewed by a Predecessor Accountant WhoHas Ceased Operations .085

AICPA Audit and Accounting Manual Contents

68

10,210 Unqualified Opinions-continuedReference to Other Accountants-Report on Nonpublic Entity Presented With

Prior Period Financial Statements Compiled by a Predecessor Accountant WhoHas Ceased Operations .086

Change in Accounting Principles or Method of Accounting .090Uncertainty - Litigation .100Going Concern Uncertainty .110

Liquidation Basis Accounting-Uncertainty Re or inSettlement of Obligations .120

Liquidation Basis of Accounting-Single Year Financial Statements .130Liquidation Basis of Accounting-Comparative Financial Statements .140Comparative Financial Statements-Unqualified Opinion on the Current Year's

Financial Statements With Disclaimer' of Opinion on the Prior Year's Statementsof Income, Retained Earnings, and Cash Flows .150

Comparative Financial Stotements-Subseqt;ent Restatement of Prior-PeriodFinancial Statements to Conform With Generally Accepted Accounting Principles .160

Comparative Financial Statements-Current Year's Statements Audited and PriorYear's Statements Reviewed........................................................................................................ .170

Comparative Financial Statements-Current Year's Statements Audited and PriorYear's Statements Compiled........................................................................................................ .180

Comparative Financial Statements-Current Year's Statements Audited andDisclaimer on Prior Year's Unaudited Statements...................................................................... .190

U.S.-Style Report Modified to Report on Financial Statements Prepared inConformity With Accounting Principles Generally Accepted in Another CountryThat Are Intended for Use Only Outside the United States......................................................... .200

Report on Financial Statements Prepared in Conformity With the AccountingPrinciples Generally Accepted in Another Country That Will Have More Than,Limited Distribution in the United States................................................................................... .210

Correction of on Error, Not Involving an Accounting Principle....................................................... .220Subsequent Event Prior to Issuance of Auditor's Report ................................................................. .230Reissued Report Due to Subse uent Discovery of Facts Existing at the Date of the

Auditor's Report ....................................................................................................................... .240

10,220 Adverse Opinions .................................................................................................. .01Departures From GAAP................................................................................................................ .01

10,230 Disclaimers of Opinion .01.03Beginning Inventory Not Observed (First, Examination) .01Inability to Obtain Sufficient Competent Evidential Matter Due to a Scope

Limitation .02Scope Limitatioir Inventory and GAAP Departure Capitalized Lease

Obligation I .03

l0,240 Qualified Opinions 010-.080Scope Limitation---4nvestment in Foreign Affiliate (Assuming Effects Are Such That

Qualification Rather Than Disclaimer Is Appropriate) .010Departure from GAAP@, Leases Not Capitalized .020Departure from GAAP-Leases Not Capitalized-Pertinent Facts Disclosed in

Note .030Inadequate Disclosure Omission of Disclosures .040Inadequate Disclosur&--Omission of Statement of Cash Flows .050

69

What is the objective of AU-C 700?

Christina

71

Where in the independent auditor’s report do we “express an opinion”

Julia

72

Where does the independent auditor’s report describe the nature of the auditor’s work?

Alyssa

Unmodified









74

Every

thin

g OK

Qualified Opinion

or

Disclaim an Opinion



GAAS problem


Unmodified Opinion

Qualified Opinion

or

Adverse Opinion

GAAP problem


75






Basis for Opinion n/a n/a yes yes yes yes

Fairly Present



Consistency

Emphasis

Go Concern

Do Not

Pre

sent

Fair

lyWe D

o Not

Expre

ss an

opin

ion

Unmodified









Qualified Opinion Due to a Material Misstatement







Basis for Qualified OpinionThe Company has stated inventories at cost in the accompanying balance sheets. Accounting principles generally accepted in the United States of America require inventories to be stated at the lower of cost or market. If the Company stated inventories at the lower of cost or market, a write down of $XXX and $XXX would have been required as of December 31, 20X1 and 20X0, respectively. Accordingly, cost of sales would have been increased by $XXX and $XXX, and net income, income taxes, and stockholders' equity would have been reduced by $XXX, $XXX, and $XXX, and $XXX, $XXX, and $XXX, as of and for the years ended December 31, 20X1 and 20X0, respectively.

Qualified Opinion

In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1 and 20X0, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.


Qualified Opinion for Inadequate Disclosure







Basis for Qualified OpinionThe Company's financial statements do not disclose [describe the nature of the omitted information that is not practicable to present in the auditor's report ]. In our opinion, disclosure of this information is required by accounting principles generally accepted in the United States of America.

Qualified Opinion

In our opinion, except for the omission of the information described in the Basis for Qualified Opinion paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1 and

20X0, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.


Adverse Opinion Due to a Material Misstatement


Report on the Consolidated Financial StatementsWe have audited the accompanying consolidated financial statements of ABC Company and its subsidiaries, which comprise the consolidated balance sheet as of December 31, 20X1, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our adverse audit opinion.

Basis for Adverse OpinionAs described in Note X, the Company has not consolidated the financial statements of subsidiary XYZ Company that it acquired during 20X1 because it has not yet been able to ascertain the fair values of certain of the subsidiary's material assets and liabilities at the acquisition date. This investment is therefore accounted for on a cost basis by the Company. Under accounting principles generally accepted in the United States of America, the subsidiary should have been consolidated because it is controlled by the Company. Had XYZ Company been consolidated, many elements in the accompanying consolidated financial statements would have been materially affected. The effects on the consolidated financial statements of the failure to consolidate have not been determined.

Adverse Opinion

In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion paragraph, the consolidated financial statements

referred to above do not present fairly the financial position of ABC Company and its subsidiaries as of December 31, 20X1, or the results of their operations or their cash

flows for the year then ended.


Qualified Opinion Due to the Auditor’s Inability to Obtain Sufficient Appropriate Audit Evidence







Basis for Qualified OpinionABC Company's investment in XYZ Company, a foreign affiliate acquired during the year and accounted for under the equity method, is carried at $XXX on the balance sheet at December 31, 20X1, and ABC Company's share of XYZ Company's net income of $XXX is included inABCCompany's net income for the year then ended.We were unable to obtain sufficient appropriate audit evidence about the carrying amount of ABC Company's investment in XYZ Company as of December 31, 20X1 and ABC Company's share of XYZ Company's net income for the year then ended because we were denied access to the financial information, management, and the auditors of XYZ Company. Consequently, we were unable to determine whether any adjustments to these amounts were necessary.

Qualified Opinion

In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December

31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.


Disclaimer of Opinion Due to the Auditor’s Inability to Obtain Sufficient Appropriate Audit Evidence


Report on the Financial StatementsWe were engaged to audit the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the

related statements of income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements.


Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on conducting the audit in accordance with auditing standards generally accepted in the United States of

America. Because of the matter described in the Basis for Disclaimer of Opinion paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.

Basis for Disclaimer of OpinionThe Company's investment in XYZ Company, a joint venture, is carried at $XXX on the Company's balance sheet, which represents over 90 percent of the Company's net assets as of December 31, 20X1. We were not allowed access to the management and the auditors of XYZ Company. As a result, we were unable to determine whether any adjustments were necessary relating to the Company's proportional share of XYZ Company's assets that it controls jointly, its proportional share of XYZ Company's liabilities for which it is jointly responsible, its proportional share of XYZ Company's income and expenses for the year, and the elements making up the statements of changes in stockholders' equity and cash flows.

Disclaimer of OpinionBecause 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.


Emphasis-of-Matter Paragraph Because There Is Inconsistent Application of Accounting Principles Or Because There Is Uncertainty Relating to a Pending Unusually Important Litigation Matter








Emphasis of Matter




AU-C Section 200 Overall Objectives of the Independent Auditor and Conduct of an Audit in Accordance with Generally Accepted Auditing Standards

.11 The overall objectives of the auditor, in conducting an audit of financial statements, are to

a. obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework; and

b. report on the financial statements, and communicate as required by GAAS, in accordance with the auditor's findings.


.03 The objective of the auditor is to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and relevant assertion levels through understanding the entity and its environment, including the entity's internal control, thereby providing a basis for designing and implementing responses to the assessed risks of material misstatement.


.03 The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement through designing and implementing appropriate responses to those risks.


.04 The objective of the auditor is to design and perform audit procedures that enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opinion.



a. form an opinion on the financial statements based on an evaluation of the audit evidence obtained, including evidence obtained about comparative financial statements or comparative financial information, and


AU-C 708 Consistency of Financial Statements.

03 The objectives of the auditor are to

a. evaluate the consistency of the financial statements for the periods presented and

b. communicate appropriately in the auditor's report when the comparability of financial statements between periods has been materially affected by a change in accounting principle or by adjustments to correct a material misstatement in previously issued financial statements.

Overall ObjectiveAU-C Section 200 Overall Objectives of the Independent Auditor and Conduct of an Audit in

.11 The overall objectives of the auditor, in conducting an audit of financial statements, are to

a. obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework; and

b. report on the financial statements, and communicate as required by GAAS, in accordance with the auditor's findings.

Objectives






.03 The objective of the auditor is to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and relevant assertion levels through understanding the entity and its environment, including the entity's internal control, thereby providing a basis for designing and implementing responses to the assessed risks of material misstatement.

AU-C 330 Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained

.03 The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement through designing and implementing appropriate responses to those risks.


.04 The objective of the auditor is to design and perform audit procedures that enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opinion.

AU-C 708 Consistency of Financial Statements


a.Evaluate the consistency of the financial statements for the periods presented and

b.Communicate appropriately in the auditor’s report when the comparability of financial statements between periods has been materially affected by a change in accounting principle or by adjustments to correct a material misstatement in previously issued financial statements.

1 Audit Reports AU-C Sections 700, 705, 706 & 708.

Documents

Transcript of 1 Audit Reports AU-C Sections 700, 705, 706 & 708.