Chapter 18 Reports on Audited Financial Statements McGraw-Hill/Irwin Copyright © 2012 by The...
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Transcript of Chapter 18 Reports on Audited Financial Statements McGraw-Hill/Irwin Copyright © 2012 by The...
Chapter 18Reports on
Audited Financial
Statements
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Reporting on the Financial Statement Audit: The Standard Unqualified Report
The standard unqualified report is issued when the
auditor has gathered sufficient evidence, the audit has been
performed in accordance with PCAOB standards, and the
financial statements conform to GAAP.
The standard unqualified report is issued when the
auditor has gathered sufficient evidence, the audit has been
performed in accordance with PCAOB standards, and the
financial statements conform to GAAP.
Eight Elements
1. Report title
2. Addressee
3. Introductory paragraph
4. Scope paragraph
5. Opinion paragraph
6. Explanatory paragraph referring to the audit of ICFR
7. Name of auditor
8. Audit report date
Eight Elements
1. Report title
2. Addressee
3. Introductory paragraph
4. Scope paragraph
5. Opinion paragraph
6. Explanatory paragraph referring to the audit of ICFR
7. Name of auditor
8. Audit report date
LO# 1
18-2
LO# 1
Standard Unqualified Audit Report(PCAOB)
18-3
Reporting on the Financial Statement Audit: The Standard Unmodified Report
The standard unmodified report is issued when the
auditor has gathered sufficient evidence, the audit has been
performed in accordance with GAAS, and the financial
statements conform to GAAP.
The standard unmodified report is issued when the
auditor has gathered sufficient evidence, the audit has been
performed in accordance with GAAS, and the financial
statements conform to GAAP.
Nine Elements
1. Report title
2. Addressee
3. Introductory paragraph
4. Management’s responsibility
5. Auditor’s responsibility
6. Scope paragraph
7. Opinion paragraph
8. Name of Auditor
9. Audit report date
Nine Elements
1. Report title
2. Addressee
3. Introductory paragraph
4. Management’s responsibility
5. Auditor’s responsibility
6. Scope paragraph
7. Opinion paragraph
8. Name of Auditor
9. Audit report date
LO# 1
18-4
LO# 1
Standard Unmodified Audit Report(ASB)
18-5
Adjustments to the Standard Unqualified/Unmodified Financial
Statement Audit Report
Modified Wording: Opinion based in part on
the report of another auditor
Explanatory Paragraph: Reference to report on
audit of ICFR
Explanatory Paragraph: Lack of consistency
Explanatory Paragraph: Additional emphasis
LO# 2
Explanatory Paragraph:Going concern
18-6
LO# 2
Reference to Other Auditors
18-7
Going Concern
LO# 2
18-8
Lack of Consistency
Change in accounting
principle
Change in accounting
principle Change in reporting
entity
Change in reporting
entityCorrection of an error in principle
Correction of an error in principle
Changes Affecting Consistency
Change in accounting
estimate
Change in accounting
estimate
Correction of anerror that does
not involve an accounting
principle
Correction of anerror that does
not involve an accounting
principle
Changes Not Affecting Consistency
Change inclassification
and reclassification
Change inclassification
and reclassification
Change expected to have a material
future effect
Change expected to have a material
future effect
LO# 2
18-9
Additional Emphasis
Under certain circumstances (e.g. significant related-party transactions, subsequent event) an auditor may
want to emphasize a specific matter regarding the financial statements even though he or she intends to
express an unqualified/unmodified opinion.
Under certain circumstances (e.g. significant related-party transactions, subsequent event) an auditor may
want to emphasize a specific matter regarding the financial statements even though he or she intends to
express an unqualified/unmodified opinion.
This information should be presented
in an explanatory paragraph.
LO# 2
18-10
Conditions for Departure from Unqualified/Unmodified Report
ScopeLimitation
Departurefrom GAAP
Lack of AuditorIndependence
LO# 3
18-11
Departures from an Unqualified/Unmodified Financial
Statement Audit ReportQualified“except for”
Disclaimer
Adverse
LO# 4
18-12
LO# 5
Effect of Materiality
18-13
Discussion of Conditions Requiring Other Types of Financial Statement
Audit Reports
Scope Limitation
Not in Conformity with GAAP
Auditor Not Independent
Results from an inability to obtain sufficient competent evidence about some component of the
financial statements.
Results when financial statements are materially affected by an
unacceptable departure from GAAP.
Results when auditor has some form of prohibited relationship with
the client (see Ch. 19).
LO# 5
18-14
Scope Limitation
Not in Conformity with GAAP
Auditor Not Independent
Issue a qualified opinion or a disclaimer.
Issue a qualified opinion or adverse opinion.
Issue a disclaimer.
LO# 5
Discussion of Conditions Requiring Other Types of Financial Statement
Audit Reports
18-15
Scope Limitation: Disclaimer
LO# 5
18-16
Scope Limitation: Qualified
LO# 5
18-17
Not GAAP: Qualified
LO# 5
18-18
Not GAAP: Adverse
LO# 5
18-19
Special Reporting Issues
Different reports on comparative
financial statements
Change in report on prior-period
financial statements
Report by a predecessor
auditor
LO# 6
18-20
Different Reports onComparative Financial Statements
Prior Years
Issued Qualified Opinion or Disclaimer.
Current Year
Issues Unqualified Opinion.
LO# 6
18-21
Restated Prior-PeriodLO# 6
18-22
Report by a Predecessor AuditorThe predecessor auditor should
do the followingbeforereissuing a report on prior-year financial
statements published for comparative purposes:
1. Read the financial statements of the current period.
2. Compare the prior-period financial statements reported on with the current-year financial statements.
3. Obtain a letter of representation from the current-year or successor auditor.
LO# 6
18-23
Other Information in Documents Containing Audited
Financial Statements
Annual Reports
Registration Statements
The auditor has no responsibility beyond the financial information contained in the report, and he or she has
no obligation to perform any audit procedures to corroborate the other information. However, the auditor is required to read the other information and consider whether it is consistent with the information contained
in the audited financial statements.
LO# 7
18-24
Special Reports
Financial statements prepared on a
comprehensive basis of accounting other
than GAAP
Specified elements, accounts, or items of a
financial statement
Compliance with aspects of contractual
agreements or regulatory requirements
LO# 7
18-25
Financial StatementsPrepared According to a Special
Purpose Framework
Regulatory Basis
Tax Basis
Cash (or Modified Cash) Basis
Contractual Basis
LO# 8
18-26
In some situations an auditor may be engaged to audit only part (or specified elements, accounts,
or items) of the financial statements.
In some situations an auditor may be engaged to audit only part (or specified elements, accounts,
or items) of the financial statements.
Specific Elements, Accounts, or Items of a Financial Statement
LO# 9
Rather than auditing specified elements, accounts, or items, an auditor may be engaged to
apply only agreed-upon procedures.
Rather than auditing specified elements, accounts, or items, an auditor may be engaged to
apply only agreed-upon procedures.
18-27
Compliance Reports Related to Audited Financial Statements
The auditor provides negative assurance as to compliance with the provisions of contractual agreements or regulatory
requirements.
LO# 10
18-28