Transcript Chapter 18
McGraw-Hill/Irwin
Chapter 18
Reports on Audited Financial Statements
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
LO# 1
Reporting on the Financial Statement Audit: The Standard Unqualified Report
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 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.
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Standard Unqualified Audit Report (PCAOB)
LO# 1 18-3
LO# 1
Reporting on the Financial Statement Audit: The Standard Unmodified Report
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 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.
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LO# 1
Standard Unmodified Audit Report (ASB)
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Adjustments to the Standard Unqualified/Unmodified Financial Statement Audit Report
LO# 2 Explanatory Paragraph: Reference to report on audit of ICFR Explanatory Paragraph: Going concern Modified Wording: Opinion based in part on the report of another auditor Explanatory Paragraph: Lack of consistency Explanatory Paragraph: Additional emphasis 18-6
Reference to Other Auditors
LO# 2 18-7
Going Concern
LO# 2 18-8
Lack of Consistency
Changes Affecting Consistency Change in accounting principle Correction of an error in principle Change in reporting entity Changes Not Affecting Consistency Change in accounting estimate Correction of anerror that does not involve an accounting principle LO# 2 Change inclassification and reclassification Change expected to have a material future effect 18-9
LO# 2
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. This information should be presented in an explanatory paragraph.
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Conditions for Departure from
LO# 3
Unqualified/Unmodified Report
Scope Limitation Departure from GAAP Lack of Auditor Independence 18-11
LO# 4
Departures from an Unqualified/Unmodified Financial Statement Audit Report
Qualified
“
except for
”
Disclaimer Adverse 18-12
Effect of Materiality
LO# 5 18-13
LO# 5
Discussion of Conditions Requiring Other Types of Financial Statement Audit Reports
Scope Limitation Results from an inability to obtain sufficient competent evidence about some component of the financial statements.
Not in Conformity with GAAP Results when financial statements are materially affected by an unacceptable departure from GAAP.
Auditor Not Independent Results when auditor has some form of prohibited relationship with the client (see Ch. 19).
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LO# 5
Discussion of Conditions Requiring Other Types of Financial Statement Audit Reports
Scope Limitation Issue a qualified opinion or a disclaimer.
Not in Conformity with GAAP Issue a qualified opinion or adverse opinion.
Auditor Not Independent Issue a disclaimer.
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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
LO# 6 Different reports on comparative financial statements Change in report on prior-period financial statements Report by a predecessor auditor 18-20
LO# 6
Different Reports on Comparative Financial Statements
Prior Years Issued Qualified Opinion or Disclaimer.
Current Year Issues Unqualified Opinion.
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Restated Prior-Period
LO# 6 18-22
LO# 6
Report by a Predecessor Auditor
The predecessor auditor should do the following before reissuing 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.
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Other Information in Documents Containing Audited Financial Statements
LO# 7 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.
Annual Reports Registration Statements 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 18-25 LO# 7
Financial Statements Prepared According to a Special Purpose Framework LO# 8 Regulatory Basis Tax Basis Cash (or Modified Cash) Basis Contractual Basis 18-26
LO# 9
Specific Elements, Accounts, or Items of a Financial Statement
In some situations an auditor may be engaged to audit only part (or specified elements, accounts, or items) of the financial statements.
Rather than auditing specified elements, accounts, or items, an auditor may be engaged to apply only agreed-upon procedures.
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LO# 10
Compliance Reports Related to Audited Financial Statements
The auditor provides negative assurance as to compliance with the provisions of contractual agreements or regulatory requirements.
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