Transcript REPORTING ON AUDITED FINANCIAL STATEMENTS

REPORTING ON AUDITED
FINANCIAL STATEMENTS
PURPOSE OF AUDITOR’S
REPORT
• INDICATE RESPONSIBILITIES
– MANAGEMENT RESPONSIBLE FOR FINANCIAL
STATEMENTS
– AUDITOR RESPONSIBLE TO EXPRESS AN
OPINION
• SCOPE
– AUDITOR FOLLOWED GAAS
• OPINION
– FINANCIAL STATEMENTS IN ACCORDANCE
WITH GAAP
STANDARDS OF REPORTING
• STATE WHETHER F/S ARE PER GAAP
• IDENTIFY CIRCUMSTANCES IN
WHICH GAAP HAVE NOT BEEN
CONSISTENTLY OBSERVED
• DISCLOSURE IN THE F/S ARE
REGARDED AS REASONABLE UNLESS
OTHERWISE STATED
• EXPRESS AN OPINION ON THE F/S AS
A WHOLE
THE FOURTH STANDARD OF
REPORTING (AU 508.04)
• THE REPORT SHALL EITHER CONTAIN AN
EXPRESSION OF OPINION REGARDING THE
FINANCIAL STATEMENTS, TAKEN AS A WHOLE,
OR AN ASSERTION TO THE EFFECT THAT AN
OPINION CANNOT BE EXPRESSED. WHEN AN
OVERALL OPINION CANNOT BE EXPRESSED, THE
REASONS THEREFOR SHOULD BE STATED. IN ALL
CASES WHERE AN AUDITOR'S NAME IS
ASSOCIATED WITH FINANCIAL STATEMENTS, THE
REPORT SHOULD CONTAIN A CLEAR-CUT
INDICATION OF THE CHARACTER OF THE
AUDITOR'S WORK, IF ANY, AND THE DEGREE OF
RESPONSIBILITY THE AUDITOR IS TAKING.
UNQUALIFIED AUDITOR’S
REPORT
• TITLE
– MUST INCLUDE THE TERM
“INDEPENDENT”
• ADDRESS
– STOCKHOLDERS, BOD, COMPANY
• INTRODUCTION
– REFER TO F/S, RESPONSIBILITIES OF
MANAGEMENT AND AUDITOR
• SCOPE
– GAAS, REASONABLE ASSURANCE,
DEFINE AUDIT
• OPINION
– GAAP, FAIR PRESENTATION
• FIRM NAME
• DATE
– END OF FIELD WORK
• CONDITIONS FOR UNQUALIFIED
OPINION
– GAAS
• GENERAL, FIELDWORK, REPORT
– GAAP
• F/S PER GAAP
• ADEQUATE DISCLOSURE
EXPLANATORY LANGUAGE
ADDED TO STANDARD
UNQUALIFIED REPORT
• OTHER AUDITORS
• DEPARTURE FROM PROMULGATED
GAAP
• GOING CONCERN
• LACK OF CONSISTENCY
• EMPHASIS OF A MATTER
OTHER AUDITORS
• PRINCIPAL AUDITORS?
– MATERIAL PORTION
– KNOWLEDGE OF OVERALL FINANCIALS
– IMPORTANT PORTION
• RELY ON OTHER AUDITOR?
– REPUTATION
– INDEPENDENCE
• ASSUME RESPONSIBILITY FOR
OTHER AUDITOR?
– CORRESPONDENT FIRM, AGENT OF
PRINCIPAL AUDITOR, OR IMMATERIAL
PORTION OF F/S
– NO CHANGE IN AUDIT REPORT
• DON’T ASSUME RESPONSIBILITY FOR
OTHER AUDITOR?
– MODIFY INTRODUCTION (PERCENTAGE
OF WORK DONE BY OTHER AUDITOR),
SCOPE AND OPINION PARAGRAPHS
DEPARTURE FROM PROMULGATED
GAAP
•
•
RULE 203 [ET SECTION 203.01] OF THE CODE OF PROFESSIONAL
CONDUCT OF THE AICPA STATES:
A MEMBER SHALL NOT (1) EXPRESS AN OPINION OR STATE
AFFIRMATIVELY THAT THE FINANCIAL STATEMENTS OR OTHER
FINANCIAL DATA OF ANY ENTITY ARE PRESENTED IN
CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES OR (2) STATE THAT HE OR SHE IS NOT AWARE OF ANY
MATERIAL MODIFICATIONS THAT SHOULD BE MADE TO SUCH
STATEMENTS OR DATA IN ORDER FOR THEM TO BE IN
CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES, IF SUCH STATEMENTS OR DATA CONTAIN ANY
DEPARTURE FROM AN ACCOUNTING PRINCIPLE PROMULGATED
BY BODIES DESIGNATED BY COUNCIL TO ESTABLISH SUCH
PRINCIPLES THAT HAS A MATERIAL EFFECT ON THE STATEMENTS
OR DATA TAKEN AS A WHOLE…
• ...IF, HOWEVER, THE STATEMENTS OR DATA
CONTAIN SUCH A DEPARTURE AND THE MEMBER
CAN DEMONSTRATE THAT DUE TO UNUSUAL
CIRCUMSTANCES THE FINANCIAL STATEMENTS
OR DATA WOULD OTHERWISE HAVE BEEN
MISLEADING, THE MEMBER CAN COMPLY WITH
THE RULE BY DESCRIBING THE DEPARTURE, ITS
APPROXIMATE EFFECTS, IF PRACTICABLE, AND
THE REASONS WHY COMPLIANCE WITH THE
PRINCIPLE WOULD RESULT IN A MISLEADING
STATEMENT.
GOING CONCERN
• SUBSTANTIAL DOUBT EXISTS ABOUT THE
ENTITY’S ABILITY TO CONTINUE AS A
GOING CONCERN ONE YEAR BEYOND THE
DATE OF THE F/S
• OBTAIN INFORMATION ABOUT
MANAGEMNT’S PLANS AND ASSESS THE
LIKELIHOOD OF SUCH PLANS BEING
IMPLEMENTED
• IF SUBSTANTIAL DOUBT REMAINS
– ADD EXPLANATORY PARAGRAPH
– COULD DISCLAIM
CONSISTENCY
• GAAP AND ACCOUNTING CHANGES
– CHANGE IN PRINCIPLE
• CUMULATIVE EFFECT
• RESTATE FOR SOME
• CHANGE FROM NON-GAAP TO GAAP IS
CORRECTION OF AN ERROR (PRIOR-PERIOD
ADJUSTMENT)
– CHANGE IN ESTIMATE
• PROSPECTIVE
– CHANGE IN ENTITY
• RESTATE
• CHANGES AFFECTING
COMPARABILITY PER GAAS
– CHANGE IN PRINCIPLE
– CHANGE IN ENTITY (DISCRETIONARY)
– CORRECTION OF ERROR IN PRINCIPLE
(NON-GAAP TO GAAP)
– CHANGE IN PRINCIPLE THAT IS
INSEPARABLE FROM A CHANGE IN
ESTIMATE
• ADD PARAGRAPH AFTER OPINION
EMPHASIS OF A MATTER
• AUDITOR CAN ADD PARAGRAPH
BEFORE OR AFTER OPINION TO
EMPHASIZE
–
–
–
–
COMPONENTS OF A LARGER BUSINESS
RELATED PARTY TRANSACTIONS
SUBSEQUENT EVENTS
ETC
DEPARTURES FROM
UNQUALIFIED OPINION
• GAAS
– AUDITOR HAS NOT PERFORMED
SATISFACTORY AUDIT
– DOES NOT HAVE KNOWLEDGE IF F/S
ARE FAIRLY STATED OR NOT
– QUALIFY OR DISCLAIM DEPENDING ON
MATERIALITY
• SCOPE (GAAS) LIMITATION
– AUDITOR IMPOSED (NOT
INDEPENDENT)
– CLIENT IMPOSED
– CONDITION IMPOSED
• QUALIFIED REPORT
– QUALIFY SCOPE AND OPINION
• DISCLAIMER
– NO OPINION
• GAAP - AUDITOR NOT SATISFIED AS
TO FAIRNESS OF F/S
– AUDITOR HAS KNOWLEDGE THAT THE
F/S ARE NOT FAIRLY STATED
– QUALIFY OR ADVERSE DEPENDING ON
MATERIALITY
• QUALIFIED OPINION DUE TO GAAP
DEPARTURE
– QUALIFY OPINION PARAGRAPH
• ADVERSE OPINION
– THE F/S DO NOT PRESENT FAIRLY IN
ACCORDANCE WITH GAAP
OTHER REPORTING ISSUES
• PIECEMEAL OPINIONS (EXPRESSIONS OF
OPINION AS TO CERTAIN IDENTIFIED
ITEMS IN FINANCIAL STATEMENTS)
– SHOULD NOT BE EXPRESSED WHEN THE
AUDITOR HAS DISCLAIMED AN OPINION OR
HAS EXPRESSED AN ADVERSE OPINION ON
THE FINANCIAL STATEMENTS TAKEN AS A
WHOLE BECAUSE PIECEMEAL OPINIONS TEND
TO OVERSHADOW OR CONTRADICT A
DISCLAIMER OF OPINION OR AN ADVERSE
OPINION.
• COMPARATIVE STATEMENTS
– CHANGE PRIOR OPINION
• THE REPORT ON THE F/S OF THE PRIOR
PERIOD SHOULD BE UPDATED IF AN
AUDITOR BECOMES AWARE OF
CIRCUMSTANCES OR EVENTS THAT EFFECT
THOSE PRIOR PERIOD F/S
– CHANGE AUDITORS
• REFER TO PREDECESSOR AUDITOR OR
• ATTACH PREDECESSOR’S REPORT