Reports - Opinions and Disclaimers Notes
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Transcript of Reports - Opinions and Disclaimers Notes
8/4/2019 Reports - Opinions and Disclaimers Notes
http://slidepdf.com/reader/full/reports-opinions-and-disclaimers-notes 1/14
Reports – Opinions and
Disclaimers
Fall 2011
8/4/2019 Reports - Opinions and Disclaimers Notes
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Unqualified Opinion
Standard Format:
Title
Addressee
Introductory Paragraph
Scope Paragraph
Opinion Paragraph
Signature of the Firm
Report Date
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Unqualified Opinion with An
Explanatory Paragraph
Four situations:
1. Opinion based in part on the report of another auditor
2. Going concern
3. Lack of consistency in the financial statements due toaccounting changes
4. Emphasis of a matter
Case 1 – Modify the wording for the introductory, scope, and
opinion paragraphs Case 2, 3, and 4 - Add an explanatory paragraph following
the opinion paragraph without any modification to the
wording of the introductory, scope, or opinion paragraphs.
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Consistency
Changes Affecting Consistency
1. Change in accounting principle
2. Change in reporting entity
3. Correction of an error in principleChanges Not Affecting consistency
1. Change in accounting estimates
2. Correction of an error that does not involve an
accounting principle
3. Change in classification and reclassification
4. Change expected to have a material future effect
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Departure from an Unqualified OpinionThree cases:
Scope Limitationunable to collect sufficient competent evidence
• such as when management or some set of circumstancesprevents the auditor from conducting an audit procedurethat the auditor considers necessary.
Issue a qualified opinion or disclaimer
Departure from GAAPthe financial statements are prepared or presented in a manner
that conflicts with GAAP
• whether due to error or fraud.
Issue a qualified opinion or adverse opinion
Lack of Independence of the Auditorthe auditor and the client have any business, financial, or
personal relationship prohibited by professional standards.
• The auditor must comply with the second general standardand Rule 101 of the Code of Professional Conduct in order toissue an unqualified opinion.
Issue a disclaimer
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Qualified Opinion
Reasons for Qualified Opinion:a scope limitation
a specific departure from GAAP existsoverall the financial statements present fairly in conformity with
GAAP
Auditor’s Report for Qualified Opinion a scope limitation
the report describes why the limitation arose, and indicates thatthe financial statements present fairly except for the possibleeffects of the limitation.
a GAAP departure the report describes the nature and impact of the faulty
accounting, and indicates that the financial statements presentfairly except for the effects of the departure.
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Disclaimer
Reasons for disclaimer1. Scope limitation
Unwillingness to sign a management representative letter
When the auditor is unable to determine amounts associatedwith an employee fraud scheme
If an auditor is precluded from applying necessary procedures or,after applying extended procedures, (s)he is unable to determinewhether fraud or illegal acts may materially affect the statements.(s)he should disclaim or qualify an opinion. When the auditorcannot determine the role of management in the events, theauditor ordinarily should disclaim an opinion.
2. Lack of independence by the auditorAuditor’s Report for Disclaimer (AU 504) the introductory and opinion paragraphs are modified and the
scope paragraph is omitted.
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Adverse Opinion
Reason for Adverse OpinionGAAP Departure
the financial statements do not present fairly due to a GAAPdeparture that materially affects the financial statements overall
Auditor’s Report for Adverse Opinion Explain the nature and size of the misstatement and states
that opinion that the financial statement do not presentfairly in accordance with GAAP.
When an adverse opinion is expressed, the opinionparagraph should include a direct reference to a separate
paragraph that discloses the basis for the adverse opinion.This paragraph should precede the opinion paragraph andstate (1) all the substantive reasons for the adverse opinionand (2) the principal effects of the subject matter of theadverse opinion, if practicable (AU 508).
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Special Reporting Issues
Different reports on comparative financial
statements
Change in report on prior-period financial
statements
Report by a predecessor auditor
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Different Reports on
Comparative Financial Statements
Different reports
Prior Years – Unqualified Opinion
Current Year – Qualified Opinion
Reporting requirement
Standard wording for Introductory and scope
paragraphs
Add explanatory paragraph
Modified opinion paragraph – “except for”
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Different Reports on
Comparative Financial Statements
Different reports Prior Years – Qualified Opinion or Disclaimer
Current Year – Unqualified Opinion
Reporting requirement
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Restated Prior-Period
• Llllll
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Report by a Predecessor Auditor
The predecessor auditor should do in followingbefore re-issuing a report on prior-year financialstatements published a comparative financial
statementsRead the current period financial statements
Compare the prior-period financial statementsreported on with the current-year financial
statementsObtain a letter of representation from current-year
auditor or successor auditor
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Other Information in
Documents Containing Audited Financial Statements
•
Annual ReportsThe 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 auditedfinancial statements.
• Registration Statements