chapter 18
disclaimer of opinion
-Auditor does this either because there is insufficient appropriate evidence to form an opinion on the overall f/s due to a material and pervasive scope limitation or because the auditor is not independent -Auditor explains the reasons for withholding an opinion and explicitly indicates that no opinion is expressed -f/s unreliable
adverse opinion
-Auditor does this when f/s are not presented fairly due to a GAAP departure that materially and pervasively affects the f/s overall -Auditor explains the nature and size of the misstatement and states the opinion that the f/s are not presented fairly in accordance with GAAP -material and pervasive
reports on comparative f/s
-Change in the opinion on the prior year financials -Predecessor auditor issued the report on the previous year's financial statements -Predecessor auditor re-issues its report -Predecessor auditor does not re-issue its report →New auditor includes an explanatory paragraph that discusses the predecessor's opinion
opinion on the f/s
-Identifies info that was audited [names each statement; typically 2 yrs of B/S and 3 yrs of I/S, CFs and SE, and notes] -"fairly, in all material respects" -Opinion whether F/S conform to U.S. GAAP -Add'l paragraph references audit of ICFR, if applicable
unmodified opinion
-Issued when the auditor has gather sufficient evidence -Audit was performed in accordance with GAAS -Financial statements to conform to GAAP
report on specific items rather than f/s
-Report on rentals, royalties, or profit participation, or the provision for income taxes -Express an opinion on one or more specified elements, accounts, or items of a f/s may be performed as a separate engagement or as part of an audit of f/s
basis for opinion
-Responsibilities of mgmt and auditor -Registration with PCAOB; independence requirement -Standards of PCAOB (US) for conducting the audit -Describes what an audit entails ▪ obtain "reasonable assurance" ▪ "free of material misstatement", "error or fraud" ▪ "assess RMM, whether error or fraud" ▪ "test basis", "evidence", "acctg principles," "significant estimates", "reasonable basis"
negative assurance
-statement that nothing came to the auditor's attention that indicated that the provisions of the loan agreement had not been complied with -Does not express an affirmative opinion about the client's compliance with the loan provisions
form AP
A form that auditors of issuers are required to file with the PCAOB for each audit report issued and which includes information about the audit like -name of engagement partner -info about other acc firms participating in the audit -information provided in auditor's report, if auditor chooses to do so
explanatory paragraph
A paragraph that is used under certain circumstances to provide additional explanation to users of the financial statements. -at the end of the opinion section and are requires
yes, basis for opinion 2nd paragraph
Are "fraud" or "error" mentioned for PCAOB?
responsibilities of mgt and auditors responsibilities section
Are "fraud" or "error" mentioned in AICPA?
lack of independence of the auditor
Arises when the auditor and the entity have any financial, business, or personal relationship prohibited by professional standards
qualified opinion
Auditor does this when either a scope limitation or specific departure from GAAP exists, but OVERALL the f/s are presented fairly in conformity with GAAP -material, but not pervasive
auditing standards generally accepted in the USA, independent of company, audit evidence, sufficient and appropriate
Basis for Opinion first paragraph NONPUBLIC company: We conducted our audits in accordance with ___________. . . . . . . . . . . We are required to be _____________ and to meet our other . . . . . . We believe that the __________ we have obtained is _____________ to provide a basis for our audit opinions.
companys management, express an opinion on the company's f/s based on our audits, public company accounting oversight board, independent, securities and exchange commission
Basis for opinion 1st paragraph public company: These consolidated financial statements are the responsibility of ______________. Our responsibility is to ________________We are a public accounting firm registered with ________________ and are required to be ____________ with respect to the company in accordance with the U.S. federal securities laws and the applicable rules and regulations of __________ and the PCAOB.
critical audit matters
Definition of CAM *Either state that there are none, or for each one identified, discuss -how identified -how addressed in the audit -identify accts or disclosures related to the CAM
We were engaged to audit the ... As described in the following paragraph, because of x situation... we were not able to obtain sufficient appropriate evidence to provide a basis for an audit opinion...
Disclaimer of opinion - scope limitation opinion on f/s section
emphasis paragraph
Done to draw special attention to a particular matter other than the ones previously discussed and it is properly presented / disclosed in the f/s -at the end of opinion section -optional
departure from gaap
Exists when the f/s are prepared or presented in a manner that conflicts with GAAP, whether due to error or fraud
yes, if company is an accelerated filer & opinion on f/s 2nd paragraph is added to reference audit of icfr
Is internal control mentioned in report for PCAOB?
yes in responsibilities of mgt section and auditors responsibilities section
Is internal control mentioned in report in AICPA?
yes, in basis of opinion section
Is the auditor independence requirement specified in the report for PCAOB?
yes in basis for opinion section
Is the auditor independence requirement specified in the report in AICPA?
not responsible for auditing all info but if other info is related to info contained in f/s, the auditor must read that to make sure not inconsistent with what audit has stated
Is the auditor responsible for the accuracy of the other information that is not part of the financial statements?
unqualified opinion
Issued when the auditor has gathered sufficient evidence, the audit was performed in accordance with PCAOB standards, and the financial statements conform to GAAP
gaas, those charged with governance
NONPUBLIC AUDITREPORT CLOSING In performing an audit in accordance with __________, we: ●xxx ●xxx ●xxx ●xxx ●xxx We are required to communicate with __________ regarding, among other matters, the planned scope and timing of the audit . . . . .
shareholders and BOD of company
NONPUBLIC company To:
fairly, in all material respects, accounting principles generally accepted in the USA
Opinion on F/S first paragraph NONPUBLIC company: In our opinion, the accompanying financial statements present _____________ the financial position of Jelly Company . . . . . . . . . . . in accordance with _____________.
operations, se, and cash flows, notes, "financial statements, fairly, in all material respects, its operations and cash flows, US gaap
Opinion on F/S public company 1st paragraph: We have audited the consolidated balance sheets of Bear Corporation as of June 30, 20X3 and 20X2, and the related consolidated statements of ________ _________ for each of the fiscal years in the three-year period ended June 30, 20X3 and the related ____ ______ (collectively referred to as "_____________"). In our opinion, the consolidated financial statements present ____________ the financial position of the Company as of June 30, 20X3 and 20X2, and the results of ________________ for each of the fiscal years in the three-year period ended June 30, 20X3, in conformity with _____ _____.
standards of PCAOB, as of date, committee of sponsoring organizations of the treadway commission (COSO), dated this, unqualified opinion
Opinion on F/S public company 2nd paragraph: We also have audited, in accordance with ___________ Bear Corp.'s internal control over financial reporting _____, based on criteria established in Internal Control- Integrated Framework, issued in 2013 by ______. Our report on Bear Corp.'s internal control over financial reporting, ______, expresses ______.
regulatory compliance report
Report on an entity's compliance with certain contractual agreements on regulatory requirements that are related to audited f/s Example: loan agreements may include covenants such as restrictions on dividends or maintenance of certain levels for selected financial ratios Provides negative assurance on this
scope limitation
Results from an inability to collect sufficient appropriate evidence, such as when management or some set of circumstances prevents the auditor from conducting an audit procedure that the auditor considers necessary
firms name, we have severed since x years, city and state report was issued
auditor info includes
reasonable assurance, material misstatement, error/fraud, reasonable assurance, fraud, material
auditors responsibilities for the audit of the f/s 1st paragraph: -obtain ______________; free from ____________ whether due to ___________________; issue an auditor's report -discussion of what ___________ means -discussion of _________ detection risk -discussion of what ____________ means
judgment and skepticism, rmm, evidence on a test basis, understanding of ic, no such opinion expressed, acc policies, significant estimates, going concern
auditors responsibilities for the audit of the f/s 2nd paragraph: Bulleted list of aspects of performing an audit -professional ______ & ________ -identify and assess _____ and design responsive audit procedures; examine ____ on a _______ _______ -obtain _________________, ___________________ -evaluate ___________, reasonableness of _____ _________-, evaluate overall financial statement presentation -conclude whether ____________ issue exists
communication with those charged with governance
auditors responsibilities for the audit of the f/s 3rd paragraph: -required ____________________________________ (scope and timing of audit, significant findings, certain IC matters)
reasonable assurance, audit report, reasonable assurance, material
auditors responsibilities paragraphs: Our objectives are to obtain __________ about . . . . . . . . and to issue a(n) ________________ that includes our opinion. __________ is a high level . . . but is not absolute . . . . . . . . Misstatements are considered ________ if there is a substantial likelihood that . . . . they would influence the judgment made by a reasonable user based on the financial statements.
standards of the pcaob, reasonable assurance, material misstatement, error/fraud, risks of material misstatement, error/fraud, evidence, significant estimates, evaluating the overall presentation of the f/s
basis for opinion 2nd paragraph public company: We conducted our audits in accordance with ________. Those standards require that we plan and perform the audit to obtain ________ about whether the financial statements are free of _______ whether due to ____________. Our audits included performing procedures to assess the ________ of the financial statements, whether due to __________, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, _____ regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and ________ made by management, as well as ___________. We believe our audits provide a reasonable basis for our opinion.
auditing standards gaas, independent, ethical responsibilities, audit evidence, sufficient and appropriate
basis for opinion aicpa: -in accordance with __________________ -Our responsibilities are further described . . . -We are required to be __________ and to meet other ___________________ - ________________ obtained is _________ & ____________ to provide a basis for our audit opinion.
Omit the sentence "our responsibility is to express an opinion...."
basis for opinion disclaimer of opinion-scope limitation section
company, city, state, date
closing of a NONPUBLIC company
acc company, we have served as the auditor since xxxx, city, state, date
closing of public company report
unqualified
departure from gaap immaterial
adverse
departure from gaap material and pervasive
qualified
departure from gaap material, not pervasive
change in acc estimate, reclassification from acceptable class to another
do not include an explanatory paragraph for these reasons
related party transactions, subsequent events, comparability matters, uncertainty in future outcomes
emphasis paragraphs are used for
report of icfr, auditor not required to do icfr, report of other auditors, going-concern issue, restatement to correct prior
explanatory paragraph is used for
opinion on ..., basis for opinion, key audit matters, responsibilities of mgt for the f/s, auditor's responsibilities for the audit of the f/s
headings for aicpa report
opinion on the f/s, basis for opinion, critical audit matters
headings of pcaob report
preparation and fair presentation of the f/s, internal control, material misstatements, fraud/error
mgt responsibilities 1st paragraph: Management is responsible for the ____________________ in accordance with . . . . . . . . . . . , and for the design, implementation, and maintenance of ______________ relevant to the preparation and fair presentation of financial statements that are free from ____________, whether due to _________.
substantial doubt about companys ability as a going concern
mgt responsibilities 2nd paragraph: In preparing the financial statements, management is required to evaluate whether there are conditions . . . . . that raise _______________ for the upcoming year.
because of the effects of the matters discussed in the following paragraph, the f/s do not present fairly...
opinion on the f/s adverse opinion IN OUR OPINION,
fairly, in all material respects
opinion section of aicpa 2nd paragraph: In our opinion, the accompanying financial statements present ____________________________. . . . . . . . . . in accordance with accounting principles generally accepted in the United States of America."
audited, statements, fiscal years, notes
opinion section of aicpa first paragraph: We have _________. . .[identify individual _______, relevant ___________, etc.] . . . and the related ______ to the financial statements."
except for the effect of Y situation, as discussed in the following paragraph, the f/s present fairly... the company has... discuss gaap departure
qualified gaap departure opinion on f/s section IN OUR OPINION,
Except as discussed above, we conduct our audits in accordance with PCAOB
qualified opinion scope limitation on basis for opinion
except for the effects of such adjustments... had we been able to examine evidence regarding X situation, the f/s present fairly... We were unable to ... discuss scope limitation
qualified opinion scope limitation on f/s section IN OUR OPINION,
gaap, internal control, material misstatement, fraud/error
responsibilities of mgt for f/s 1st paragraph: -___________ -preparation and fair presentation of F/S -Acctg Princ Generally Accepted in U.S.A. -design, implementation, and maintenance of _______ -F/S free from ____________, whether due to ____________
going concern
responsibilities of mgt for f/s 2nd paragraph: -Management is required to evaluate _____________
report of independent registered public accounting firm
title for pcaob report
independent auditor's report
title of non-public company report (AICPA)
