Auditing 4510

What does the title need to include in Public Audit Reports?

"Reports of Independent Registered Public Accounting Firm"

What reports do publicly owned companies need to report?

- Balance sheets for each of the last two years and the related statements of income, retained earnings and cash flows for each of the last 3 years.

What primary circumstances result in an audit report with unmodified opinion but with FS related information?

- Substantial doubt about the company's going-concern status. - Generally accepted accounting principles not consistently applied. - Other circumstances that the auditors believe should be emphasized (e.g., uncertainties, unusually important subsequent events, a major catastrophe, a division of responsibility for the total audit).

What are Comparative financial statements?

- are financial statements for one or more prior periods, included for comparison with the financial statements of the current period. - identifies changes and trends in the financial position and operating results of a company

How should CAMs be addressed?

1. Identification of the matter. 2. Description of the principal considerations that led the auditor to determine that the matter is a CAM. 3. Description of how the CAM was addressed in the audit. 4. Reference to the relevant financial statement accounts and disclosures that relate to the CAM. * Reported on current audit periods

If auditors have substantial doubt about a company's ability to continue as a going concern and management's disclosures are materially inadequate, appropriate audit opinons are..

1. Qualified opinion 2. Adverse opinion

explanatory paragraph

A paragraph added to an auditors' report that either provides information fundamental to users' understanding of the financial statements (emphasis-of-matter paragraph) or is relevant to users' understanding of the audit, the auditor's responsibility, or auditors' report (other-matter paragraph).

emphasis of matter paragraph

A paragraph added to an auditors' report that provides information fundamental to users' understanding of the financial statements (such as consistency or going-concern uncertainties).

What are Critical Audit Matters (CAMs)?

Any matters arising from the audit that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements, and (2) involved especially challenging, subjective, or complex auditor judgment.

Auditors report upon a complete set of what financial statements?

Balance sheet, income statement, the statement of retained earnings, ad the statement of cash flows and related notes

Who signs the audit report in a CPA firm?

The name of the CPA firm, not the name of an individual partner in the firm.

Unmodified opinion - Standard Report

This report is issued when the auditors have obtained sufficient appropriate audit evidence to conclude that the financial statements, taken as a whole, are not materially misstated and there is no need to disclose additional information beyond the information in the standard report.

To evaluate consistent application of GAAP when reporting on only the current period, auditors should consider the current period under audit and the preceding...

period

Adverse Opinion

states that the financial statements are not presented fairly in conformity with generally accepted accounting principles. Auditors issue an adverse opinion when the deficiencies in the financial statements are both material and pervasive. All significant reasons for the issuance of an adverse opinion should be set forth in an additional paragraph added to the audit report.

Disclaimer of Opinion

-most frequently is the result of a scope limitation that creates a situation in which the auditors are unable to obtain sufficient appropriate audit evidence on which to base the opinion, and they conclude that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive. -A disclaimer is not an opinion; it simply states that the auditors do not express an opinion on the financial statements. -As we discuss later in this chapter, disclaimers also may result from substantial doubt about a client's ability to continue as a going concern or multiple uncertainties relating to the financial statements. An additional paragraph describing significant reasons for the issuance of a disclaimer of opinion is added to the audit report.

Qualified Opinion

-states that the financial statements are presented fairly in conformity with generally accepted accounting principles "except for" the effects of some matter. -Qualified opinions are issued when the financial statements are materially misstated ("a departure from GAAP") or when the auditors are unable to obtain sufficient appropriate audit evidence on which to base the opinion because of a scope limitation. -In both cases, the likely effects, while material, are not considered pervasive. An additional paragraph describing significant reasons for the issuance of a qualified opinion is added to the audit report.

What is a PCAOB Form AP?

1. A disclosure of the engagement partner's name and certain information about other CPA firms that particpated in the audit. 2. It must be filled within 35 days of the date the audit report is first included in a document filed with the SEC. 3. It needs to disclose the total audit hours spent on the FS audit. * Name, location, and extent of participation of each other accounting firm whose work constituted at least 5% of total audit hours. *Number and aggregate extent of participation of all other accounting firms whose work was less than 5% of total audit hours.

What sections are included in the Auditor's Responsibility?

1. Auditors responsibility to express an opinion on the financial statements based on GAAP standards 2. Outline the nature of an audit 3. Conclude that the auditors believe that sufficient appropriate audit evidence has been obtained to provide a basis for the audit opinion 4. Opinion Section states whether the Financial statements are presented fairly in conformity with accounting principles that are accepted in the US.

When should auditors reports be dated?

1. It should not be dated earlier than the date on which the auditors have obtained sufficient appropriate audit evidence to support their opinion on the financial statements. 2. Sufficient appropriate audit evidence has been obtained when all audit documentation has been reviewed, the FS are prepared, and management has asserted that it has taken responsibility for these FS. 3. Auditors have a responsibility to perform procedures through that date to search for any subsequent events that may affect the fairness of the clients financial statements.

Auditors evaluate changes in accounting principles to determine if..

1. The newly adopted principle is generally accepted 2. The disclosures related to the change are adequate 3. The method of accounting for the effect of the change is in conformity with GAAP

What 2 sections of Public Audit Reports need to be included?

1. The opinion 2. Basis for opinion * When management has issued a report on internal control, but the auditors have only audited the financial statements, which occurs for companies with a market capitalization of less than $75 million, the second paragraph is deleted. *The company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

What information is needed for Auditors report?

1. Title that includes the word independent 2. Addressed to share holders, the bard of directors or those charged with governance.

Unmodified opinion - additional financial statement - related information included in audit report

In certain circumstances, a financial statement-related matter is required to be described in the audit report through inclusion of an additional paragraph. Examples include (1) situations in which there is substantial doubt about a company's ability to continue as a going concern and (2) situations in which the company changes an accounting principle followed that has a material effect on the financial statements (e.g., changes from FIFO to LIFO inventory valuation). In other circumstances, the auditors may choose to refer to certain matters, such as an uncertainty relating to future litigation, significant transactions with related parties, or unusually important subsequent events.

Unmodified opinion - additional audit-related information included in audit report

In these circumstances, auditors add an additional paragraph to the audit report to include a description of an audit-related matter. Such "other matter" is, in the auditors' judgment, relevant to users' understanding the audit, the auditors' responsibilities, or the auditors' report. Later in this chapter, we discuss other-matter paragraphs used to (1) report on comparative statements when there are predecessor auditors and (2) alert readers about the intended use of an audit report when it is not for general use.

Unmodified opinion on group FS

This circumstance involves a situation in which two or more CPA firms are involved in the audit of components that make up a set of group financial statements (e.g., one CPA firm may audit one subsidiary of a company while another CPA firm audits the parent company and the other subsidiaries). When the audit firm that does the majority of the audit work does not wish to take responsibility for the work of the component auditors, the audit report is modified to divide responsibility between the CPA firms. The report modification in this situation involves modifying existing paragraphs of the audit report and does not involve addition of a paragraph related to the matter.

What is the purpose of notes on Financial statements?

To properly disclose information required by GAAP that cannot be adequately conveyed on the face of the financial statements

What are some disclosure requirements?

When there is significant accounting principles, accounting changes, loss contingencies, and lease and postretirement benefit information

Substantial doubt about going concern

about an entities ability to continue as a going concern: - One year after the financial statements are issued -going concern paragraph in the audit opinion -may require reclassifying accounts: long term to current, prepaid expenses become expenses, PP&E net of depreciation recorded at net realizable value)