ATG 457 CH 17

independent registered

A standard audit report for a public company mist include " report of ___ ___ Public Accounting Firm" in the title

¨GAAP departures that are material and pervasive ¨Change in accounting principles where auditors disagree and they are material and pervasive

Adverse

When performing an audit, the auditors gather evidence to obtain reasonable assurance that the statements are in conformity with GAAP

Audit Report

¨It is acceptable to express an unqualified opinion on one statement while expressing a qualified or adverse on the others

Different Opinions on Different Financial Statements (B/S, I/S,etc)

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Form AP must be filed with the PCAOB with ___ days of the date the audit report is first included in a doc filed with the SEC.

-auditors resp section - opinion section

In a shared resp report, the sections of the audit report that should be modified are the:

only be reported for the period being audited

PCAOB required that critical audit matters (CAMs):

¨GAAP departures that are Material (but not pervasive) ¨Change in accounting principles where auditors disagree and they are material ¨Scope limitations that are not pervasive

Qualified/Modified

¨Report covers both years ¨Can express different opinions on different years ¨If prior period audited by another (predecessor) CPA firm ¡Current year opinion only covers years the CPA firm audited. ¡For financial statements audited by predecessor auditor either: úPredecessor auditor reissues report with original date, or úCurrent auditor refers to report of other auditor.

Reporting on Comparative Financial Statements

scope limitations * imposed by circumstances ** important accounting records destroyed * due to nature audit **engaged too late in yr to observe clients beginning inventory * imposed by client **client refused to allow auditors to send confirmations to customers ** often results in a disclaimer or opposed to a qualification

Scope Limitations(Qualified or Disclaimer Opinions)

auditors also have issued a report on the clients internal control over fin reporting

The PCAOB audit report includes an additional paragraph indicating:

properally disclose info required by GAAP

The purpose of notes to fin statements is to

¨Going concern issues that are disclosed ¨Change in accounting principles where auditors agree with the change ¨Related parties ¨Matters that auditors wish to emphasize

Unmodified with Emphasis of a Matter Paragraph

¨Immaterial GAAP departures are passed on...issue unqualified opinion ¨Change in estimates (like useful lives) ¨Normal business risks...can still issue unqualified opinion ¨Changes in classification—change where expenses were coded between years

Unqualified/Unmodified (no modifications)

scope

a qualified opinion is issued when auditors are unable to obtain suff appropriate audit evidence on which to base the opinion bc of an___ limitation

-a risk or uncertainty -significant related party transactions described in a note to the financial statements - the company is a component for a larger business enterprise -accounting matters affecting comparability(other than changes in accounting principles) of financial statements w/ those of the proceeding yr.

additional emphasis of matter situation- auditors discretionary

-Financial statements do not present fairly the financial position, results of operations, and cash flows of client in conformity with GAAP -Material and pervasive departures from GAAP -Auditor believes departure causes financial statements taken as a whole to be misleading

adverse opinion

standard

auditors cannot issue the ___ report for an audit if there are material departures from GAAP in the fin statements.

- newly adopted principle is generally accepted -the method of accounting for the effect of the change is in conformity w/ GAAP -the disclosures related to the change are adequate -management has justified that the new acc principle is preferable

auditors evaluate changes in accounting principles to determine if:

adverse

auditors issue an___ opinion when the fin stat are not fairly presented in conformity with GAAP

¨Scope limitations that are material and pervasive ¨Significant Going concern issues

disclaimer

-Auditor has no opinion -Issued whenever the auditor is unable to form an opinion as to fairness of financial statements -Circumstances resulting in a disclaimer are those in which the possible misstatements are material and pervasive. --Multiple uncertainties may also lead to a disclaimer -Not an alternative to adverse opinion

disclaimer of opinion

company changed accounting principles resulting in a material effect on the financial statements being reported on in accepting the change the auditors should evaluate whether -the newly adopted principle is generally accepted -the method of accounting for the effect of the change is in conformity with GAAP -the disclosure related to the change are adequate -management has justified that the new accounting principle is preferable

emphasis of a matter -lack of consistency

- negative cash flow from operations -defaults on loan agreements -adverse financial ratios - work stoppages -legal proceedings -loss of a key franchise, customer, or supplier - an uninsured catastrophe

emphasis of a matter- going concern conditions indicative of going concern?

As discussed in Note 1 to the Consolidated Financial Statements, the Company changed its method for testing goodwill for impairment. They changed the method as a result of the adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update No. 2017-04, "Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." Our opinion is not modified with respect to this matter.

emphasis of matter paragraph- lack of consistency

auditors opinion is not modified w/ respect to the matter NOTE: Ordinarily an unmodified opinion with an emphasis-of-matter paragraph is issued. Alternatively, a disclaimer of opinion may be issued.

emphasis of matter paragraph- substantial doubt as to going concern status

GAAP assumes that a company is a going concern. - assumption that the company will continue to operate for a reasonable period of time how long is reasonable period of time? year from the days of issuance of the FS

emphasis of matter- going concern

basis... opinion

for a nonpublic company a qualified departure from GAAP requires an___ for modification paragraph and changes to the ___ paragraph.

standard unmodified report

group auditors that make no ref to the component auditors should issue an:

component

group financial statements are those of a company that consists of more than one ___

-qualified opinion -adverse opinion

if auditors have substantial doubt about a company's ability to continue as a going concern and managements disclosure are materially inadequate the appropriate audit report is an

GAAP

in the US, fin. statements are most frequently prepared following this general purpose framework

1) Material departure from GAAP in the client's financial statements 2) Material scope limitation 3) Conditions, although not departures from GAAP, about which the readers of the financial statements should be informed

modification of the auditors standard report

A disclaimer of opinion states that due to a significant scope limitation, the auditors were unable to form an opinion or did not form an opinion on the financial statements.

modified opinion-disclaimer

An adverse opinion states that the financial statements are not presented fairly in conformity with generally accepted accounting principles.

modified opinions- adverse

A qualified opinion states that the financial statements are presented fairly in conformity with generally accepted accounting principles "EXCEPT FOR" the effects of some matter.

modified opinions-qualified

disclaimer of

multiple uncertainties that cause the auditor to conclude its not possible to form an opinion on the fin statements may make an ___ opinion appropriate

disclaimer of

multiple uncertainties that cause the auditors to conclude it's not possible to form an opinion of the financial statements may make an ___ opinion appropriate.

Who can define Pervasive? Pervasive: Inclusive...all throughout. (Can't just tear off the mold and eat the bread.) •Not confined to specific accounts or items on the FS •Fundamental to users •Could be a substantial proportion of the FS

pervasive

bal sheet for each of the last 2 years

publicly owned companies are required to include in their annual reports:

-Departure from GAAP --Immaterial - unmodified --Material - qualified --Material and pervasive—Adverse -Misstatements become pervasive when any one of the following applies: --Not confined to specific accounts. --f confined, they represent a substantial proportion of the financial statements. --In relation to disclosures, they are fundamental to users' understanding of the financial statements.

qualified opinion-departure from GAAP

- management must evaluate whether there is substantial doubt about the company's ability to continue is existence for a reasonable period of time. - auditor is not required to perform procedures specifically designed to test going concern assumptions but must evaluate the assumption

requirements for emphasis of matter: going concern

-the fin statements are prepared -all audit doc has been reviewed

sufficient appropriate audit evidence is obtained when:

auditors have responsibility to perform procedures through that date

the date of the audit report is significant bc:

material and pervasive

the decision on whether a scope limitation results in a qualified or disclaimer of opinion on whether misstatements or possibly misstatements are both ___ and ___

the standards of the PCAOB

the standard audit report for audits of public companies should reference

independent

the title for a standard unmodified report for a nonpublic company must include the word ___ to describe the auditors relationship to the client

period

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

UM-standard report this report may be issued only when the auditors have obtained sufficient appropriate audit evidence to conclude the fin statements are not misstated and there is no need to alter the report

types of reports with unmodified opinions

unmodified opinion- w/ an emphasis of matter paragraph to emphasize a matter that is appropriately presented in the financial statements. ex: going concern matter or a change in accounting principle

types of reports with unmodified opinions

-adverse opinion -qualified opinion

when auditors determine a change in accounting principle is not appropriate, the auditors can issue an:

going concern

when auditors have concern about a company's ability to continue as an ___ ___, they should consider whether managements plans for dealing with the conditions are likely to mitigate the problem.

unmodified ... standard

when the auditors have obtained suff appropriate audit evidence to conclude the fin statements, taken as a whole, are not materially misstated and there is no need to disclose additional info, they will issue an ___ opinion using an ___ report

the auditors

whose responsibility is the audit report