Audit Chapter 3

Describe the conditions that would require the following modifications to the audit report: Disclaim an opinion

-Scope restriction or lack of independence (client induced)

There are four conditions that must be met before an auditor can issue a standard unmodified opinion audit report for the audit of a private company. Please discuss each of these four conditions.

1. All statements—balance sheet, income statement, statement of retained earnings, and statement of cash flows—are included in the financial statements. 2. Sufficient appropriate evidence has been accumulated and the auditor has conducted the engagement in a manner that enables him or her to conclude that the audit was performed in accordance with auditing standards. 3. The financial statements are presented in accordance with appropriate accounting standards such as U.S. generally accepted accounting principles or IFRS. This also means that adequate disclosures have been included in the footnotes and other parts of the financial statements. 4. There are no circumstances requiring the addition of an explanatory paragraph or modification of the wording of the report.

8 parts of audit report & discuss contents of each

1. Report Title: "Independent Auditor's Report" 2. Audit Report address: "To BOD and Stockholders" 3. Intro Paragraph This is an audit, statements audited including notes, dates of statements 4. Management's responsibility for statements, accounting methods, and controls 5. Auditor's responsibility (3 paragraphs) -Audit was conducted in accordance w GAAP -Scope of the audit and evidence accumulated -Auditor believes sufficient appropriate evidence has been obtained 6. Opinion Paragraph "Our opinion" 7. Name and address of CPA Firm 8. Audit Report Date Date field procedures completed

Describe the conditions that would require the following modifications to the audit report: Issue an unqualified opinion with an explanatory paragraph or modified wording

Lack of consistent application of GAAP Substantial doubt about going concern Auditor agrees with a departure from promulgated accounting principles Emphasis of other matters Reports involving other auditors

Describe the conditions that would require the following modifications to the audit report: · Issue a qualified opinion

limitation on the scope of the audit or failure to follow GAAP (only used when the auditor concludes that the financials are fairly stated) (Scope limit/gaap departure)

Describe the conditions that would require the following modifications to the audit report: Issue an adverse opinion

used only when the auditor believes that the overall financials are so misstated they don't represent the financial position in conformity with GAAP. Only happens when the auditor has knowledge after an adequate investigation (very material GAAP departure)