Chapter 17- Part 3
not
A disclaimer is _______ an opinion; it simply states that the auditors do not express an opinion on the financial statements.
emphasis of a matter
A paragraph included in the auditors' report that is required by GAAS or is included at the auditors' discretion, and that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor's judgment, is of such importance that it is fundamental to users' understanding of the financial statements.
pervasive
A term used, in the context of misstatements, to describe the effects on the financial statements of misstatements or the possible effects on the financial statements of misstatements, if any, that are undetected due to an inability to obtain sufficient appropriate audit evidence. It effects on the financial statements are those that, in the auditors' judgment, • Are not confined to specific elements, accounts, or items of the financial statements. • If confined, represent or could represent a substantial proportion of the financial statements. • In relation to disclosures, are fundamental to users' understanding of the financial statements.
Change in accounting principle
Changes in accounting principles and reporting entities result in an emphasis-of-matter paragraph being added to the auditors' report.
title
Most of the "additional paragraphs" require a _____________ (heading).
appropriate
The section title must be one that the auditors consider _____________.
adverse opinion
financial statements are not presented fairly according to GAAP
unqualified
unmodified opinion for public companies
footnote
A financial statement _________ describing the situation is generally required when the initial judgment suggests substantial doubt.
disclaimer of opinion
A form of report in which the auditors state that they do not express an opinion on the financial statements.
emphasis-of-matter paragraph
A paragraph inserted in an audit report issued under PCAOB standards to describe certain 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). See also explanatory paragraph.
explanatory paragraph
A paragraph inserted in an auditors' report issued under PCAOB standards to describe a matter relating to the financial statements or to the audit. Also see emphasis of a matter paragraph. AICPA Auditing Standards Board (and international) standards use the terms "emphasis-of-matter paragraph" and "other-matter paragraph."
scope limitation
A restriction that prevents the auditors from being able to apply all of the audit procedures that they consider necessary in the circumstances. may be client imposed or may be imposed by other circumstances.
emphasis of matter.
A section indicating an inconsistent application of accounting principles between two years will consist of a title and an __________ __________ _______ (explanatory) paragraph.
significant issue
Accounting Requirements for going-concern status: Because assets and liabilities are ordinarily recorded, valued and classified on the assumption that the company will continue to operate, the going-concern status of an entity is a _________ ________ for users of financial statements.
negative defaults arrearages stoppage loss uninsured legal
Accounting Requirements for going-concern status: Examples of such conditions and events, depending upon the overall situation, that may raise substantial doubt include: - _________ cash flows from operations - ________ on loan agreements - ___________ on dividends - _________ financial ratios - work ___________ - _______ of a key franchise, customer or supplier -an __________ catastrophe - _______ proceedings
reasonable after
Accounting Requirements for going-concern status: FASB Accounting Standards Update No.- (subtopic 205-240) requires management to consider the propriety of this assumption by evaluating whether there are conditions and events that raise substantial doubt about the entity's ability to continue as a going concern for a ___________ period of time, defined as one year __________ the date the financial statements are issued (or available to be issued.)
reasonable period of time
Accounting Requirements for going-concern status: Substantial doubt exists when conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due for a ___________ _________ _______ ______.
additional paragraph
All significant reasons for the issuance of an adverse opinion should be set forth in an _______ _________ added to the audit report.
following judgment later
Although subject to some exceptions, placement of these additional sections within the report is governed by the following guidance: - Nonpublic companies: The sections are included at a point __________ the Basis for opinions section. The point is determined by the auditors based on the auditors' __________ of its nature and relative significance to intended users. While this will often be immediately following the Basis for Opinion section, it may be __________ in the report.
going-concern GAAP Opinion
Although subject to some exceptions, placement of these additional sections within the report is governed by the following guidance: -Public Companies- The sections on 1) substantial doubt about _______ ________ status, 2) _________ not consistently applied between years, and 3) correction of a material misstatement in previous issued financial statements are presented immediately following the __________ section; other sections are placed where the auditors consider appropriate.
qualified opinion
An additional paragraph describing significant reasons for the issuance of a qualified opinion is added to the audit repot.
management
Auditing Requirements- Approach: The professional auditing standards require that, like _______________ , auditors should evaluate whether there is substantial doubt about the client's ability to continue as a going concern for a reasonable period of time.
conditions and events
Auditing Requirements- Approach: While performing risk assessment procedures, the auditors should consider whether there are ____________ and _________ that raise this substantial doubt.
Unmodified opinion- additional audit-related information included in audit report
Auditors add an additional section to the audit report to include a description of an audit-related matter. Such " other matter" is, in the auditor's judgment, relevant to users' understanding the audit, the auditors' responsibilities, or the auditor's report.
material pervasive
Auditors issue an adverse opinion when the deficiencies in the financial statements are both ___________ and ________.
section
Because a paragraph with a title becomes a "____________," a new section is added to the audit report.
material
Being of substantial importance. Significant enough to affect evaluations or decisions by users of financial statements. Information that should be disclosed in order for the financial statements to constitute a fair presentation. Determining what is _________ involves both quantitative and qualitative criteria.
substantial doubt additional paragraph
Disclaimers also may result from __________ _________ about a client's ability to continue as a going concern or multiple uncertainties relating to the financial statements. An ________ _________ describing significant reasons for the issuance of a disclaimer of opinion is added to the audit report.
nonpublic
Emphasis-of matter paragraph or an other-matter paragraph. Nonpublic or public company standards?
modified
If Substantial doubt remains after consideration of management plan, the footnote should so indicate and the wording of disclosure item should be ___________ to disclose management plans that are intended to mitigate the conditions or events that raise substantial doubt.
conditions and events significance alleviated
If managements plans result in alleviation of the substantial doubt, the footnote describes 1)the _________ and ________, 2) management's evaluation of the ___________of the conditions and events, and 3) its plans that _________the substantial doubt.
not prior
If the company has defaulted on a loan agreement and management plans to attempt to obtain a new loan, obtaining the new loan would _______ be considered initially. Thus the initial substantial doubt judgment is made _______to considering such management plans that have not been fully implemented.
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 section.
initially raise borrow debt dispose
In determining whether such conditions and events raise substantial doubt, management ________ should consider them without reflecting the potential effects of its plans to mitigate the situation (in example, plans to ________ capital, __________ money, restructure _______, or ________of assets).
matter discretion
The auditing standards either require auditors to add information to the audit report related to the ___________ (the first two circumstances) or allow auditors to do so at their ___________(the third circumstance).
going concern GAAP uncertainties unusually important catastrophe division
The primary situations that result in an audit report with an unmodified opinion but with additional financial statement related information include: -substantial doubt about the company's ________ ________ status. -____________ not consistently applied -other circumstances that the auditors believe should be emphasized. For example _______, _________ _______ subsequent events, a major __________, a _________of responsibility for the total audit.
qualified opinions pervasive
These 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 ____________.
Unmodified (unqualified) opinion
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 in the report.
other-matter paragraph
This term is used in nonpublic auditing standards for a paragraph (section) included in the auditors' report that is required by GAAS, or is included at the auditor's discretion and that refers to a matter other than those presented or disclosed in the financial statements. Public company auditing standards consider these paragraphs (sections) as one type of explanatory paragraph.
modified addition
Unmodified opinion on group financial statements: 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 __________ to divide responsibility between the CPA firms. This involved modifying existing paragraphs of the audit report and does not involved ________ of a paragraph related to the matter.
predecessor general use
Unmodified opinion- additional audit-related information included in audit report. Examples include: 1. reporting on comparative statements when there are __________ auditors 2. alerting readers about the intended use of an audit report when it is not for ________ ________
substantial doubt change in accounting principle
Unmodified opinion: financial statement-related matter is required to be described in the audit report through inclusion of an additional section. Examples include: 1) situation in which there is __________ __________ about a company's ability to continue as a going concern 2) situations in which the company makes a _________ ________ _________ _________ followed that has a material effect on the financial statements (change from FIFO to LIFO inventory evaluation.)
future litigation related parties subsequent
Unmodified opinion: financial statement-related matter is required to be described in the audit report through inclusion of an additional section: Auditors may choose to refer to certain matters, such as an uncertainty relating to __________ ______, significant transactions with _______ ________, or unusually important __________ events.
unmodified
When appropriate accounting principles are followed and there are no material restrictions on the scope of the audit, the auditors may issue a report with an ____________ opinion.
substantial doubt
When relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). (about an entity's ability to continue as a going concern)
disclaimer of opinion
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.
public
explanatory paragraph (first two bullets) or emphasis of a matter (third bullet). Nonpublic or public company standards?
obligations liquidation is imminent
the existence of substantial doubt indicates a question about whether the company will be able to meet its _____________ as they become due. The accounting standards distinguish this situation from one in which " __________ _________ ________."
Qualified opinion
the financial statements are presented fairly in conformity with GAAP "except for" the effects of some matter.
converts creditors net realizable values
the latter situation may be viewed as being beyond substantial doubt; That is, the company is in a situation requiring that it _________ its assets and settles its obligations with _________ in anticipation of seizing all activities. In this latter situation, gap requires that the financial statement amounts be valued at their __________ ___________ __________.
Unmodified opinion on group financial statements.
two or more CPA firms are involved in the audit of components that make up a set of group financial statements (one CPA firm may audit one subsidiary of a company while another CPA firm audits the parent company and the other subsidiaries)
probable second
when management has identified conditions and events suggesting substantial doubt, it is then required to consider whether it is __________ that its plans will be effective in mitigating the effects of the conditions and events. At this point, a __________ substantial doubt judgment is required, one that considers the likely effectiveness of management plans in alleviating the substantial doubt.
