Docstoc

MODIFICATIONS

Document Sample
MODIFICATIONS Powered By Docstoc
					AUDITING
CHAPTER 3
Reports
By
David N. Ricchiute



                     1
TOPICS
    Reports on audited financial statements
    Audit report opinions
    Modifications to audit reports
    Updated reports & reports for foreign
    countries
    Reports on attest & assurance services



2
                    GBW 8th ed., Ch. 3
AUDIT REPORT DEFINED
    Audit report is a letter communicating
       What was audited
       Management’s responsibilities
       Auditor’s responsibilities
       What an audit entails
       Auditor’s opinion



3
                     GBW 8th ed., Ch. 3
UNQUALIFIED OPINION
DEFINED

    Unqualified opinion in audit report
    means management’s assertions are
    fairly presented in the auditor
    Applies to quality of financial
    statements not to quality of entity as
    investment or credit risk


4
                  GBW 8th ed., Ch. 3
STANDARD AUDIT REPORT
OPINION

    Unqualified opinion
       Independent auditor’s opinion that
        management’s financial statements
        present fairly in all material respects
        the financial position, results of
        operations, & cash flows in conformity
        with GAAP



5
                      GBW 8th ed., Ch. 3
SARBANES-OXLEY
Management’s responsibilities
   Reviewed entire annual/quarterly report
   Report does not contain untrue statement of material
    fact or omit material fact
   Financial statements present fairly financial condition
    & results of operations
   Establish, maintain, evaluate effectiveness of internal
    controls
   Identified to auditors significant deficiencies, fraud


6
                       GBW 8th ed., Ch. 3
ELEMENTS OF REPORT
    Title: Independent Auditor’s Report
    Addressee: shareholders, board of directors
    Introductory paragraph
    Scope paragraph
    Opinion paragraph
    Firm signature
    Date of report


7
                    GBW 8th ed., Ch. 3
INTRODUCTORY
PARAGRAPH

    Statement that
       Financial statements were audited
       Financial statements are management’s
        responsibility
       Auditor’s responsibility is to issue opinion



8
                      GBW 8th ed., Ch. 3
SCOPE PARAGRAPH
    Statement that
       Audit conducted in accordance with U. S. GAAS
       GAAS requires planning, performing audit to
        obtain reasonable assurance financial statements
        free from material misstatements
       Audit includes
          Examining evidence on test basis
          Evaluating accounting principles & estimates
          Evaluating overall financial presentation



9
                           GBW 8th ed., Ch. 3
MEANING OF SCOPE
PARAGRAPH

     Reasonable not absolute assurance
     implies auditor may
        Overlook immaterial misstatements
        Test samples rather than all
         transactions & events




10
                     GBW 8th ed., Ch. 3
USE OF STANDARD SCOPE
PARAGRAPH-1

     Implies auditor complied with all
     general standards
        Adequately trained & proficient
        Independent in mental attitude
        Exercised due professional care



11
                      GBW 8th ed., Ch. 3
USE OF STANDARD SCOPE
PARAGRAPH-2

     Implies auditor complied with all
     fieldworks standards
        Planned engagement & supervised
         assistants
        Obtained understanding of internal control
        Obtained sufficient, competent evidential
         matter
12
                      GBW 8th ed., Ch. 3
OPINION PARAGRAPH

     Statement of opinion
        Whether financial statements present fairly
         in all material respects
           Financial position
           Results of operations
           Cash flows
        In conformity with GAAP

13
                         GBW 8th ed., Ch. 3
USE OF STANDARD
OPINION PARAGRAPH
Implies compliance with reporting
standards
    Financial statements presented in
     accordance with U.S. GAAP
    Principles are applied consistently
    Disclosures are reasonably adequate
    Opinion applies to statements taken as a
     whole

14
                    GBW 8th ed., Ch. 3
SIGNIFICANCE OF AUDIT
REPORT DATE
Last day of fieldwork
Last day responsible for detecting
subsequent events
Dual dating: financial statements revised for
subsequent event after fieldwork date but
before report release
Event date: date to which all responsibilities
extended
15
                GBW 8th ed., Ch. 3
OTHER TYPES OF
OPINIONS
     Departures from GAAP or scope
     limitation require other opinion
        Qualified: sufficient evidence or assertions
         fairly presented except for certain
         matter(s)
        Adverse: assertions are not fairly presented
        Disclaimer: auditor does not express an
         opinion usually due to insufficient evidence
         (scope limitation)

16
                      GBW 8th ed., Ch. 3
STANDARDS FOR
INTERNATIONAL REPORTS

     US reporting standards are GAAP
     Japanese auditors use private sector
     reporting standards
     German auditors use commercial law as
     reporting standards



17
                  GBW 8th ed., Ch. 3
QUALIFIED OPINION

     Except for effects of a matter, financial
     statements present fairly in all other
     material respects
        Statements depart materially from GAAP
        Management unable to justify material
         change in accounting principle
        Scope of audit materially limited
18
                     GBW 8th ed., Ch. 3
ADVERSE OPINION
     Management’s financial statements do
     not present fairly
        Financial statements depart from GAAP
        Management unable to justify change in
         accounting principle
        Effects of departure so highly material that
         qualified opinion unwarranted


19
                       GBW 8th ed., Ch. 3
DISCLAIMER OF OPINION

     Auditor does not express opinion
        Scope limitation so material auditor does
         not have reasonable basis to reach opinion
        Auditor is not independent of
          management



20
                      GBW 8th ed., Ch. 3
STANDARD REPORT
MODIFICATIONS : Summary
      Based in part on report of another
      auditor
      Emphasize a matter
      Departure from GAAP
      Inconsistency
      Scope limitations
      Going concern
      Lack of independence
 21
                    GBW 8th ed., Ch. 3
MODIFICATIONS:
Another Auditor

     Principle auditor shares responsibility
     with another auditor
     Modified wording in introductory &
     opinion paragraphs




22
                    GBW 8th ed., Ch. 3
MODIFICATIONS:
Emphasis of a Matter

     Auditor wishes to emphasize a matter &
     still issue an unqualified opinion
     Explanatory paragraph added after
     opinion paragraph
     Example:
     The accompanying financial
     statements have been re-
     stated

23
                   GBW 8th ed., Ch. 3
MODIFICATIONS:
Departure from GAAP With Agreement

        Management’s financial statements
        depart from GAAP
           With auditor’s agreement
              Unqualified opinion
              Explanatory paragraph after opinion paragraph




   24
                           GBW 8th ed., Ch. 3
MODIFICATIONS:
Limited Departure from GAAP

     Management’s financial statements
     depart from GAAP
        Material departure from GAAP in limited
         area
           Explanatory paragraph before opinion
           paragraph & qualified opinion
        Example
          As discussed in Note 2, the Bank has charged
           goodwill to shareholders’ equity but GAAP
           requires an asset
25
                        GBW 8th ed., Ch. 3
MODIFICATIONS:
Pervasive Departure from GAAP

     Management’s financial statements
     depart from GAAP
        Pervasive departure from GAAP
           Explanatory paragraph before opinion
           paragraph & adverse opinion
        Example
          The company carries property, plant, &
           equipment at appraisal values but GAAP
           requires values not exceed cost.
26
                        GBW 8th ed., Ch. 3
MODIFICATIONS:
Justifiable Inconsistency

     Management changes accounting
     principle(s) and justifies change
        Explanatory paragraph after opinion
         paragraph
     Example
     As discussed in Note 3, the company changed its
       method of accounting for goodwill & other
       intangibles

27
                      GBW 8th ed., Ch. 3
MODIFICATIONS:
Inconsistency not Justified

     Management changes accounting
     principle(s) but fails to justify change
        Limited area
           Explanatory paragraph before qualified opinion
        Pervasive
           Explanatory paragraph before adverse opinion




28
                        GBW 8th ed., Ch. 3
MODIFICATIONS:
Scope Limitation Limited Area
 Prevent auditor from performing 1 or
 more necessary auditing procedures
    Limited area:
 Modify scope paragraph
       Explanatory paragraph before qualified opinion
    Example
      We were unable to obtain evidential matter
       supporting the Company’s representations
       regarding the contingent liability as discussed in
       Note 8.

29
                       GBW 8th ed., Ch. 3
MODIFICATIONS:
Pervasive Scope Limitation
 Prevent auditor from performing 1 or
 more necessary auditing procedures
        Pervasive limitation
           Modify introductory paragraph
           Omit scope paragraph
           Explanatory paragraph before disclaimer of
           opinion
        Example
          The Company did not give effect to all
           adjustments to the carrying value of assets &
           classification of liabilities resulting from
30
           bankruptcy proceedings
                          GBW 8th ed., Ch. 3
MODIFICATIONS:
Going Concern

     When auditor retains substantial doubt
     as to ability of client to continue as a
     going concern (SAS 59)
     Explanatory paragraph after opinion
     paragraph




31
                   GBW 8th ed., Ch. 3
MODIFICATIONS:
Lack of Independence

     Auditor is not independent of client
     SAS 26 requires a 1-paragraph
     explanation with disclaimer of opinion
     Example
     We are not independent with respect to the
      Trailways Company. . . .the balance sheet,
      statements of income, retained earnings, &
      cash flows were not audited by us. We do
      not express an opinion on them.
32
                   GBW 8th ed., Ch. 3
REPORTS: COMPARATIVE
STATEMENTS

 When opinions differ
        Criteria for both opinions must be met with
         explanatory paragraphs
 When opinion updated
        Update opinion paragraph & add
         explanatory paragraph acknowledging
         change

33
                       GBW 8th ed., Ch. 3
REPORTS ON
ATTESTATION SERVICES

     Letter communicating
        Management’s & attester’s responsibilities
        Attester's opinion
        Management’s assertions
          (if written)



34
                      GBW 8th ed., Ch. 3
UNQUALIFIED OPINION

Definition: unqualified opinion in
 attestation report means management’s
 assertions are fairly presented in the
 attester's opinion




35
               GBW 8th ed., Ch. 3
OTHER TYPES OF
OPINIONS
     Departures from attestation standards
     or measurement criteria require other
     opinion
        Qualified: assertions fairly presented
         except for certain matter(s)
        Adverse: assertions are not fairly presented
        Disclaimer: attester does not express an
         opinion usually due to insufficient evidence

36
                      GBW 8th ed., Ch. 3
REPORTS FOR ASSURANCE
SERVICES
Not required
        Short history of offering assurance services
        Traditionally, reports not required
           Oscars
           Tony awards
           National book awards




37
                          GBW 8th ed., Ch. 3

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:1
posted:9/30/2012
language:Unknown
pages:37