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Chapter 18 Reports on Audited Financial Statements McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

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Presentation on theme: "Chapter 18 Reports on Audited Financial Statements McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved."— Presentation transcript:

1 Chapter 18 Reports on Audited Financial Statements McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

2 Reporting on the Financial Statement Audit: The Standard Unqualified Report The standard unqualified report is issued when the auditor has gathered sufficient evidence, the audit has been performed in accordance with PCAOB standards, and the financial statements conform to GAAP. Eight Elements 1.Report title 2.Addressee 3.Introductory paragraph 4.Scope paragraph 5.Opinion paragraph 6.Explanatory paragraph referring to the audit of ICFR 7.Name of auditor 8.Audit report date Eight Elements 1.Report title 2.Addressee 3.Introductory paragraph 4.Scope paragraph 5.Opinion paragraph 6.Explanatory paragraph referring to the audit of ICFR 7.Name of auditor 8.Audit report date LO#

3 LO# 1 Standard Unqualified Audit Report (PCAOB) 18-3

4 Reporting on the Financial Statement Audit: The Standard Unmodified Report The standard unmodified report is issued when the auditor has gathered sufficient evidence, the audit has been performed in accordance with GAAS, and the financial statements conform to GAAP. Nine Elements 1.Report title 2.Addressee 3.Introductory paragraph 4.Management’s responsibility 5.Auditor’s responsibility 6.Scope paragraph 7.Opinion paragraph 8.Name of Auditor 9.Audit report date Nine Elements 1.Report title 2.Addressee 3.Introductory paragraph 4.Management’s responsibility 5.Auditor’s responsibility 6.Scope paragraph 7.Opinion paragraph 8.Name of Auditor 9.Audit report date LO#

5 LO# 1 Standard Unmodified Audit Report (ASB) 18-5

6 Adjustments to the Standard Unqualified/Unmodified Financial Statement Audit Report Modified Wording: Opinion based in part on the report of another auditor Explanatory Paragraph: Reference to report on audit of ICFR Explanatory Paragraph: Lack of consistency Explanatory Paragraph: Additional emphasis LO# 2 Explanatory Paragraph: Going concern 18-6

7 LO# 2 Reference to Other Auditors 18-7

8 Going Concern LO#

9 Lack of Consistency Change in accounting principle Change in reporting entity Correction of an error in principle Changes Affecting Consistency Change in accounting estimate Correction of anerror that does not involve an accounting principle Changes Not Affecting Consistency Change inclassification and reclassification Change expected to have a material future effect LO#

10 Additional Emphasis Under certain circumstances (e.g. significant related- party transactions, subsequent event) an auditor may want to emphasize a specific matter regarding the financial statements even though he or she intends to express an unqualified/unmodified opinion. This information should be presented in an explanatory paragraph. LO#

11 Conditions for Departure from Unqualified/Unmodified Report Scope Limitation Departure from GAAP Lack of Auditor Independence LO#

12 Departures from an Unqualified/Unmodified Financial Statement Audit Report Qualified “except for” Disclaimer Adverse LO#

13 LO# 5 Effect of Materiality Effect of Materiality 18-13

14 Discussion of Conditions Requiring Other Types of Financial Statement Audit Reports Scope Limitation Not in Conformity with GAAP Auditor Not Independent Results from an inability to obtain sufficient competent evidence about some component of the financial statements. Results when financial statements are materially affected by an unacceptable departure from GAAP. Results when auditor has some form of prohibited relationship with the client (see Ch. 19). LO#

15 Scope Limitation Not in Conformity with GAAP Auditor Not Independent Issue a qualified opinion or a disclaimer. Issue a qualified opinion or adverse opinion. Issue a disclaimer. LO# 5 Discussion of Conditions Requiring Other Types of Financial Statement Audit Reports 18-15

16 Scope Limitation: Disclaimer LO#

17 Scope Limitation: Qualified LO#

18 Not GAAP: Qualified LO#

19 Not GAAP: Adverse LO#

20 Special Reporting Issues Different reports on comparative financial statements Change in report on prior-period financial statements Report by a predecessor auditor LO#

21 Different Reports on Comparative Financial Statements Prior Years Issued Qualified Opinion or Disclaimer. Current Year Issues Unqualified Opinion. LO#

22 Restated Prior-Period LO#

23 Report by a Predecessor Auditor The predecessor auditor should do the followingbeforereissuing a report on prior-year financial statements published for comparative purposes: 1.Read the financial statements of the current period. 2.Compare the prior-period financial statements reported on with the current-year financial statements. 3.Obtain a letter of representation from the current-year or successor auditor. LO#

24 Other Information in Documents Containing Audited Financial Statements Annual Reports Registration Statements The auditor has no responsibility beyond the financial information contained in the report, and he or she has no obligation to perform any audit procedures to corroborate the other information. However, the auditor is required to read the other information and consider whether it is consistent with the information contained in the audited financial statements. LO#

25 Special Reports Financial statements prepared on a comprehensive basis of accounting other than GAAP Specified elements, accounts, or items of a financial statement Compliance with aspects of contractual agreements or regulatory requirements LO#

26 Financial Statements Prepared According to a Special Purpose Framework Regulatory Basis Tax Basis Cash (or Modified Cash) Basis Contractual Basis LO#

27 In some situations an auditor may be engaged to audit only part (or specified elements, accounts, or items) of the financial statements. Specific Elements, Accounts, or Items of a Financial Statement LO# 9 Rather than auditing specified elements, accounts, or items, an auditor may be engaged to apply only agreed-upon procedures

28 Compliance Reports Related to Audited Financial Statements The auditor provides negative assurance as to compliance with the provisions of contractual agreements or regulatory requirements. LO#


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