1. Reports on Audited Financial Statements
Chapter 12
Reports on Audited Financial Statements
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2. 1. Association with Financial Statements
AU-C §
An auditor is associated with financial information when the auditor has applied procedures sufficient to permit the auditor to report in accordance with GAAS.
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3. 2. Unmodified Audit Report
AU-C §700 for nonissuers
Meaning of “Unmodified”
Client vs. Auditee
Title
Addressee
Date (audit completion date; audit report date; audit report release date)
Signature
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4. Unmodified Report (con’t)
[Report on the Financial Statements]
Introductory Paragraph
We have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders’ equity, and cash flows for the year then ended, and the related notes to the financial statements.
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5. Unmodified Report (con’t)
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
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6. Unmodified Report (con’t)
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
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7. Unmodified Report (con’t)
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
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8. 2. Unmodified Report (con’t)
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
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9. 2. Unmodified Report (con’t)
[Report on Other Legal and Regulatory Requirements]
Auditor’s signature
Auditor’s city and state
Date of the auditor’s report
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10. 2. Unmodified Report (con’t)
Audits of issuers
Responsibility of Auditor
opinion on financial statements
opinion on internal control over financial reporting
can be separate reports on F/S and IC
each of reports references other report
can be combined report on F/S and IC
Responsibility of Management regarding IC
establish & maintain effective IC system over fin reporting
identify IC framework used
document IC and test it so can form an opinion
give opinion on internal control over financial reporting
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11. Unmodified with Emphasis-of-matter Paragraph (explanatory paragraph)
Group financial statements (shared responsibility report) (principle auditor=group auditor; other auditor=component auditor)
Lack of consistency
Justified departure from GAAP
Emphasis of a matter
Going concern
Audit report under AS 5
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12. Unmodified Reports’ Additional Paragraphs
Emphasis-of-matter paragraph
A paragraph included in the auditor’s report refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor’s professional judgment, is of such importance that it is fundamental to users’ understanding of the financial statements.
Examples: uncertainty, major catastrophe, significant transaction with related parties
Other-matter paragraph
A paragraph included in the auditor’s report that refers to a matter other than those presented or disclosed in the financial statements that, in the auditor’s professional judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities, or the auditor’s report
Examples: auditor unable to withdraw from engagement, something relevant to the users’ understanding of the auditor’s responsibilities, reporting on more than one set of financial statements, supplementary information
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13. 4. Modified Opinions Accounting problems (GAAP violation)
qualified opinion
adverse opinion
Auditing problems (scope limitation)
disclaimer of opinion
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15. 4. Modified Opinions Pervasive effects on the financial statements
those that in the auditor’s professional judgment
are not confined to specific elements, accounts, or items of the financial statements;
if so confined, represent or could represent a substantial proportion of the financial statements; or
with regard to disclosures, are fundamental to users’ understanding of the financial statements.
AU-C
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16. 4. Modified Opinions Disclaimer of opinion
If management of an entity that is not required by law or regulation to have an audit impose a limitation on the scope of the auditor’s work, such that the auditor believes the limitation will result in the auditor disclaiming an opinion on the financial statements as a whole,
the auditor should not accept such a limited engagement as an audit engagement.
If the entity is required by law or regulation to have an audit and imposes such a scope limitation, and a disclaimer of opinion is acceptable under the applicable law or to the regulator, the auditor is permitted, but not required, to accept the engagement.
AU-C
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17. 6. Other Issues Comparatives
comparative financial statements
Other information in documents containing audited financial statements
Condensed financial statements
Supplementary Information
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18. 6. Other Issues (continued)
Change in auditors
Change in level of service
audit to review or compilation
acceptable reasons (AR 80.56)
misunderstanding regarding nature of service, change in circumstances, or restriction on scope
Updated report
opinion
date
Reissued report
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19. 6. Other Issues (continued)
Reports on IC under AS 5
management’s report
auditor’s report
opinions
Unqualified
Adverse
Disclaimer
(withdraw)
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20. 8. Reporting Summary
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21. Review Questions for Discussion
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12.2
12.3
12.4
12.5
12.6
12.9
12.10
12.12
12.15
12.16
12.17
12.19
12.21
12.22
12.25
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