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

2. LO# 1
Reporting on the Financial Statement Audit: The Standard Unqualified Report
Eight Elements
Report title
Addressee
Introductory paragraph
Scope paragraph
Opinion paragraph
Explanatory paragraph referring to the audit of ICFR
Name of auditor
Audit report date
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.
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3. Standard Unqualified Audit Report (PCAOB)
LO# 1
Standard Unqualified Audit Report (PCAOB)
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4. LO# 1
Reporting on the Financial Statement Audit: The Standard Unmodified Report
Nine Elements
Report title
Addressee
Introductory paragraph
Management’s responsibility
Auditor’s responsibility
Scope paragraph
Opinion paragraph
Name of Auditor
Audit report date
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.
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5. Standard Unmodified Audit Report (ASB)
LO# 1
Standard Unmodified Audit Report (ASB)
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6. LO# 2
Adjustments to the Standard Unqualified/Unmodified Financial Statement Audit Report
Explanatory Paragraph: Reference to report on audit of ICFR
Explanatory Paragraph:
Going concern
Modified Wording: Opinion based in part on the report of another auditor
Explanatory Paragraph: Lack of consistency
Explanatory Paragraph: Additional emphasis
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7. Reference to Other Auditors
LO# 2
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8. LO# 2
Going Concern
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9. Lack of Consistency Changes Affecting Consistency
LO# 2
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
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10. This information should be presented in an explanatory paragraph.
LO# 2
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.
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11. Conditions for Departure from Unqualified/Unmodified Report
LO# 3
Scope
Limitation
Departure
from GAAP
Lack of Auditor
Independence
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12. LO# 4
Departures from an Unqualified/Unmodified Financial Statement Audit Report
Qualified
“except for”
Disclaimer
Adverse
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13. LO# 5
Effect of Materiality
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14. Not in Conformity with GAAP Auditor Not Independent
LO# 5
Discussion of Conditions Requiring Other Types of Financial Statement Audit Reports
Results from an inability to obtain sufficient competent evidence about some component of the financial statements.
Scope Limitation
Results when financial statements are materially affected by an unacceptable departure from GAAP.
Not in Conformity with GAAP
Results when auditor has some form of prohibited relationship with the client (see Ch. 19).
Auditor Not Independent
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15. LO# 5
Discussion of Conditions Requiring Other Types of Financial Statement Audit Reports
Issue a qualified opinion or a disclaimer.
Scope Limitation
Issue a qualified opinion or adverse opinion.
Not in Conformity with GAAP
Issue a disclaimer.
Auditor Not Independent
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16. Scope Limitation: Disclaimer
LO# 5
Scope Limitation: Disclaimer
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17. Scope Limitation: Qualified
LO# 5
Scope Limitation: Qualified
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18. LO# 5
Not GAAP: Qualified
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19. LO# 5
Not GAAP: Adverse
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20. Special Reporting Issues
LO# 6
Special Reporting Issues
Different reports on comparative financial statements
Change in report on prior-period financial statements
Report by a predecessor auditor
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21. Different Reports on Comparative Financial Statements
LO# 6
Different Reports on Comparative Financial Statements
Prior Years
Issued Qualified Opinion or Disclaimer.
Current Year
Issues Unqualified Opinion.
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22. Restated Prior-Period
LO# 6
Restated Prior-Period
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23. Report by a Predecessor Auditor
LO# 6
Report by a Predecessor Auditor
The predecessor auditor should do the followingbeforereissuing a report on prior-year financial statements published for comparative purposes:
Read the financial statements of the current period.
Compare the prior-period financial statements reported on with the current-year financial statements.
Obtain a letter of representation from the current-year or successor auditor.
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24. Other Information in Documents Containing Audited Financial Statements
LO# 7
Other Information in Documents Containing Audited Financial 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.
Annual Reports
Registration Statements
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25. Specified elements, accounts, or items of a financial statement
LO# 7
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
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26. Financial Statements Prepared According to a Special Purpose Framework
LO# 8
Financial Statements Prepared According to a Special Purpose Framework
Regulatory Basis
Tax Basis
Cash (or Modified Cash) Basis
Contractual Basis
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27. Specific Elements, Accounts, or Items of a Financial Statement
LO# 9
Specific Elements, Accounts, or Items of a Financial Statement
In some situations an auditor may be engaged to audit only part (or specified elements, accounts, or items) of the financial statements.
Rather than auditing specified elements, accounts, or items, an auditor may be engaged to apply only agreed-upon procedures.
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28. Compliance Reports Related to Audited Financial Statements
LO# 10
Compliance Reports Related to Audited Financial Statements
The auditor provides negative assurance as to compliance with the provisions of contractual agreements or regulatory requirements.
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29. Big Changes Coming to Audit Reporting
LO# 10
Big Changes Coming to Audit Reporting
IAASB has adopted new standards that will increase the amount of subjective information conveyed by the auditor to financial statement users. The new standards are effective for periods ending after December 15, 2016.
PCAOB and ASB standards have not been finalized, however, it appears that the substance of the US audit reporting standards under development likely will be very similar to those adopted by the IAASB.
Big Changes Coming to Audit Reporting-
IAASB has adopted new standards that will increase the amount of subjective information conveyed by the auditor to financial statement users. The new standards are effective for periods ending after December 15, 2016.
PCAOB and ASB standards have not been finalized, however, it appears that the substance of the US audit reporting standards under development likely will be very similar to those adopted by the IAASB.
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30. Big Changes Coming to Audit Reporting
LO# 10
Big Changes Coming to Audit Reporting
New IAASB requirements for “listed” (public) entities:
A new section in the report to communicate key audit matters
Disclosure of the name of the engagement partner in the audit report (highly controversial in the US)
New IAASB requirements for all entities:
Auditor reporting on going concern will be enhanced.
The audit report will include a statement that the auditor is independent and has fulfilled all relevant ethical responsibilities.
The audit report will include an enhanced description of the responsibilities of the auditor and the key features of an audit.
Big Changes Coming to Audit Reporting-
New IAASB requirements for “listed” (public) entities:
A new section in the report to communicate key audit matters
Disclosure of the name of the engagement partner in the audit report (highly controversial in the US)
New IAASB requirements for all entities:
Auditor reporting on going concern will be enhanced.
The audit report will include a statement that the auditor is independent and has fulfilled all relevant ethical responsibilities.
The audit report will include an enhanced description of the responsibilities of the auditor and the key features of an audit.
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