1. MODERN AUDITING 7th Edition
William C. Boynton
California Polytechnic State University at San Luis Obispo
Raymond N. Johnson
Portland State University
Walter G. Kell
University of Michigan
Developed by:
Dr. Raymond N. Johnson, CPA
Gregory K. Lowry, MBA, CPA
John Wiley & Sons, Inc.

2. Chapter 20: Reporting on Audited Financial Statements
Standards of Reporting
The Standard Auditor’s Report
Departures from the Standard Auditor’s Report
Other Reporting Considerations

3. 1st Reporting Standard
The report shall state whether the financial statements are presented in accordance with generally accepted accounting principles.

4. 1st Reporting Standard
The auditor’s opinion as to conformity with GAAP should be based on his or her judgment as to whether:
The accounting principles selected and applied have general acceptance
The accounting principles are appropriate in the circumstances
The financial statements, including the related notes, are informative of matters that may affect their use, understanding, and interpretation
The information presented in the financial statements is classified and summarized in a reasonable manner
The statements reflect the underlying events and transactions in a manner that presents the financial position, results of operations, and cash flows within reasonable and practicable limits

5. 2nd Reporting Standard
The report shall identify those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.
Objectives
Assurance about comparability
Reporting when comparability has been affected by material changes in accounting principles

6. 3rd Reporting Standard
Informative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report.
Objectives
Assurance about disclosure
Reporting when disclosure is inadequate

7. 4th Reporting Standard The report shall either contain:
An expression of opinion regarding the financial statements, taken as a whole, or
An assertion to the effect that an opinion cannot be expressed. When an overall opinion cannot be expressed, the reasons therefore should be stated.
In all cases where an auditor’s name is associated with financial statements, the report should contain a clear-cut indication of the character of the auditor’s work, if any, and the degree of responsibility the auditor is taking.

8. The Standard Auditor’s Report
Title: Independent Auditor’s Report
Introductory Paragraph
Scope Paragraphs
Opinion Paragraph
Signature
Date

9. Non-Standard Auditor’s Reports
Unqualified Opinion with Additional Explanatory Language
Departures from GAAP
Qualified Opinion
Adverse Opinion
Scope Limitations
Disclaimer of Opinion

10. Unqualified Opinion with Additional Explanatory Language
Inconsistent application of GAAP
Change to an acceptable method that is adequately disclosed
Going concern
Substantial doubt
Emphasis of a matter
Auditor choice

11. Unqualified Opinion with Additional Explanatory Language
Report Format
Standard Introductory Paragraph
Standard Scope Paragraph
Standard Opinion Paragraph
Explanatory Paragraph

12. Unqualified Opinion with Additional Explanatory Language
Shared Scope
The decision not to refer
Auditor is well known to the principle auditor
Work has been performed under the principle auditor’s guidance and review
Principle auditor reviews programs and working papers
The decision to refer
Does not meet criteria above
Inquiries made about professional reputation
Representation from other auditor about independence
Auditor outside the U.S. is knowledgeable about US GAAP and US GAAS

13. Unqualified Opinion with Additional Explanatory Language
Shared Scope Report Format
Modify Introductory Paragraph to describe sharing of scope
Modify Scope Paragraph to Indicate that opinion was based on your audit, and the audit of other auditors.
Modify Opinion Paragraph to indicate you opinion was based on your audit and the report of other auditors

14. Unqualified Opinion with Additional Explanatory Language
Nonconformity with GAAP Necessary for Fair Presentation
Standard Introductory Paragraph
Standard Scope Paragraph
Explanatory Paragraph
States circumstances
Explains that the use of an alternative principle is justified
Standard Opinion Paragraph

15. Departure from GAAP Qualified Opinion or Adverse Opinion
Difference between Qualified and Adverse
The dollar magnitude of the effects
The significance of the item to the client
The pervasiveness to the misstatement (number of statements items affected)
The effect of the misstatement on the financial statements taken as a whole

16. Qualified Opinion Report Format Standard introductory paragraph
Standard scope paragraph
Explanatory paragraph that describes the nature and magnitude of the departure from GAAP.
Qualify opinion on the financial statements and refer to the preceding paragraph.

17. Adverse Opinion Report Format Standard introductory paragraph
Standard scope paragraph
Explanatory paragraph that describes the nature and magnitude of the departure from GAAP.
Issue an adverse opinion that financial statements do not present fairly and refer to the preceding paragraph.

18. Scope Limitations Qualified Opinion or Disclaimer of Opinion
Material
Circumstance Imposed
Hired after the beginning of the year
Inadequate records
Disclaimer of Opinion
Material Client Imposed
Very Material Circumstance Imposed

19. Qualified Opinion - Scope
Report Format
Standard introductory paragraph
Refer to a following paragraph that describes the scope limitation and then continue with the standard scope paragraph
Explanatory paragraph that describes the nature and magnitude of the scope limitation.
Express a qualified opinion in the opinion paragraph with reference to the explanatory paragraph.

20. Disclaimer of Opinion Report Format
Omit the last sentence of the introductory paragraph
Omit the scope paragraph
Explanatory paragraph that describes the nature and magnitude of the scope limitation.
Disclaim opinion on the financial statements.

21. Other Reporting Considerations
Reporting when the CPA is not independent
Circumstances concerning comparative financial statements
Information accompanying audited financial statements
Financial statements prepared for use in other countries.

22. Auditor is Not Independent
One paragraph report stating:
That the auditor is not independent,
The financial statements were not audited, and
The firm does not express an opinion on the financial statements.

23. Comparative Financial Statements
Different Opinions (AU )
Updating an opinion (AU )
Change in auditors (AU )

24. Information Accompanying Audited Financial Statements
Supplementary information is an essential part of an entity’s financial reporting. (AU 550 / 558)
Limited procedures
Inquiry
Comparison of the information for consistency with other available data
Standard report, except:
Required supplementary information is omitted
Material departure from prescribed guidelines
Auditor unable to complete prescribed procedures
Auditor is unable to remove substantial doubts about whether the information conforms to prescribed guidelines

25. Financial Statements Prepared for Use in Other Countries (AU 534)
If for use in Other Country ONLY
U.S. Style Report
Report of the Other Country
If for use in the U.S.
Qualified or Adverse Opinion, depending upon the departure from U.S. GAAP