Presentation on theme: "MODERN AUDITING 7th Edition"— Presentation transcript:
1 MODERN AUDITING 7th Edition William C. BoyntonCalifornia Polytechnic State University at San Luis ObispoRaymond N. JohnsonPortland State UniversityWalter G. KellUniversity of MichiganDeveloped by:Dr. Raymond N. Johnson, CPAGregory K. Lowry, MBA, CPAJohn Wiley & Sons, Inc.
2 Chapter 20: Reporting on Audited Financial Statements Standards of ReportingThe Standard Auditor’s ReportDepartures from the Standard Auditor’s ReportOther Reporting Considerations
3 1st Reporting StandardThe report shall state whether the financial statements are presented in accordance with generally accepted accounting principles.
4 1st Reporting StandardThe 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 acceptanceThe accounting principles are appropriate in the circumstancesThe financial statements, including the related notes, are informative of matters that may affect their use, understanding, and interpretationThe information presented in the financial statements is classified and summarized in a reasonable mannerThe 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 StandardThe report shall identify those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.ObjectivesAssurance about comparabilityReporting when comparability has been affected by material changes in accounting principles
6 3rd Reporting StandardInformative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report.ObjectivesAssurance about disclosureReporting 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, orAn 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 ReportIntroductory ParagraphScope ParagraphsOpinion ParagraphSignatureDate
9 Non-Standard Auditor’s Reports Unqualified Opinion with Additional Explanatory LanguageDepartures from GAAPQualified OpinionAdverse OpinionScope LimitationsDisclaimer of Opinion
10 Unqualified Opinion with Additional Explanatory Language Inconsistent application of GAAPChange to an acceptable method that is adequately disclosedGoing concernSubstantial doubtEmphasis of a matterAuditor choice
11 Unqualified Opinion with Additional Explanatory Language Report FormatStandard Introductory ParagraphStandard Scope ParagraphStandard Opinion ParagraphExplanatory Paragraph
12 Unqualified Opinion with Additional Explanatory Language Shared ScopeThe decision not to referAuditor is well known to the principle auditorWork has been performed under the principle auditor’s guidance and reviewPrinciple auditor reviews programs and working papersThe decision to referDoes not meet criteria aboveInquiries made about professional reputationRepresentation from other auditor about independenceAuditor outside the U.S. is knowledgeable about US GAAP and US GAAS
13 Unqualified Opinion with Additional Explanatory Language Shared Scope Report FormatModify Introductory Paragraph to describe sharing of scopeModify 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 PresentationStandard Introductory ParagraphStandard Scope ParagraphExplanatory ParagraphStates circumstancesExplains that the use of an alternative principle is justifiedStandard Opinion Paragraph
15 Departure from GAAP Qualified Opinion or Adverse Opinion Difference between Qualified and AdverseThe dollar magnitude of the effectsThe significance of the item to the clientThe 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 paragraphExplanatory 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 paragraphExplanatory 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 MaterialCircumstance ImposedHired after the beginning of the yearInadequate recordsDisclaimer of OpinionMaterial Client ImposedVery Material Circumstance Imposed
19 Qualified Opinion - Scope Report FormatStandard introductory paragraphRefer to a following paragraph that describes the scope limitation and then continue with the standard scope paragraphExplanatory 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 paragraphOmit the scope paragraphExplanatory 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 independentCircumstances concerning comparative financial statementsInformation accompanying audited financial statementsFinancial 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, andThe 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 proceduresInquiryComparison of the information for consistency with other available dataStandard report, except:Required supplementary information is omittedMaterial departure from prescribed guidelinesAuditor unable to complete prescribed proceduresAuditor 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 ONLYU.S. Style ReportReport of the Other CountryIf for use in the U.S.Qualified or Adverse Opinion, depending upon the departure from U.S. GAAP