Term
| auditor's opinion (1st paragraph) |
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Definition
Unqualified: Introduction
Qualified: Scope
Adverse: Opinion
Disclaimer: [Extra Paragraph] |
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Term
| auditor's opinion (2nd paragraph) |
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Definition
Unqualified: Introduction
Qualified: Scope
Adverse: Scope Limitation/GAAP Departure
Disclaimer: Opinion |
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Term
| auditor's opinion (3rd paragraph) |
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Definition
Unqualified: Introduction
Qualified: Scope
Adverse: GAAP Departure
Disclaimer: Opinion |
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Term
| auditor's opinion (4th paragraph) |
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Definition
Unqualified: Introduction/No Opinion
Qualified: Reason for No Scope
Adverse: Disclaimer
Disclaimer: --- |
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Term
| first standard of reporting |
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Definition
| The auditor must state in the auditor's report whether the F/S are presented in accordance w/GAAP. |
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Term
| Generally Accepted Accounting Principles (GAAP) |
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Definition
| GAAP encompass the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. They include not only broad guidelines of general application, but also detailed practices and procedures. Thus, GAAP provide standards by which to measure financial presentations. |
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Term
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Definition
Apply GAAP that are appropriate in the circumstances.
Include adequate disclosure.
Classify and summarize information so that it is neither too detailed nor too condensed.
Reflect underlying events and transactions w/in an acceptable range. |
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Term
| FASB Accounting Standards Codification |
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Definition
| source of authoritative guidance issued by the FASB. It applies to public and nonpublic nongovernmental entities. |
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Term
| If authoritative guidance does not apply to a transaction or event... |
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Definition
| the entity considers GAAP for similar transactions or events. |
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Term
| The entity then considers nonauthoritative guidance... |
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Definition
1. Widely recognized and prevalent practices.
2. Concepts Statements,
3. IFRS,
4. pronouncements of regulators. |
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Term
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Definition
| prohibits expression of an opinion that F/S are in conformity w/GAAP if they contain a material departure from a principle issued by the body designated by the AICPA Council to establish such principles. |
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Term
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Definition
However, an exception is permitted when the auditor can demonstrate that, b/c of unusual circumstances, the statements would have been misleading.
If this occurs, and no other basis for modifying the opinion exists, an unqualified opinion can be given, w/emphasis of matter paragraph.
The client should then disclose this departure and effects in an F/S note. |
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Term
| second standard of reporting |
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Definition
| The auditor must identify in the auditor's report those circumstances in which GAAP (or framework) principles have not been consistently observed in the current period in relation to the preceding period. |
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Term
| second standard of reporting elements |
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Definition
1. The user has the right to expect that that changes in the account balances have resulted from transactions, not changes in principle.
2. Management has the responsibility to disclose the effects of changes.
3. The auditor's report should include an additional paragraph whenever a material change in principle has occurred. |
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Term
| third standard of reporting |
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Definition
| When the auditor determines that informative disclosures are not reasonably adequate, the auditor must so state in the auditor's report. |
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Term
| third standard of reporting elements |
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Definition
Presenting statements in conformity w/GAAP includes adequate disclosure of material matters related to the form, arrangement, and content of the statements and notes.
If management omits information required by GAAP, the auditor should provide the necessary disclosures in the report, if practicable, and express a qualified or adverse opinion. |
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Term
| fourth standard of reporting |
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Definition
| The auditor must either express an opinion regarding the F/S, taken as a whole, or state that an opinion cannot be expressed, in the auditor's report. When the auditor cannot express an overall opinion, the auditor should state the reasons therefor in the auditor's report. In all cases where an auditor's name is associated w/F/S, the auditor should clearly indicate the character of the auditor's work, if any, and the degree of responsibility the auditor is taking, in the auditor's report. |
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Term
| objective of fourth standard |
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Definition
| to prevent misinterpretation of the degree of responsibility the auditor is assuming when his/her name is associated w/F/S. |
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Term
| If the accountant is aware that his/her name is to be include in a client-prepared written communication of an issuer containing financial statements that have not been audited or reviewed, s/he should request that either... |
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Definition
1. His/her name not be included in the communication, or
2. The F/S be marked as unaudited and that a notation be included to the effect that s/he does not express an opinion on (AU 504). |
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Term
| The statement in the introductory paragraph of the standard report about management's responsibility should not be elaborated upon in the standard report or referenced to management's report. Why? |
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Definition
| Such a modification might lead users to erroneous belief that the auditor is giving assurances about management's representations concerning matters discussed in the management's report. |
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Term
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Definition
| As referred to in the fourth standard of reporting, applies equally to a complete set of F/S, to an individual F/S, and to F/S for different periods presented comparatively. |
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Term
| How is the audit report is issued when? And how? |
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Definition
| In connection w/entity's basic F/S. Each F/S audited should be specifically identified in the introductory paragraph. |
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Term
| If the basic F/S include a separate statement of changes in equity... |
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Definition
| the separate statement should be identified in the introductory paragraph of the report but need not be reported on separately in the opinion paragraph. Such changes are part of the presentation of financial position, results of operations, and cash flows. |
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Term
| paragraphs in the standard report |
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Definition
Introductory/opening.
Scope.
Opinion. |
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Term
| introductory/opening paragraph |
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Definition
| Identifies the F/S and periods under audit and describes the responsibilities of management and auditor. |
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Term
| three sentences of introductory paragraph |
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Definition
1. We have audited...
2. Statements...responsibility...management.
3. Our responsibility...opinion. |
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Term
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Definition
| The scope paragraph describes the nature of the audit. |
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Term
| five sentences of scope paragraph |
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Definition
1. Conducted...GAAS.
2. Standards...reasonable assurance.
3. Audit...examining on a test basis.
4. Audit...assessing principles and significant estimates by management.
5. We believe...reasonable basis. |
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Term
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Definition
PCAOB's AS No. 1- for issuers, "the standards of the PCAOB (U.S.)" rather than to GAAS.
Nonissuer clients may vountarily follow PCAOB standards, in which case the auditor says that both PCAOB and GAAS standards were followed.
The report may also state than an integrated audit is not required under GAAS.
Or you can say an audit was conducted in accordance with U.S. GAAS and other auditing standards. |
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Term
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Definition
| presents the auditor's conclusion. |
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Term
| one sentences of opinion paragraph |
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Definition
In our opinion, the financial statements...present fairly...GAAP.
An auditor also may report on general purpose F/S presented in conformity w/IFRS issued by the IASB. |
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Term
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Definition
Unqualified
Explanatory Language Added to Auditor's Standard Report
Qualified
Adverse
Disclaimer |
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Term
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Definition
| states that the F/S present fairly, in all material respects, the financial position, results of operations, and cash flows of the entity in conformity w/GAAP. |
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Term
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Definition
| certain circumstances, although not affecting the auditor's unqualified opinion, may required that the auditor add an explanatory paragraph to the report. |
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Term
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Definition
| states that, except for effects of the matters to which the qualification relates, the F/S present fairly, in all material respects, the financial position, results of operations, and cash flows of the entity in conformity w/GAAP. |
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Term
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Definition
| states that the F/S do not present fairly the financial position, results of operations, and cash flows of the entity in conformity w/GAAP. |
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Term
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Definition
| states that the auditor does not express an opinion on the F/S. |
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Term
| If only single-year F/S are presented, how is the report adjusted? |
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Definition
| To refer only to those statements. |
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Term
| Where does the explanatory paragraph go? |
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Definition
| It either precedes or follows the opinion paragraph in the auditor's report. |
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Term
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Definition
| ISAs expand in the audit report the descriptions of the responsibilities of management and the auditor. Additionally, the report should name the country or jurisdiction where the auditor practices. The jurisdiction may specify the language or report layout that the auditor uses, but the report should indicate that ISA standards were followed only if the jurisdictional standards were congruent with the ISAs. |
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Term
| To whom should the auditor's report should be addressed? |
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Definition
| the entity whose statements are being audited or to its board of directs or shareholders. If the client is an unincorporated entity, the report should be addressed as circumstances dictate. |
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Term
| If the auditor is retained to audit the F/S of an entity that is not the client... |
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Definition
| the report customarily is addressed to the client and not to the BOD or shareholders of the entity whose F/S are being audited (AU 508). |
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Term
| ISA difference in addressing and dating the report |
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Definition
| the circumstances of the engagement determine how the report is addressed. |
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Term
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Definition
The audit report is no earlier than the date on which the auditor has obtained sufficient appropriate evidence to support the opinion.
This date is important because the user has a right to expect that the auditor has performed certain performed certain procedures to detect subsequent events that would materially affect the F/S through the date of the report. |
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Term
| Is the auditor responsible for making inquiries or carrying out any audit procedures after the date of the report? |
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Definition
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Term
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Definition
| Using the original date of the report except for the matters affected by the subsequent event. |
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Term
| When is dual dating used? |
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Definition
| When a subsequent event disclosed in the F/S occurs after the date of the report but before the issuance of the related F/S. |
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Term
| If dual dating is used, is the auditor then responsible for events after the original date of the report? |
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Definition
The auditor's responsibility for events after the original date of the report would be limited to the specific event.
If the auditor is willing to accept responsibility to the later date and accordingly extends subsequent events procedures to that date, the auditor may choose the later date as the date for the entire report. |
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Term
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Definition
| Use of the original date in a reissued report removes any implication that records, transactions, or events after such date have been audited or reviewed. The auditor will thus have no responsibility to carry out procedures relating to the period between original issuance and reissuance. |
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Term
| ISA difference for dating the report |
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Definition
| The statements may be amended for facts discovered after the report date but prior to the issuance of the statements. The auditor should issue a new report dated no earlier than the approval of the amended statements, with procedures extended to that date. |
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Term
| reasons for qualifying the opinion |
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Definition
| A qualified opinion may be based on a lack of sufficient appropriate evidence, restrictions on the audit's scope, or a material departure from GAAP. |
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Term
| F/S may be fairly presented except for... |
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Definition
the effects of a certain matter.
If the opinion is qualified b/c of such effects, all substantive reasons should be disclosed in one or more separate explanatory paragraphs preceding the opinion paragraph. |
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Term
| elements of qualified opinion |
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Definition
1. Opinion paragraph should contain qualifying language and refer to the explanatory paragraph.
2. Should include "except for" or "with the exception of."
3. "Subject to," "with the foregoing explanation," and similar phrases lack clarity and forcefulness and shall not be used.
4. Notes are part of the statements, and language such as "fairly presented when read in conjunction with Note 1" should not be used b/c of the likelihood of misunderstanding. |
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Term
| What is required for an unqualified opinion? |
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Definition
| An unqualified opinion requires the application of all procedures the auditor considers necessary in the circumstances. |
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Term
| scope limitations (leading to a qualified or disclaimer of opinion) may be imposed by... |
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Definition
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Term
| imposed audit restrictions that cause scope limitations |
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Definition
1. Timing of work.
2. Inability to obtain sufficient appropriate evidence, or
3. Inadequacy of accounting records. |
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Term
| How do you determine whether to qualify or disclaim the opinion? |
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Definition
| This depends on the assessment of the importance of the omitted procedures. Also, when significant restrictions are imposed by the client, the auditor should usually disclaim an opinion. |
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Term
| examples of scope limitations |
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Definition
inability to observe inventory
confirm A/R
obtain audited statements of an investee |
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Term
| How is a qualified opinion resulting from a scope limitation or insufficient evidence described in the audit report? In the F/S? |
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Definition
Audit report: situation described in explanatory paragraph preceding the opinion paragraph and referred to in the scope and opinion paragraphs.
Not explained in the F/S notes. |
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Term
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Definition
| The wording opinion paragraph should indicate that the qualification pertains to the possible effects on the F/S and not to the scope limitation itself. |
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Term
| Is there a change in the audit report when the opinion is qualified b/c of a scope limitation pertaining to an investment i a foreign affiliate? |
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Definition
Yes.
Intro unchanged.
Scope unchanged, except it begins with a special emphasis-of-matter paragraph. |
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Term
| scope limitations: unaudited information |
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Definition
| If F/S notes contain unaudited info that should be audited, do appropriate audit procedures or qualify or disclaim an opinion because of a scope limitation. |
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Term
| W/regards to a material subsequent event requiring disclosure... |
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Definition
| dual date the report or date the report as of the date of the subsequent event and extend subsequent events procedures to that date. |
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Term
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Definition
| Unless required by statute, an auditor does not accept an engagement if its terms indicate a limitation of its scope that may necessitate a disclaimer. |
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Term
| limited reporting engagements |
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Definition
| The auditor reports on one basic F/S and not the others. You can then only express an opinion on that F/S and reference the one you are auditing in the audit report. |
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Term
| judging materiality of departure from GAAP |
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Definition
Involves qualitative and quantitative judgments, including:
1. Significance of item to an entity.
2. Pervasiveness.
3. Effect on the statements as a whole. |
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Term
| purpose of explanatory paragraphs |
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Definition
| Express substantive reasons for qualifying the opinion and disclose the principal effects of the subject matter of the qualification, if practicable. |
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Term
| If principal effects of subject matter are not reasonably determinable... |
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Definition
| the audit report should so state. |
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Term
| Can the explanatory paragraph be shortened? |
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Definition
| Yes, by referring to relevant disclosures made in an F/S note. |
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Term
| In a report in which the opinion b/c of a GAAP departure... |
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Definition
1. Intro and scope paragraphs are unchanged.
2. State the amounts by which the accounts are materially misstated.
3. Except for paragraph.
4. (Optional) disclosure in F/S notes. |
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Term
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Definition
| If the F/S, including the notes, omit disclosures required by GAAP, a qualified or adverse opinion should be provided by the auditor in the report, unless the omission is permitted by specific auditing standard. |
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Term
| In a report qualified for inadequate disclosure... |
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Definition
| The intro and scope paragraphs are unchanged, with an explanatory paragraph added. |
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Term
| If the statements of financial position and result of operations are issued w/out an SCF... |
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Definition
| the omission normally requires a qualified opinion. |
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Term
| Should the auditor prepare and include in the report a basic F/S omitted by management? |
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Definition
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Term
| If an entity departs from GAAP by accounting for a change prospectively rather than by retrospective application... |
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Definition
| the subsequent year's statements could improperly include a material debit or credit that requires a qualified (or adverse) opinion. |
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Term
| If reasonable justification for a change to an otherwise acceptable principle has not been provided... |
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Definition
| the auditor should continue to express the exception regarding the year of change as long as the statements are presented and reported on. |
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Term
| Should the opinion on the subsequent years's statements express an exception to adoption of the principle? |
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Definition
| No. Hence, if such a change is made in Year 1, then it is a basis for qualified opinion in Yr. 1, but not Yrs. 2, 3, or afterwards. |
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Term
| In a report qualified for omission of the statement of cash flows... |
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Definition
The intro and scope paragraphs are unchanged except the first does not mention the SCF.
Then, the next paragraph is an except for opinion paragraph. |
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Term
| a qualified opinion (or adverse opinion if the effect of the change is sufficiently material) should be expressed if one of the following applies... |
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Definition
a. A newly adopted accounting principle is not generally accepted.
b. Method of accounting for effect of change is not in conformity w/GAAP.
c. Management's justification for the change is unreasonable. |
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Term
| In a report qualified for an inappropriate accounting change... |
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Definition
The intro and scope paragraphs are unchanged.
Then, the next paragraph is an except for opinion paragraph. A separate consistence paragraph following the opinion paragraph is not necessary here because the explanatory paragraph documents this as an unacceptable change. |
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Term
| effect of inappropriate accounting change |
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Definition
| In effect, this is both a change in accounting principle and a departure from GAAP results. |
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Term
| When is a consistency paragraph needed? |
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Definition
| It is normally required for acceptable changes. |
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Term
| Can the continued use of an unacceptable accounting change in principle have a material effect in a subsequent year? |
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Definition
| Yes, and the auditor's reservations about prior years' statements should be disclosed in the audit report. |
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Term
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Definition
| expressed when, in the judgment of the auditor, the F/S taken as a whole are not presented in conformity w/GAAP. |
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Term
| how to report an adverse opinion |
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Definition
| The auditor should include in a separate explanatory/emphasis-of-matter paragraph all substantial reasons for the adverse opinion and the principal effects of its subject matter. If the effects are not reasonably determinable, a statement to that effect should be included. |
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Term
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Definition
intro and scope paragraphs unchanged.
Explanatory paragraph added, highlighting the amount by which all materially misstated accounts are off.
Opinion paragraph at end. |
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Term
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Definition
auditor's standard report
addressing and dating the report
qualified opinions
disclaimers of opinion |
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Term
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Definition
| addressing and dating the report |
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Term
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Definition
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Term
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Definition
| disclaimer states that the auditor does not express an opinion on the F/S |
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Term
| When is a disclaimer appropriate? |
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Definition
| When the auditor has not performed an audit sufficient in scope to enable him/her to form an opinion. |
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Term
| When is a disclaimer not appropriate? |
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Definition
| When the auditor believes material departures from GAAP exist. |
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Term
| Should a scope paragraph be included in a disclaimer? |
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Definition
| No, but a separate paragraph. |
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Term
| separate paragraph of a disclaimer |
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Definition
1. Provides reasons that the audit did not comply w/GAAS.
2. States that the scope was not sufficient to warrant the expression of an opinion.
3. Does not identify the procedures performed.
4. Discloses any other reservations the auditor has regarding fair presentation in accordance w/GAAP. |
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Term
| title of standard audit report for comparative F/S |
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Definition
| Independent Auditor's Report |
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Term
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Definition
| expression of an opinion as to certain identified items. |
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Term
| When is a piecemeal opinion not appropriate? |
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Definition
| When the auditor has disclaimed or expressed an adverse opinion on the statements taken as a whole. |
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Term
| disclaimer and accountant associated with aduit |
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Definition
a. A disclaimer should be attached to F/S of an issuer when an accountant is associated w/those statements and has not audited or reviewed them.
b. Each page of F/S should be marked as unaudited.
c. Accountant has no responsibility to apply procedures beyond reading for obvious material misstatements. Procedures performed should not be described.
d. Reservations concerning F/S fair presentation in accordance w/GAAP should be disclosed.
e. The report has not title or salutation, just state the F/S were not audited, signature, date. |
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Term
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Definition
means that the accountant has consented to the use of his/her name in a report, document, or written communication containing the F/S. It may also mean the accountant has submitted F/S that s/he prepared or assisted in preparing.
Association can occur through the performance of consulting services. |
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Term
| accountant is not independent of issuer |
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Definition
a. An accountant must not express an opinion if not independent.
b. Reasons for lack of opinion should not be described.
c. Each page of F/S should be marked as unaudited.
d. Procedures performed should not be described.
e. Reservations concerning F/S fair presentation in accordance w/GAAP should be disclosed.
f. The report has not title or salutation, just state the F/S were not audited, signature, date. |
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