Chapter 12
Reports on Audited Financial Statements
The television industry doesnt like to see the complexity of the world. It prefers simple reporting, with simple ideas: this is white, thats black; this is good, thats bad. Filmmaker Krisztof Kieslowski
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Prepared by Management
Opinion on internal control over financial reporting: Is I/C effective?
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3. Qualified opinion
4. Adverse opinion
Except for some matter, F/S are in conformity with GAAP F/S are not in conformity with GAAP No opinion is issued by auditors
5. Disclaimer of opinion
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Scope
Audit conducted in accordance with PCAOB standards Description of an audit (specific references to test basis, materiality, and significant estimates) Audit provides reasonable assurance
Opinion
Are F/S presented in conformity with applicable financial reporting framework (GAAP)?
Internal Control
References examination, report, and opinion on internal control
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Report Address
Introductory Paragraph
Scope Paragraph
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Scope Limitations
Issue either qualified opinion or disclaimer, depending upon materiality and pervasiveness Type of scope limitation Circumstance-imposed: Beyond auditors and clients control Client-imposed: Client specifically limits auditors procedures (more serious, disclaimer issued)
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Scope Limitation: Qualified Opinion Issued when scope limitations are material, but not pervasive Report Modifications: Introductory paragraph remains the same Scope paragraph: Except as discussed in the following paragraph [the scope limitation], we conducted our audit Add paragraph preceding the opinion paragraph describing the scope limitation Modify opinion paragraph (In our opinion, except for)
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Report Modifications:
Introductory paragraph: (We were engaged to audit .; omit auditors responsibility) Omit scope paragraph Add paragraph preceding the opinion paragraph describing the scope limitation Modify opinion paragraph (we do not express an opinion.) May still issue opinion on internal control if no scope limitation on the examination of internal control
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Situations
Consistency Going-concern Rule 203 departures from GAAP Division of responsibility Emphasis of a matter
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Division of Responsibility
Group auditors should
Verify component auditors reputation and independence Communicate and coordinate with component auditors
Options
Take responsibility for work: Standard report Name component auditors
Present report of component auditors, only with their permission
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Comparative F/S
Continuing Auditors
Update opinion by considering if previously-issued opinions still appropriate If previously-issued opinions not appropriate, revise opinion in current report
Predecessor auditors
With permission, auditors may present reissued report from predecessor on prior-years F/S along with their report on current F/S If predecessors report not presented, auditors report must reference predecessors report and opinion on prior-years F/S
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Reporting Summary
Opinion Material Departure from GAAP Scope Limitation Other matters (Consistency, Going-concern, Rule 203, Emphasis of a matter) Other matters (Division of responsibility when referencing work of component auditors) Qualified Qualified Unqualified Pervasive Adverse Disclaimer Unqualified X Paragraphs modified/added Intro Scope Opinion X X Addl X X X
Unqualified
Unqualified
May issue disclaimer if: Lack of independence Associated with financial statements Material and pervasive going-concern uncertainty
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