slide1 n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
CHAPTER 14 Audit Reports PowerPoint Presentation
Download Presentation
CHAPTER 14 Audit Reports

Loading in 2 Seconds...

play fullscreen
1 / 47

CHAPTER 14 Audit Reports - PowerPoint PPT Presentation


  • 177 Views
  • Uploaded on

CHAPTER 14 Audit Reports. Report title: Independent Auditor’s Report. The Standard Unqualified Audit Report. Report title: Independent Auditor’s Report Address: To the Stockholders of Ace Corporation:. report may also be addressed to company or board of directors, not management.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'CHAPTER 14 Audit Reports' - bruno


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
slide1

CHAPTER 14

Audit

Reports

slide3

Report title:

Independent Auditor’s Report

Address:

To the Stockholders of Ace Corporation:

report may

also be addressed

to company or

board of directors,

not management

slide4

Report title:

Independent Auditor’s Report

Address:

To the Stockholders of Ace Company:

Introductory paragraph:

What

statements

were audited?

What time period?

What are client

and auditor

responsibilities?

slide5

Report title:

Independent Auditor’s Report

Address:

To the Stockholders of Ace Company:

Introductory paragraph:

We have audited the accompanying balance sheets of Ace

Company as of December 31, 19x5 and 19x4, and the related

statements of income, retained earnings, and cash flows for

the years then ended. These financial statements are the

responsibility of the Company’s management. Our

responsibility is to express an opinion on these financial

statements based on our audits.

slide6

Scope paragraph:

We conducted our audits in accordance with generally

accepted auditing standards. Those standards require that

we plan and perform the audit to obtain reasonable assurance

about whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis,

evidence supporting the amounts and disclosures in the

financial statements. An audit also includes assessing the

accounting principles used and significant estimates made

by management, as well as evaluating the overall financial

statement presentation. We believe that our audits provide

a reasonable basis for our opinion.

slide7

Opinion paragraph:

In our opinion, the financial statements referred to above

present fairly, in all material respects, the financial position

of Ace Company as of December 31, 19x5 and 19x4 and the

results of its operations and its cash flows for the years

then ended in conformity with generally accepted accounting

principles.

slide8

Opinion paragraph:

In our opinion, the financial statements referred to above

present fairly, in all material respects, the financial position

of Ace Company as of December 31, 19x5 and 19x4 and the

results of its operations and its cash flows for the years

then ended in conformity with generally accepted accounting

principles.

Name of firm:

Taylor & Tower, CPAs

slide9

Opinion paragraph:

In our opinion, the financial statements referred to above

present fairly, in all material respects, the financial position

of Ace Company as of December 31, 19x5 and 19x4 and the

results of its operations and its cash flows for the years

then ended in conformity with generally accepted accounting

principles.

Name of firm:

Taylor & Tower, CPAs

Audit report date:

February 27, 19x6

field work

completion

date

types of audit reports

client

Types of Audit Reports

- unqualified - “statements present fairly”

types of audit reports1

client

- qualified - “except for one or more

exceptions, statements present fairly”

Types of Audit Reports
qualified audit report gaap departure
Qualified Audit Report(GAAP Departure)

same introductory paragraph

same scope paragraph

explanatory third paragraph including $-effect

In our opinion,except for the effects of ..., as discussed in

the preceding paragraph, the financial statements referred to

above present fairly, in all material respects, the financial

position of Ace Company as of December 31, 19x5 and the

results of its operations and its cash flows for the year then

ended in conformity with generally accepted accounting

principles.

types of audit reports2

client

Types of Audit Reports

- adverse - “statements do not present fairly”

adverse audit report
Adverse Audit Report

same introductory paragraph

same scope paragraph

explanatory third paragraph including $-effect

In our opinion,because of the effects of the matters

discussed in the preceding paragraph, the financial

statements referred to abovedo notpresent fairly, in

conformity with generally accepted accounting principles,

the financial position of Ace Company as of December 31,

19x5 or the results of its operations and its cash flows for

the year then ended.

types of audit reports3

client

Types of Audit Reports

- disclaimer - “no opinion”

disclaimer scope restriction
Disclaimer(scope restriction)

Wewere engaged to audit...remainder of the introductory

paragraph is the same

no scope paragraph

explanatory third paragraph including $-effect

Since we were unable to ... and we were unable to satisfy

ourselves as to the ...by means of other auditing procedures,

the scope of our work was not sufficient to express, and we

do not express, an opinion on the financial statements.

unqualified reports with explanatory paragraphs or modified wording

changes in

consistency

changes in

comparability

Unqualified Reports with Explanatory Paragraphs or Modified Wording

Changes in consistency (AU 420 and 508) must be distinguished from changes in comparability.

slide18

changes in

consistency

changes in

comparability

- changes in accounting

principles (ex., FIFO to

LIFO)

- changes in reporting

entities (ex., equity

method to consolidation)

- correction of errors

involving principles -

non-GAAP method to

GAAP

slide19

changes in

consistency

changes in

comparability

- changes in estimate

(ex., asset useful life)

- changes in statement

format or presentation

- purchase or sale of a

subsidiary

- error correction not

involving principles

(ex., math error of prior

year)

- changes in accounting

principles (ex., FIFO to

LIFO)

- changes in reporting

entities (ex., equity

method to consolidation)

- correction of errors

involving principles -

non-GAAP method to

GAAP

slide20

changes in

consistency

changes in

comparability

no

audit

report

effect

additional

fourth

paragraph

consistency modification
Consistency Modification

same introductory paragraph

same scope paragraph

same opinion paragraph

As discussed in note ? to the financial statements, the

company changed its method of...in (current year).

This report is a modification; i.e.,

unqualified but the wording is changed.

in some circumstances a lack of consistency may result in a qualified or adverse opinion
In some circumstances, a lack of consistency may result in a qualified or adverse opinion:

- the client cannot justify the change

- the client changed to a non-GAAP

method

- the client refuses to properly

disclose the lack of consistency

(footnote disclosure)

unqualified reports with explanatory paragraphs or modified wording1
Unqualified Reports with Explanatory Paragraphs or Modified Wording

Substantial doubt about the client’s ability to

remain a going concern (AU 341) will result in

a disclaimer or an additional fourth paragraph

to an unqualified report.

occasionally

referred to as

the

“kiss of death”

opinion

going concern modification
Going Concern Modification

same introductory paragraph

same scope paragraph

same opinion paragraph

The accompanying financial statements have been prepared

assuming that Ace Company will continue as a going

concern. As discussed in note ? to the financial statements,

...(some circumstance)...raises substantial doubt about the

company’s ability to continue as a going concern. Manage-

ment’s plans in regard to these matters are also described in

note ?. The financial statements do not include any adjust-

ments that might result from the outcome of this uncertainty.

This report is a modification; i.e.,

unqualified but the wording is changed.

unqualified reports with explanatory paragraphs or modified wording2
Unqualified Reports with Explanatory Paragraphs or Modified Wording

Departure from a promulgated accounting

principle (AU 508) occurs when the auditor

and client agree that a departure from GAAP

is justified to avoid misleading results.

The report should be unqualified but have

an additional explanatory paragraph either

preceding or following the opinion paragraph.

unqualified reports with explanatory paragraphs or modified wording3
Unqualified Reports with Explanatory Paragraphs or Modified Wording

Emphasis of a matter (AU 508) is appropriate

when the auditor believes that an unqualified

opinion is warranted but attention should be

drawn to a matter.

The report should be unqualified but have

an additional explanatory paragraph either

preceding or following the opinion paragraph.

unqualified reports with explanatory paragraphs or modified wording4
Unqualified Reports with Explanatory Paragraphs or Modified Wording

Opinion based, in part, on the report of

another auditor (AU 543, 508) occurs

when a part of the client is audited by

another auditor.

opinion based in part on the report of another auditor
Opinion based, in part, on thereport of another auditor

The overall report must be signed by the principal auditor. This designation is based on:

- materiality of the portion of the

statements examined

- knowledge of overall statements

- importance of client components

audited

slide29

Opinion based, in part, on the

report of another auditor

The principal auditor must:

- make inquiries into the repu-

tation of the other auditor

- obtain representation from

other auditor regarding

independence

- ascertain that the other

auditor knows GAAS, SEC

standards, and that the

component audited is part

of a larger company.

slide30

Opinion based, in part, on the

report of another auditor

If the results of these inquiries are unsatisfactory, the principal auditor must:

- qualify or disclaim the audit

report

OR

- audit the component

slide31

Opinion based, in part, on the

report of another auditor

If the results of these inquiries are satisfactory, the principal auditor must decide whether to refer to

the other auditor in the report:

- no reference to the other auditor

in the report

- a shared report indicating

divided responsibility

shared modification
Shared Modification

We have audited the accompanying consolidated balance

sheets of Ace Company as of December 31, 19x5, and the

related consolidated statements of income, retained

earnings, and cash flows for the years then ended. These

financial statements are the responsibility of the Company’s

management. Our responsibility is to express an opinion on

these financial statements based on our audits. We did not

audit the financial statements of Trace Company, a

consolidated subsidiary in which the Company had an equity

interest of 57% as of December 31, 19x5, which statements

reflect total assets of $xx,xxx as of December 31, 19x5 and

total revenues of $x,xxx for the year then ended. Those

statements were audited by other auditors whose report has

been furnished to us, and our opinion, insofar as it relates to

amounts included for Trace Company, is based solely on

the report of the other auditors.

shared modification1
Shared Modification

We conducted our audits in accordance with generally

accepted auditing standards. Those standards require that

we plan and perform the audit to obtain reasonable assurance

about whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis,

evidence supporting the amounts and disclosures in the

financial statements. An audit also includes assessing the

accounting principles used and significant estimates made

by management, as well as evaluating the overall financial

statement presentation. We believe that our audits and the

report of other auditors provide a reasonable basis for our

opinion.

shared modification2
Shared Modification

In our opinion, based on our audits and the report of other

auditors, the consolidated financial statements referred to

above present fairly, in all material respects, the financial

position of Ace Company as of December 31, 19x5 and the

results of its operations and its cash flows for the year then

ended in conformity with generally accepted accounting

principles.

This report is a modification; i.e.,

unqualified but the wording is changed.

conditions requiring a departure from the unqualified report1
conditions requiring a departure from the unqualified report

Scope limitation (AU 508) - the auditors were

unable to perform some aspect of the audit

that they considered necessary:

client-imposed - the client will not allow the

auditor to perform an audit procedure

circumstance-imposed - because of some

circumstance other than a client-imposed

restriction, the auditor could not perform an

audit procedure

slide37

client-imposed scope limitation

audit scope

is

significantly

limited

audit scope

is not

significantly

limited

probably

disclaim

pursue alternative

procedures

slide38

circumstance-imposed scope limitation

adequate

alternative

procedures

are

available

adequate

alternative

procedures

are not

available

no audit

report effect

qualify or

disclaim

slide39

income

statement

balance

sheet

Scope limitations may result in different

opinions on individual statements.

EXAMPLE: an auditor cannot adequately

verify beginning inventory of a first-year client

opinions?

slide40

unqualified

income

statement

balance

sheet

Scope limitations may result in different

opinions on individual statements.

EXAMPLE: An auditor cannot adequately

verify beginning inventory of a first-year client

disclaimer

scope restriction disclaimer
Scope Restriction Disclaimer

Wewere engaged to audit...remainder of the introductory

paragraph is the same

no scope paragraph

explanatory third paragraph including $-effect

Since we were unable to ... and we were unable to satisfy

ourselves as to the ...by means of other auditing procedures,

the scope of our work was not sufficient to express, and we

do not express, an opinion on the financial statements.

scope restriction qualification
Scope Restriction Qualification

same introductory paragraph

Except as discussed in the following paragraph, we

conducted the audit ...remainder of the scope paragraph is

the same

explanatory third paragraph including $-effect:

We were unable to...

In our opinion, except for the effects of such adjustments,

if any, as might have been determined to be necessary had

we been able to..., the financial statements referred to above

present fairly, in all material respects, the financial position

of Ace Company as of December 31, 19x5 and the results

of its operations and its cash flows for the year then ended

in conformity with generally accepted accounting principles.

conditions requiring a departure from the unqualified report2
conditions requiring a departure from the unqualified report

Departures from GAAP (AU 508) result in a

qualified or adverse opinion depending on

materiality and pervasiveness.

The correct information should be included

in an additional third paragraph. If this

information is not available, the report

should state that fact.

gaap departure qualification
GAAP Departure Qualification

same introductory paragraph

same scope paragraph

explanatory third paragraph including $-effect

In our opinion,except for the effects of ..., as discussed in

the preceding paragraph, the financial statements referred to

above present fairly, in all material respects, the financial

position of Ace Company as of December 31, 19x5 and the

results of its operations and its cash flows for the year then

ended in conformity with generally accepted accounting

principles.

conditions requiring a departure from the unqualified report3
conditions requiring a departure from the unqualified report

Auditor’s lack of independence (AU 504)

will result in a disclaimer. The report

should not mention the reason for the

lack of independence or any audit

procedures.

lack of independence disclaimer
Lack of Independence Disclaimer

We are not independent with respect to Ace Company,

and the accompanying balance sheet as of December 31,

19x5, and the related statements of income, retained

earnings, and cash flows for the year then ended were not

audited by us. Accordingly, we do not express an opinion

on them.

the audit report should not include any statements that would counterbalance the opinion
The audit report should not include anystatements that would counterbalancethe opinion:

- negative assurance - “nothing came to

our attention that would lead us to

believe...”

- piecemeal opinion - positive comments

on some components of the financial

statements when a disclaimer or

adverse opinion is issued