Chapter 20 Attest and Assurance Services and Related Reports Spring 2006. Common Other Services in Public Accounting Today. Compilations Review for Non-Public Companies Interim Reviews for Public Companies Reports on Internal Controls for Non-Public Companies
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Financial Stmt Audit
Not focused on in book – but important
1.The report shall state whether the financial statements are presented in accordance with generally accepted accounting principles.
2. 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.
3. Informative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report.
4.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.
The auditor’s opinion as to conformity with GAAP should be based on his or her judgment as to whether:
1. The accounting principles selected and applied have general acceptance
2. The accounting principles are appropriate in the circumstances
3. The financial statements, including the related notes, are informative of matters that may affect their use, understanding, and interpretation
4.The information presented in the financial statements is classified and summarized in a reasonable manner
5. 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
Unless the report contains specific language to the contrary, the reader can conclude that accounting principles have been consistently applied. The objectives of this standard are:
1. to give assurance that the comparability of financial statements between accounting periods has not been materially affected by changes in accounting principles and
2. to require appropriate reporting by the auditor when comparability has been materially affected by such changes.
Basic Elements of Auditor’s Standard Report
The auditor may conclude that an unqualified opinion cannot be expressed. In such a case, AU 508.10 indicates that the auditor may express on of the following other types of opinions:
1. A qualified opinion which states that, except for the effects of the matter(s) to which the qualification relates, the financial statements present fairly … in conformity with GAAP.
2. An adverse opinion which states that the financial statements do not present fairly … in conformity with GAAP.
3. A disclaimer of opinion which states that the auditor does not express an opinion on the financial statements.
When a qualified opinion is issued, the auditor should:
1. Disclose in an explanatory paragraph(s), preceding the opinion paragraph, all of the substantive reasons for the opinion.
2. Disclose in the explanatory paragraph(s) the principle effects of the subject matter of the qualification on financial position, results of operations, and cash flows, if practicable. If not practicable, the report should so state.
3. Express a qualified opinion in the opinion paragraph with reference to the explanatory paragraph(s).
The effects on the auditor’s report of issuing an adverse opinion are similar but not identical to the effects of a qualified opinion. In this case:
1. the explanatory paragraph(s) should indicate the substantive reasons for the adverse opinion and the principal effects of the subject matter of the adverse opinion, if practicable, and
2. the opinion paragraph should state that, because of the effects of the matter(s) described in the explanatory paragraph(s), the financial statements do not present fairly.
When a disclaimer of opinion is expressed:
1. The introductory paragraph is modified
2. The scope paragraph is omitted
3. An explanatory paragraph is included after the introductory paragraph explaining the reasons for the disclaimer of opinion
4. The third and concluding paragraph contains a denial of an opinion