reports - opinions and disclaimers notes

8/4/2019 Reports - Opinions and Disclaimers Notes

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Reports – Opinions and

Disclaimers

Fall 2011



Unqualified Opinion

Standard Format:

Title

Addressee

Introductory Paragraph

Scope Paragraph

Opinion Paragraph

Signature of the Firm

Report Date



Unqualified Opinion with An

Explanatory Paragraph

Four situations:

1. Opinion based in part on the report of another auditor

2. Going concern

3. Lack of consistency in the financial statements due toaccounting changes

4. Emphasis of a matter

Case 1 – Modify the wording for the introductory, scope, and

opinion paragraphs Case 2, 3, and 4 - Add an explanatory paragraph following

the opinion paragraph without any modification to the

wording of the introductory, scope, or opinion paragraphs.



Consistency

Changes Affecting Consistency

1. Change in accounting principle

2. Change in reporting entity

3. Correction of an error in principleChanges Not Affecting consistency

1. Change in accounting estimates

2. Correction of an error that does not involve an

accounting principle

3. Change in classification and reclassification

4. Change expected to have a material future effect



Departure from an Unqualified OpinionThree cases:

Scope Limitationunable to collect sufficient competent evidence

• such as when management or some set of circumstancesprevents the auditor from conducting an audit procedurethat the auditor considers necessary.

Issue a qualified opinion or disclaimer

Departure from GAAPthe financial statements are prepared or presented in a manner

that conflicts with GAAP

• whether due to error or fraud.

Issue a qualified opinion or adverse opinion

Lack of Independence of the Auditorthe auditor and the client have any business, financial, or

personal relationship prohibited by professional standards.

• The auditor must comply with the second general standardand Rule 101 of the Code of Professional Conduct in order toissue an unqualified opinion.

Issue a disclaimer



Qualified Opinion

Reasons for Qualified Opinion:a scope limitation

a specific departure from GAAP existsoverall the financial statements present fairly in conformity with

GAAP

Auditor’s Report for Qualified Opinion a scope limitation

the report describes why the limitation arose, and indicates thatthe financial statements present fairly except for the possibleeffects of the limitation.

a GAAP departure the report describes the nature and impact of the faulty

accounting, and indicates that the financial statements presentfairly except for the effects of the departure.



Disclaimer

Reasons for disclaimer1. Scope limitation

Unwillingness to sign a management representative letter

When the auditor is unable to determine amounts associatedwith an employee fraud scheme

If an auditor is precluded from applying necessary procedures or,after applying extended procedures, (s)he is unable to determinewhether fraud or illegal acts may materially affect the statements.(s)he should disclaim or qualify an opinion. When the auditorcannot determine the role of management in the events, theauditor ordinarily should disclaim an opinion.

2. Lack of independence by the auditorAuditor’s Report for Disclaimer (AU 504) the introductory and opinion paragraphs are modified and the

scope paragraph is omitted.



Adverse Opinion

Reason for Adverse OpinionGAAP Departure

the financial statements do not present fairly due to a GAAPdeparture that materially affects the financial statements overall

Auditor’s Report for Adverse Opinion Explain the nature and size of the misstatement and states

that opinion that the financial statement do not presentfairly in accordance with GAAP.

When an adverse opinion is expressed, the opinionparagraph should include a direct reference to a separate

paragraph that discloses the basis for the adverse opinion.This paragraph should precede the opinion paragraph andstate (1) all the substantive reasons for the adverse opinionand (2) the principal effects of the subject matter of theadverse opinion, if practicable (AU 508).



Special Reporting Issues

Different reports on comparative financial

statements

Change in report on prior-period financial

statements

Report by a predecessor auditor



Different Reports on

Comparative Financial Statements

Different reports

Prior Years – Unqualified Opinion

Current Year – Qualified Opinion

Reporting requirement

Standard wording for Introductory and scope

paragraphs

Add explanatory paragraph

Modified opinion paragraph – “except for”



Different Reports on

Comparative Financial Statements

Different reports Prior Years – Qualified Opinion or Disclaimer

Current Year – Unqualified Opinion

Reporting requirement



Restated Prior-Period

• Llllll



Report by a Predecessor Auditor

The predecessor auditor should do in followingbefore re-issuing a report on prior-year financialstatements published a comparative financial

statementsRead the current period financial statements

Compare the prior-period financial statementsreported on with the current-year financial

statementsObtain a letter of representation from current-year

auditor or successor auditor



Other Information in

Documents Containing Audited Financial Statements

•

Annual ReportsThe auditor has no responsibility beyond the

financial information contained in the report, and

he or she has no obligation to perform any audit

procedures to corroborate the other information.

However, the auditor is required to read the other

information and consider whether it is consistent

with the information contained in the auditedfinancial statements.

• Registration Statements