Reporting on Comparative Financial Statements: Part 1

What situation may cause the auditor to issue an unmodified for balance sheet but disclaimer of opinion on the statements of income, changes in stockholders equity, and cash flows?

Auditor engaged after beginning of year and last year audited. Auditor is in essence facing a scope limitation as the beginning balances may not be ascertainable

What happens if an client received an qualified opinion b/c of a departure from GAAP but updated in accordance w/ GAAP… show the diffrent issuers…

Non-issuer: Add emphasis of matter or other matter paragraph

Issuer: explanatory paragraph to the audit report

What should you change when updating prior opinion?

• date of the auditors previous report

• opinion type previously issued

• reason for prior opinion

• changes that have occurred

• statement that the “opinion is….different”

Only DORCS change their mind

What situation can occur if another auditor audited last years finacial statements

option 1 : we can in there report

option 2 : we don’t have to issue their report

if prior audit report is presented, prior year auditors report is,,,

reissued

In determining if previously presented financial statements are still appropriate as issued, the predecessor auditor should

• read statements for current period

• compare audited statements w/ current period statements

• obtain letter of representation from successor auditor stating whether successor auditor audit revealed any matters that may have material effect on statements by predecessor auditor

• obtain letter of representation from mgmt stating whether any previous mgmt representation have changed or whether subsequent events have occurred that may require adjustments or disclosures

In determining if previously presented financial statements are still appropriate as issued, the predecessor auditor should date the report as appropriate:

• unrevised: use original report date when reusing previous report

• revised: dual date is used in the event that the predecessor auditor revises the report

What happens if the prior year auditors report is not presented?

The successor auditor should express an opinion on the current period financial statements only and indicate in an other-matter paragraph (nonissuer) or explanatory paragraph (issuer)

What happens if the prior year auditors report is not presented what should be included in those paragraphs?

• financial statements of the prior period were audited by a predecessor auditor

• type of opinion expressed by the predecessor auditor and the reason for any modifications to the the opinion

• nature of any emphasis-of-matter , other-matter or explanatory paragraph included in the predecessor auditors report

• the date of the predecessor auditors report

When the current period financial statements were reviewed or compiled in the report of the prior period is not re-issued the Auditor should include in other matter paragraph (non-issuer) Or explanatory (issuer) that includes:

• The service (review or complication) performed in the prior period

• Date of the prior period report

• Description of any material modification described in the report

• Statement that the service was less in scope than an audit and does not provide the basis for expressing an opinion on the financial statements as a whole

• A statement that no opinion or other form of assurance is expressed (compilation)

If prior period financial statements were not audited, reviewed or compiled the auditor should include an…

Other matter paragraph or explanatory paragraph stating that the auditor did not audit review or compile the prior period financial statements and that the auditor assumes no responsibility for them

Whenever unaudited financial statements are presented in comparative form with audited financial statements, the unaudited financial statements should…

Be clearly marked to indicate their status

If unaudited Financial statements are presented in comparative form with audited, financial statements and documents filed with the SEC such statement should be…

Marked unaudited, but should not be referred to the auditors report