Financial Statement Issues: Qualified or Adverse Opinion

Modified Opinion

Auditor is gathers appropriate audit evidence, looks at the financial statements based on on the selected framework, and finds material misstatement

If the financial statement is material but not pervasive, the auditor is going to issue a…

qualified opinion

If the financial statement is material but pervasive, the auditor is going to issue a…

adverse opnion

what is the exception for a client that doesn’t want to follow GAAP or framework the auditor selected?

client departs from GAAP and the auditor agrees. Unusual circumstances may justify a departure from GAAP if compliance would cause the financial statements to be misleading

What would make an auditor issue a qualified or adverse opinion?

• Unreasonable estimates

• Providing inadequate disclosures

• Incorrect numbers

• No reasonable justification for changes in accounting principles

What non-issuer headings will change when modified opinions are issued?

• opinion

• basis for opinion

What changes in the opinion section when qualified opinion is issued?

in our opinion “EXCEPT” for the effects of the matter described in the basis for qualified opinion section of our report

What changes in the basis for opinion section when qualified opinion is issued?

add paragraph describing departure from framework and quantify the effects

what phrase can you use only in qualified opinions?

except for

What section does not change when opinions are modified?

Responsibilities of management for the financial statement

When issuing an adverse opinion the opinion section changes…

to adverse opinion

When issuing an adverse opinion the basis for opinion section changes…(nonissuer)

basis for adverse opinion

In issuing an adverse opinion, the opinion section is changed to(nonissuer)

“because of the significance of the matter discussed in the basis for adverse opinion section of our report, the accompanying consolidated financial statements do not present fairly

In issuing an adverse opinion, what terminology do they use?

Do not present fairly

In the basis for adverse opinion what is added? (nonissuer)

paragraph describing departure from framework and quantify the effect

if an auditor is engaged to report on key audit matters…(nonissuer)

the section would not appear in the report when a adverse opinion is issued

(it may overshadow the fact the client is receiving a terrible opinion)

what is not changed when issuing an adverse opinion? (nonissuer)

• responsibilities of mgmt for the financial statement

• auditors responsibilities for the audit of the financial statements

when issuing a qualified opinion what changes in the opinion section? (issuer)

• “except for the effects of not capitalizing certain lease obligations as discussed in the following paragraph

• additional paragraph describing departures from framework and quantify effects

no heading changes for…

issuers, unless it is a disclaimer of opinion

when issuing a adverse opinion what changes in the opinion section? (issuer)

• “do not present fairly”

• add paragraph describing departure from framework and quantify the effects

when issuing a adverse basis for opinion what changes in the opinion section? (issuer)

nothing stays the same

What section is omitted when issuing an adverse opinion (issuer)

CAM ( critical audit matters)