A1, M5: Modified Opintions Due to F/S Issue

The auditor uses professional judgment to determine whether to issue a qualified opinion or an adverse opinion when audit evidence indicates that there is material misstatement of the F/S.

A qualified opinion should be expressed when the auditor concludes that misstmts, individually or in the aggregate, are material but NOT pervasive to the F/S.

An adverse opinion should be expressed when the auditor concludes that misstmts, individually or in the aggregate, are BOTH material and pervasive to the F/S.

When would an auditor use professional judgment to determine whether to issue a qualified or adverse opinion?

When audit evidence indicates there’s MM of the F/S. This decision is based on the materiality and pervasiveness of the misstatements.

Describe the circumstances in which a MM of the F/S may arise.

Misstatements may arise in relation to:

• the appropriateness of accounting policies

• the application of accounting policies

• the appropriateness of the F/S presentation

• The appropriateness or adequacy of disclosures in the F/S

If an opinion is qualified due to MM of F/S on an issuer audit report, where does the paragraph explaining the qualification appear?

A paragraph should be placed immediately following the opinion paragraph. There is NO HEADING for this paragraph. The paragraph should include:

• All of the substantive reasons that lead the auditor to conclude there has been a departure from GAAP.

• Disclosure of the principal effects of the subject matter of the qualification on financial position, results of operations, and cash flows, if practicable.

  • If the effects are not reasonably determinable, the report should so state.

  • If such disclosures are made in a note to the F/S, the explanatory paragraph(s) may be shortened by referring to tit.

Compared to a standard unqualified opinion for an issuer, determine the paragraphs that are modified in an audit report when the following opinions are issued due to F/S issues (misstatements):

• Qualified

• Adverse (F/S issue)

Is an auditor required to report on CAMs when issuing an adverse opinion?

No, the auditor is not required to report CAMs when an adverse opinion is expressed.