Forming an Audit Opinion: Guide to Audit Reports

In order to form an audit opinion, what must the auditor consider regarding evidence?

Whether sufficient appropriate audit evidence was obtained.

What specific standards must an auditor look at when auditing non-issuers?

Statements on Auditing Standards (SAS).

What regulatory body sets the auditing standards for issuers?

Public Company Accounting Oversight Board (PCAOB).

Which financial statement reports the changes in owner's wealth over a period?

Statement of changes in equity.

What is considered the 'best' or most favorable audit opinion for an issuer?

Unqualified opinion.

What is the equivalent of an 'Unqualified' opinion for a non-issuer entity?

Unmodified opinion.

What does an Unmodified or Unqualified opinion state regarding financial statements?

They are presented fairly, in all material respects, in accordance with the applicable reporting framework.

Before issuing an Unmodified opinion, the auditor must ensure that uncorrected misstatements are not _____.

Material, whether individually or in the aggregate.

Under what two general conditions should an auditor's report be modified?

Inability to obtain sufficient evidence or the conclusion that statements are materially misstated.

Name the three specific types of modified audit opinions.

Qualified, Adverse, and Disclaimer of Opinion.

An auditor issues a Qualified opinion when effects of a matter are material but not _____.

Pervasive.

In the context of audit reports, what does it mean to 'disclaim' an opinion?

To deny rendering an opinion.

What opinion is issued when the possible effects of an inability to gather evidence are both material and pervasive?

Disclaimer of Opinion.

An Adverse opinion is rendered when misstatements are both _____ and _____.

Material; pervasive.

What is the primary characteristic of a 'pervasive' effect in financial reporting?

It has far-reaching effects across several accounts or is fundamental to the user's understanding.

In a non-issuer's unmodified audit report, which section must always appear first?

The Opinion section.

In a non-issuer's unmodified audit report, which section must always appear second?

The Basis for Opinion section.

What entity status is an auditor required to evaluate under Generally Accepted Auditing Standards (GAAS)?

Going-concern status.

In an issuer's audit report, where is the framework for Generally Accepted Accounting Principles (GAAP) discussed?

The Opinion section.

In an issuer's audit report, which section mentions the PCAOB auditing standards used?

The Basis for Opinion section.

In a non-issuer's report, which two sections reference the GAAP framework?

The Opinion section and the Responsibilities of Management section.

In an issuer's report, which two sections reference GAAS or Auditing Standards framework?

The Basis for Opinion section and the Auditor's Responsibilities section.

If an auditor follows PCAOB standards when not required, they must also follow _____.

Generally Accepted Auditing Standards (GAAS).

What does the acronym KAM stand for in a non-issuer's audit report?

Key Audit Matters.

Under what condition is a Key Audit Matters (KAM) section added to a non-issuer report?

When the client engages the auditor to communicate KAMs.

What is the primary purpose of including Key Audit Matters (KAMs) in an audit report?

To provide visibility into complex areas or those requiring significant auditor judgment.

From what specific pool of information does an auditor select Key Audit Matters (KAMs)?

Matters communicated with those charged with governance.

Where in the audit report can the KAM section be placed?

Anywhere after the second section (Basis for Opinion).

Which two specific items are prohibited from being included in the Key Audit Matters (KAM) section?

A qualified opinion and substantial doubt about going-concern ability.

If an auditor renders an Adverse opinion, they are prohibited from reporting on _____.

Key Audit Matters (KAMs).

What are the three required sections for an Unqualified audit opinion for an issuer?

Opinion on the Financial Statement, Basis for Opinion, and Critical Audit Matters.

When is a Critical Audit Matters (CAM) section required in an issuer's report?

When an Unqualified or Qualified opinion is rendered.

Where does the auditor's opinion appear in relation to the financial statements and footnotes?

Before the financial statements and footnote disclosures.

Who bears the ultimate responsibility for the preparation of financial statements?

Management.

What are the three criteria a matter must meet to be considered a Critical Audit Matter (CAM)?

Communicated to the audit committee, relates to material accounts/disclosures, and involves complex auditor judgment.

In the IPAD mnemonic for describing CAMs, what does the 'P' represent?

Principal considerations that led the auditor to determine the CAM.

In the IPAD mnemonic for describing CAMs, what does the 'A' represent?

How the CAM was addressed in the audit.

How should an auditor handle the CAM section if no Critical Audit Matters were identified?

Include the section, define a CAM, and state that no CAMs were determined to exist.

What does the abbreviation 'AP' stand for in the context of PCAOB filings?

Audit Participants.

What is the standard deadline for filing Form AP with the PCAOB after the audit report is filed with the SEC?

35 days.

If an audit report is included in a registration statement, within how many days must Form AP be filed?

10 days.

What information regarding the reporting framework must be included in the Opinion paragraph?

A statement of the opinion and an indication of the framework's origin.

What specific content is found in the Basis for Opinion section of an Unmodified opinion?

The auditing standards followed and the auditor's ethical responsibilities.

What standard-setting body defines GAAP?

Generally Accepted Accounting Principles.

How does 'pervasive' relate to a single account?

It represents a significant portion of the financial statements.