A1 Audit Reports

Nonissuers

Private companies regulated by the AICPA using Statements on Auditing Standards (SAS).

Issuers

Public companies regulated by the PCAOB using Auditing Standards (AS).

Clean Report (Nonissuers)

Unmodified opinion.

Clean Report (Issuers)

Unqualified opinion.

Financial Statement Issue (Material but NOT Pervasive)

Results in a Qualified Opinion ("Except for…").

Financial Statement Issue (Material AND Pervasive)

Results in an Adverse Opinion ("Do not present fairly").

Audit Scope Issue (Material but NOT Pervasive)

Results in a Qualified Opinion ("Except for…") due to a GAAS departure or lacking evidence.

Audit Scope Issue (Material AND Pervasive)

Results in a Disclaimer of Opinion ("We do not express an opinion") due to a GAAS departure or lacking evidence.

Omission of Cash Flow Statement

Results in a qualified opinion when a client claims to present fair financial statements but leaves out the cash flow statement.

Management Responsibilities

1) Preparation and fair presentation of financial statements

2) Design

Auditor Responsibilities (General)

1) Maintaining professional skepticism

2) Complying with ethical requirements

Requirements to Obtain Reasonable Assurance

1) Plan the work and supervise assistants

2) Determine and apply materiality levels

Overall Audit Objectives

1) Obtain reasonable assurance that financial statements are free from material misstatement and

2) Report on the financial statements and communicate required findings per GAAS.

ICFR Audit Objectives

1) Express an opinion on the effectiveness of the company's internal control

2) Obtain reasonable assurance if material weaknesses exist as of the date.

Integrated Audit Requirements

Required for Issuers (must audit financial statements and ICFR); optional for Nonissuers (only financial statements are required)

OBRA (Nonissuer Report Sections) The required sections in a nonissuer audit report

Opinion (1st mentions GAAP)

Basis for Opinion (2nd mentions GAAS)

Responsibilities of Management (mentions GAAP)

OBC (Issuer Report Sections): The required sections in an issuer audit report

Opinion (1st mentions GAAP)

Basis for Opinion (2nd mentions GAAS)

Critical Audit Matters (3rd)

I PAD (Critical Audit Matters): The process for documenting each identified CAM

Identification of the CAM

Principal considerations that led to it

how it was Addressed

reference to relevant Disclosures

Form AP

A file that must be filed with the PCAOB within 35 days after the audit report or within 10 days if included in a registration statement

Unmodified Report Modification

Report stays unmodified but an Emphasis-of-Matter (EOM) paragraph is added.

Qualified/Modified Report Modification

The opinion paragraph and the basis for opinion paragraph are modified.

Adverse Report Modification

The opinion paragraph and basis for opinion paragraph are modified and Key Audit Matters (KAM) are omitted.

Disclaimer Report Modification

The opinion, basis for opinion, auditor’s responsibility sections are all modified

Emphasis-of-Matter Paragraphs (Nonissuers)

Included by GAAS requirement or auditor discretion to refer to disclosed/presented matters of extreme importance to understanding the financial statements; uses an "Emphasis-of-matter" heading and states the opinion is not modified.

Other-Matter Paragraphs (Nonissuers)

Included by GAAS requirement or auditor discretion to refer to matters NOT presented or disclosed in the financial statements; uses an "Other-Matter" heading.

Explanatory Paragraphs (Issuers)

Included by PCAOB requirement or auditor discretion; does not affect the opinion uses an appropriate heading

Situations Requiring Explanatory Paragraphs

1) Change in accounting estimate

2) Error correction in an accounting principle

DORCS (Changing a Prior Opinion)The items required when an auditor changes a prior opinion

Date of previous report

Opinion previously issued

Reason for prior opinion

Changes that occurred

Statement that the opinion is different.

Predecessor Auditor Steps Before Reissuing Report

1) Read current year financial statements

2) Compare prior-period report with current statements

3) Obtain a representation letter from the successor auditor, and

4) Obtain a representation letter from management.

Successor Auditor Requirements (If Predecessor Report Not Presented): The successor must indicate

1) Prior statements were audited by an unnamed predecessor

2) Type of opinion expressed and reasons for modification

3) Nature of any EOM/OM/Explanatory paragraphs, and

4) Date of the predecessor's report.

DAR (Client Refusal Mnemonic): Actions an auditor must take if a client refuses to disclose subsequent events or make adjustments

Dissassociate

Alert agencies

Alert relying parties

Type 1 Subsequent Events (Recognized)

Events providing additional information about conditions existing at the balance sheet date; must accrue (journal entry) and disclose (e.g. litigation arising before balance sheet date but settled after

Type 2 Subsequent Events (Not Recognized)

Conditions that did not exist at the balance sheet date; never accrue and only disclose if super material.

Subsequent Event Evaluation Window (Public vs. Private)

Public firms evaluate subsequent events until financial statements are issued; private firms evaluate until they are available to be issued.

PRIME (Subsequent Events Auditor Responsibilities)

1) review Post balance sheet transactions

2) review Representation letter from management

3) Inquiry of legal counsel/management/governance

4) Minutes review (shareholders/directors), and

5) Examine most recent interim financial statements