Reporting on Comparative Financial Statements

In what specific situation would an auditor issue an unmodified opinion on the balance sheet but a disclaimer on the income statement?

When the auditor is engaged after the start of the year and cannot ascertain beginning balances.

A scope limitation regarding beginning balances typically results in a disclaimer of opinion for which three financial statements?

Statements of income, changes in stockholders' equity, and cash flows.

If a non-issuer client corrects a prior GAAP departure in the current year, what must the auditor add to the report to update the opinion?

An emphasis-of-matter or other-matter paragraph.

What is the specific reporting requirement for an issuer when a previously issued qualified opinion is updated to an unmodified opinion?

The auditor must add an explanatory paragraph to the audit report.

What is the mnemonic used to remember the required disclosures when updating a prior auditor's opinion?

DORCS

In the DORCS mnemonic for updating prior opinions, what does the 'D' represent?

Date of the auditor's previous report.

In the DORCS mnemonic for updating prior opinions, what does the 'O' represent?

Opinion type previously issued.

In the DORCS mnemonic for updating prior opinions, what does the 'R' represent?

Reason for the prior opinion.

In the DORCS mnemonic for updating prior opinions, what does the 'C' represent?

Changes that have occurred.

In the DORCS mnemonic for updating prior opinions, what does the 'S' represent?

Statement that the opinion is different.

When another auditor audited the prior year's statements, the current auditor can either _____ the prior report or refer to it in their own report.

reissue

To determine if a previous report is still appropriate, the predecessor auditor must compare the prior audited statements with the _____.

current period statements

What must a predecessor auditor obtain from a successor auditor before reissuing a report?

A letter of representation regarding material effects discovered during the current audit.

The predecessor auditor must obtain a letter of representation from _____ regarding changes in prior representations or subsequent events.

management

If a predecessor auditor reissues a report without revisions, what date should be used?

The original report date.

What dating format is used if a predecessor auditor revises their previous report for reissuance?

Dual dating.

If the prior year's audit report is not presented, how should the successor auditor handle the current period report?

Express an opinion on the current period only and include an other-matter or explanatory paragraph.

When a successor auditor refers to a predecessor's audit in an other-matter paragraph, they must include the _____ of the predecessor's report.

date

When referring to a predecessor auditor's report, the successor must describe the _____ of any modifications to that prior opinion.

reason

If prior financial statements were reviewed or compiled and the report is not reissued, the successor auditor must state that the service was _____ in scope than an audit.

less

In a disclosure regarding a prior period compilation, the auditor must explicitly state that no _____ is expressed.

opinion or other form of assurance

If the prior period financial statements were never audited, reviewed, or compiled, what responsibility does the current auditor assume for them?

No responsibility.

What is the marking requirement for unaudited financial statements presented in comparative form with audited ones?

They should be clearly marked to indicate their status.

In SEC filings, unaudited financial statements should be marked 'unaudited' but should not be _____.

referred to in the auditor's report

The predecessor auditor must read the financial statements of the _____ period before reissuing a prior-year report.

current

Concept: Predecessor Auditor

Definition: The auditor who conducted the audit for the prior period and issued the previous report.

Concept: Successor Auditor

Definition: The auditor who is conducting the audit for the current period.

Where does a non-issuer auditor place the disclosure about a prior period being audited by a different auditor?

In an other-matter paragraph.

Where does an issuer auditor place the disclosure about a prior period being audited by a different auditor?

In an explanatory paragraph.

If a prior year opinion is updated, the auditor must disclose that the 'opinion is _____' compared to the original.

different

What is the outcome if an auditor cannot ascertain beginning balances but finds the ending balance sheet to be fairly stated?

Unmodified opinion on the balance sheet and disclaimer on all other statements.

When referring to a predecessor's report, should the successor auditor name the predecessor auditor in their report?

The source material indicates referring to them as a 'predecessor auditor' rather than naming them.

Process: What is the first step a predecessor auditor takes to ensure a prior report is still appropriate for reissuance?

Read the financial statements for the current period.

Process: What is the final step for a predecessor auditor before reissuing a report?

Obtain a letter of representation from management.

In comparative statements, if the prior year was not audited, the auditor includes a paragraph stating they did not _____ the prior statements.

audit, review, or compile

In a compilation/review reference, what must be described regarding the prior report's modifications?

The nature of any material modifications described in that report.

Does a successor auditor express an opinion on the prior period if the predecessor's report is not presented?

No, they express an opinion on the current period only.

The letter of representation from a successor auditor to a predecessor auditor should state if the current audit revealed matters with a _____ effect on the prior statements.

material

True or False: If a predecessor auditor dual dates a report, it is considered a revised report.

TRUE

If a client previously had a GAAP departure but now conforms to GAAP, the auditor is 'changing their mind'—what mnemonic covers this scenario?

DORCS

When a successor auditor provides the date of the predecessor's report in their other-matter paragraph, whose report is it referring to?

The report previously issued by the predecessor auditor.

A statement that the service was less in scope than an audit is required when the prior year was _____.

reviewed or compiled

If prior period statements are presented in comparative form and were compiled, the auditor must state that the service did not provide a basis for expressing an _____.

opinion on the financial statements as a whole

What action should be taken if unaudited statements are included in documents filed with the SEC?

Mark them as 'unaudited'.

The predecessor auditor's comparison of prior audited statements to current statements is done to ensure _____.

they are still appropriate as issued

The DORCS mnemonic applies when an auditor is _____ a prior opinion.

updating

In the context of comparative statements, if the prior auditor's report is presented, it is said to be _____.

reissued

When a successor auditor refers to a predecessor's audit, they must mention the type of _____ expressed by that predecessor.

opinion

If an auditor is engaged mid-year, the beginning balance scope limitation makes the cost of goods sold (COGS) and net income _____.

unascertainable (or not verifiable)

The 'reason for prior opinion' in the DORCS mnemonic specifically refers to why the auditor previously _____.

modified the opinion (e.g., due to a GAAP departure)