Audit Reports | Modifications

Audit reports


Called to Account: book we are reading in the spring. Tells the story/history of accounting. READ .


Understanding of an audit report: end of the year once the fs are audited


Opinions issues in teh report.

Since sarbanes oxley, now we have to give an integrated audit (opinion of fs and controls, used to be you’dtest them, but not give an opinion.)


Unqualified Opinion: which means it’s the clean opinion. Sometimes this is modified. Which means sometimes we give this,

Qualified | qualified

Gap departure. | scope limitation


We have to let the reader know if there is a GAAP departure.

We have to let the reader know what the scope limitation is.


Very material gaap departure = adverse opinion. There is multiple departures,

Very much scope limitation = disclaimer of opinion.


In the audit report, the f/s that are being audited income, balance, equity, cash flow. It all comes back to GAAP. But also, our Audit has to be up to the PCAOB standards.


Disclosures: in an audit report we have to make sure teh company fully report everything that should be disclosed (in the notes to the f/s).


Comparative financial statements: this just means you have multiple years of financial statements so that the reader can compare and see trend analysis.. If this is the case, then that audit report is going to include opoinions on all of those financial statements. This years opinions and prior years opinions.


Unmodified/unqualified opinion = a clean opinion. If we issue this we give a standard report, what we memorized. Name changed and date changed, but very similar the same.

Sometimes we have to emphasize things in the report. An emphasis of matter.

If we have to give that, we have to give a modified report:

How:

Add language after the opinion paragraph explaining the matter, what it is. Add a copy to the report. **key, it does NOT change the unqualified opinion, but there is something we have decided to highlight

Examples of a matter:

  1. A going concern problem/issue: possibility that something could cause the company to not continue next year. Like a pending lawsuit could cause this. Emphasize it in the report.

  2. If GAAP is not consistently applied. I it is not consistently applied. One gaap method to another gaap method, which will be approved by teh auditor. F/S still use GAAP, but the methods keep changing

  3. Uncertainty, teh economy, global transactions that could affect next year.

  4. Related party transactions: not illegal, allowed, just have to be disclosed. If this happens then the auditor has to let the reader know.

  5. Group audit: multiple auditors auditing the F/S. Example: an auditor that audits the subsidiary, then another one to audit the parent company. As a company, we ahve to consolidate the subsidiary into the parent. 1) mention the other auditor, 2) they do not mention them, if you don’t you take full responsibility for their audit too. AFTER TEH OPINION PARAGRAPH.


A Modified/qualified opinion:

Happens one of two ways: GAAP departure or Scope limitation (not major tho, usually only one area)

If we have to give this type of opinion due to gaap departure : paragraph BEFORE the opinion paragraph, that explains the reasoning for the qualification.

In the opinion paragraph, add the words “except for” language.


Scope limitation:

Chapter on evidence. You cannot give a clean

1) beyond the control of teh client, client does not have access to something, files were destroyed in an accident

2) on us, we didn’t have enough time

3) its done on purpose by the client

Before we ever give this opinion for a scope limitation, we have to try to find an alternative way to find the missing data.

BUT, if we cannot get to where we need to be, and we have to qualify it, and its a minor scope limitation

1) add a paragraph before the opinion paragraph explaining where the scope limitation comes from.

2) add that “except for” language again..


Adverse Opinion: Very material departure from GAAP

If there is an adverse opinion, add a second modification paragraph BEFORE the opinion paragraph explaining where the departures/issues ARE

in teh opinion paragraph you will change your opinion and say these words “these financial statements do not express fairly the financial position of the company”


Disclaimer of Opinion: means NO opinion.. there is a very material scope limitation.

If we have to disclaim an opinion. There is a couple things we need to do

1) first of all we have to modified our responsibility in the audit report. In a standard one it is to give an opinion on the f/s

Changes to “we were not able to get to suficiente and appropriate evidence to give an opinion on the f/s.


2) give a paragraph before the ‘opinion‘ we have to give the reason for why


3) in the opinion paragraph we have to give a “we do not express an opinion”