Audit Reports for Financial Statement Audits

10 important questions on Audit Reports for Financial Statement Audits

Unqualified (or unmodified) opinion

The auditor has no reservations about the fairness of presentation.

What are the objectives of the auditor, according to the IAASB?

1. To form an opinion on the FS based on an evaluation of the conclusions drawn from the audit evidence obtained
2. To express clearly that opinion through a written report

Which conditions must be present, when issuing an unqualified/unmodified report?

- There are no material violations of GAAP
- Disclosures was adequate
- The auditor was able to perform all necessary procedures
- There was no change in accounting principles that had a material effect on the FS
- The auditor does not have significant doubt about the client remaining a going concern
- The auditor is independent
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In which situations would the auditor issue an unqualified audit opinion with report modifications?

- The auditor chooses to emphasize some matter in the FS
- The auditor opts to include information about audit participant in the audit report
- The auditor decides to refer to other auditors as the basis, in part, for the auditor's own report
- There is a lack of consistency in the FS
- There is a justified departure from GAAP
- Substantial doubt about the client being a going concern exists
- The client had a material misstatement in the previously issued FS that it has corrected

Inconsistent application of GAAP

A change in accounting principle that has a material effect on the FS should be recognized in the audit report. A change in accounting principles includes a change from one GAAP to another, such as from FIFO to LIFO.

Substantial doubt about the client being a going concern

If, after, considering identified conditions and events and management's plans, the auditor concludes that substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time remains, the audit report should include an additional paragraph, including an appropriate title to reflect that conclusion.

Client correction of material misstatement in previously issued financial statements

US auditing standards require that the auditor's report recognize a correction of a material misstatement in previously issued FS through an additional paragraph. The additional paragraph should include: (1) a statement that the previously issued FS have been restated for the correction of a misstatement in the respective period and (2) a reference to the not disclosure describing the correction of the misstatement.

When is a disclaimer of opinion appropriate?

- A scope limitation exists
- Substantial doubt about the client being a going concern
- Lack of auditor independence

Critical Audit Matters (CAMs)

- Any matter that was communicated to the audit committee
- Relates to accounts or disclosure material in regard to the FS
- Involves especially challenging, subjective, or complex auditor judgment

When does the auditor issue an unqualified opinion on internal control over financial reporting (ICFR)?

In determining the appropriate opinion on ICFR, the auditor evaluates identified control deficiencies individually, and in the aggregate, to assess whether there is a material weakness in the ICFR. The auditor issues an unqualified opinion on ICFR when he determines that there is no material weakness in ICFR and will issue an adverse opinion when there are one or more material weaknesses in ICFR.

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