Audit 1 Disclaimer of Opinion- insufficient in scope

Material - conformity with GAAP-Qualified opinion (modify opinion paragraph) Material - Adherence to GAAS-Qualified opinion (modify scope and opinion paragraph) Highly material -conformity with GAAP- Adverse Opinion Highly material -Adherence to GAAS-Disclaimer of Opinion Qualified "Except For" GAAP 1. Non-GAAP change 2. Inadequate Disclosure 3. Unjustified departure from GAAP 4. Unreasonable Acctg. Estimate Adverse GAAP (Highly material) 1. Non-GAAP change 2. Inadequate Disclosure 3. Unjustified departure from GAAP 4. Unreasonable Acctg. Estimate Qualified "Except For" GAAS 1. Uncertainty 2. Scope Limitation Disclaimer GAAS (Highly material) 1. Uncertainty 2. Scope Limitation 3.Lack of Independence 4. Unaudited

Insufficient evidence to support uncertainty est. - qualified (GAAS) opinion or disclaimer (scope limitation) Modified Unqualified Opinion Modified Wording - Division of responsibility: with another auditor.(all 3 paragraphs) 2. Explanatory Paragraph a. justified departure from GAAP b. Going concern: (after opinion paragraph) c. To emphasize a matter F/S d. A justified lack of consistency- by a material change in GAAP between periods or a change in the method of the application of accounting principles. e. Req SEC regulation (S-K quarterly financial data omitted/ not reviewed). f. Supplementary information required by GAAP has been omitted or departs g. Other information in a doc with aud F/S is materially inconsistent with information appearing in the F/S. General Rule on Position of Explanatory Paragraph Qualified, Adverse, and Disclaimer of Opinion - explanatory paragraph b4 opinion paragraph. Exceptions The explanatory paragraph - either before or after the opinion paragraph. a. Justified GAAP departure b. Emphasis of a matter

Although a change in depreciation method (change in estimate) FS purposes.Third parties (details of financial support arrangemet) 6. If the year in which the change occurred is presented.Increase ownership equity Explanatory Paragraph after Opinion Paragraph (internationat standards on auditing) The wording in the explanatory paragraph under the ISAs is slightly different and includes the term "significant doubt:' rather than "substantial doubt. If is retroactive restatement.S auditing standards do not contain this requirement. If other auditors had qualified opinion principal must decide if it is material and if they should make reference to it. although a sample going concern representation is included in the authoritative literature related to Management Representations. . the explanatory paragraph of the prior period need not be repeated. Analytical procedures 2. Consistency -Changes in estimates or error corrections do not affect the consistency -Corrections of an error in principle (cash method to accrual method) affect consistency d. External matters Mitigating factors to going concern Plans to: 1." ISA 570 requires the auditor to obtain written representations from management regarding its plans for future action. Test going concern by: (ADMITS) 1. Negative trends 4. U. then the explanatory paragraph is not needed in subsequent years. Internal matters 3. Financial difficulties 2. Sell assets 3. the explanatory paragraph is required in subsequent years' reports. If the auditor's doubts about the entity's abiiity to continue as a going concern are removed in a subsequent period. Subsequent events Conditions and events indicative of substantial doubt (FINE) 1. correction of material misstatement in the previously issued FS of an issuer. borrow money or restructur debt 2. f. for purposes of the auditor's report. e. Debt compliance 3.When auditor accepts responsibility for other auditor work must review their documentation and meet with them to understand wk done. changes in depreciation method do require the addition of an explanatory paragraph. Minutes 4. Inquiry of legal counsil 5. PCAOB standards require the addition of an explanatory paragraph (following the opinion paragraph) describing the situation and referring to the company's disclosure of the matter. Delay or reduce expenditures 3.

Representation letter from management (CEO and CFO) regarding whether any events occurred 3. 2. but may require significant additional disclosure. the auditors should disclose the reason(s) in a separate explanatory paragraph preceding the opinion paragraph. Deletion . but otherwise was satisfied. Comparative FS UPDATING (CHANGING) PRIOR OPINIONS Format If the updated opinion differs from the previous opinion.If there is no CF statement then mention this in the explainatory paragraph (middle) If the auditor was not able to become satisfied regarding the opening inventory.auditor's responsibility. Changes that have occurred 5. Recognized (Type I) Events . and other committee meetings should be read during the subsequent period .Post balance sheet transactions: proper cutoff 2.Conditions Existing After the Balance Sheet Date Significant business events. Qualified Opinion The nature of the scope limitation should be described in an explanatory paragraph (preceding the opinion paragraph) and should be referred to in both the scope and opinion paragraphs of the auditor's report.disclaimer of opinion on FS "Unaudited" should be clearly marked on each page of the financial statements.Conditions Existing On or Before the Balance Sheet Date B." and b." SUBSEQUENT EVENTS A.remember only Dorcs changes their mind 1...occurring subsequent to the date of financial statements. Scope Paragraph (omitted) 3. 4. Explanatory (Middle) Paragraph. When testing the issue of subsequent events. a candidate is expected to know the GAAP rules: • Recognized (Type I) Event ----} Requires a financial statement adjustment • Nonrecognized (Type II) Event ----} May require footnote disclosure Auditor's Responsibility for Subsequent Events PRIME 1. he or she could issue an unqualified opinion on the year-end balance sheet and render a disclaimer of opinion on the statements of income. require no adjustment to the statements. Nonrecognized (Type II) Events . such as the purchase of a business or the sale of debenture bonds. is different. Inquiry of mgt to any maj changes. Minutes of stockholders. retained earnings. Use of the words "were engaged to audit" instead of "have audited. Disclaimer of Opinion Modification to the introductory paragraph includes: a.Opinion .Reasons for Disclaimer 4. Date of the auditor's previous report 2. directors. and cash flows. The explanatory paragraph should disclose the: DORCS . Reason for the prior opinion 4. Statement that the "opinion . Opinion type previously issued 3.

and appropriate regulatory agencies (where applicable) the new disclosures or revisions. Reporting Accountant The reporting accountant may not report on the appiication of accounting principles to a "hypothetical transaction" (a transaction not involving facts or circumstances of a specific entity). . AP. In the absence of any separate requirement particular to the engagement. NR. The following are grounds for Joint Trial Board sanctions: a."PRIME" Report Obtain management representation letter (dated Feb 10) at last minute SUBSEQUENT DISCOVERY OF FACTS EXISTING AT THE DATE OF THE AUDITOR'S REPORT (discovered after report is issued) -ask client to issue revised financials or make necessary disclosures -if the effect on the FS can not be determined right away must notify SEC and others of lack of reliance If client refuses can notify board and other persons that report can no longer be relied upon. inventory. providing notification that the financial statements and report should not be relied upon. supplementary information may either be presented as an explanatory paragraph following the opinion paragraph in the auditor's report on the financial statements or in a separate report. etc. In addition. Auditor not required to audit other information but should read to make sure there are not material inconsistencies. Violation of the bylaws or any rule of the Code of Conduct. -withhold if separate report or modify opinion on report if the information is materially mistated. Supplimental information can be included in the report or may be a separate report. YE-WORK includes "PRIME" Review of subsequent AR collections Follow up on confirm request Search for unrecorded liabilities Subsequent events audit program: '. Interim work DETAIL WORK Confirms of: cash. AR. Cash reconciliations Special account analysis Physical inventory observation Fixed asset verification Tests of sales and payroll Internal control review Cut offs Year end inventory observation and cut off tests of cash. Certain entities are required by a designated standard setter to prepare specific information that is supplementary to the basic financial statements. etc. the client should be advised to discuss with the SEC.Examine latest available interim financial statements.5. AR. sales. stock exchanges. the auditor's opinion on the financial statements does not cover the required supplementary information. compare them with the financial statements under audit. If the effect on the financial statements cannot be determined on a timely basis.

Requiring supervisors to prepare performance evaluations. e. The required supplementary information is included and the auditor has applied the required procedures. The auditor is not able to complete the required procedures.AIM HIGH LEVEL OF PERFORMANCE/audit quality -Monitoring -Ethical requirements "HELP MEn maintain good quality in my accounting and auditing practice. Suspension or revocation of a member's license to practice public accounting as a disciplinary measure by a government authority. This explanatory paragraph should inciude a disclaimer of opinion on the required supplementary information. Declaration by a court of having committed fraud. Requiring a background check on new personnel. g. the audit report on the financial statements should include an explanatory paragraph with language to explain the following circumstances. Requiring personnel to attend training. Consideration of opportunities for on-the-job training EngagementI Client Acceptance and Continuance (1) The firm should consider the reputation b.The required supplementary information is omitted. Planning for the total personnel needs of all the firm's professional engagements. Failure to cooperate with any Professional Ethics Division disciplinary investigation. d. However. There is substantial doubt about conformance of required supplementary information. c. Undertakes only those engagements that the firm can reasonably expect to complete with professional competence. and management refuses to make revisions. Determination by the Joint Trial Board of guilt for any act discreditable to the profession. c. human Resources Examples include: a. Opinion Not Required An auditor is not required to audit required supplementary information. f. The auditor has identified material departures from the prescribed guidelines. f. the auditor should describe the departure. if the auditor determines that the required information has not been presented as prescribed. e. b. b. Failure to comply with educational and remedial or corrective action determined to be necessary by the Professional Ethics Executive Committee within 30 days Reporting on Supplementary Information 1. d. or conviction of a criminal offense that tends to discredit the profession.b. d. Requiring timely identification of staffing requirements. . or f. as applicable: a. g. Some required supplementary information is missing and some is presented in accordance with the prescribed guidelines.TONE AT TOP -performance of the engagement . e. Audit Chapter 2 ELEMENTS The six interrelated elements of quality control are: -Human resources -RECRUIT/STAFF/TRAINING/SUPERVISION -Engagement/client acceptance and continuance-CLIENT REPUTATION -leadership responsibilities . Declaration by a court that the CPA is insane or incompetent. c. Consideration of continuity and periodic rotation of personnel.

Inquiring of third parties as to the reputation of the proposed client. d.Other comprehensive basis of accounting financial statements. E." in which case an unqualified opinion (on the OCBOA '" basis) is appropriate. auditing standards do not include this requirement for special reports. checklists.every 3 yrs -fail to take corrective action is subject to sanctions F.supervision. (v) Financial information presented in prescribed forms or schedules that require a prescribed form of auditor's report. (ii) Specified elements. Referring questions to the appropriate group in the AICPA or state society. b. ISA 800 states that the auditor's report on a special purpose audit engagement should include the auditor's address. (iii) Compliance with contractual or regulatory requirements related to audited financial statements. b. Examples include: a. U. Maintaining records showing which personnel were previously employed by clients or have relatives holding key positions with clients. b. Using passwords or other means of restricting access to engagement documentation. c. SPECIAL REPORTS types: (i) OCBOA . or items in a financial statement. accounts. Can comply with legal and ethical requirements. Designating individuals with expertise in matters related to the SEC. Reports on OCBOA Financial Statements -report title should include the basis of accounting . d.relate to the conduct of all professional activities of the firm's practice as a whole. and employee personal tax services are not prohibited by the Sarbanes-Oxley Act. Emphasizing independence of mental attitude in training and supervision. -peer review.S.use experts. Establishing procedures for reviewing engagement documentation and reports. C. c. Ethical Requirements . Performance -software.quality review. operating effectively. Notifying personnel as to the names of audit clients publicly held. Leadership Responsibilities for Quality within the Firm . d. Examples include: a. Developing and using standard audit forms. c. whereas quality control standards . The use of a non-GMP method requires the auditor to modify the report to either a "qualified" or Iladverse" ~ opinion unless the non-GAAP method is an "OCBOA. Quality Control Standards GAAS .quality control system is relevant. Monitoring . Deficiency in quality control for firm does not imply a lack of compliance with GAAS.independence Examples include: a. and questionnaires.conduct of each individual audit engagement. Evaluating the firm's ability to service the client properly. Routine tax return preparation. (iv) Financial presentations to comply with contractual agreements or regulatory provisions.c. tax planning. and complied with in practice. Reviewing the financial statements and credit rating of the proposed client. Periodically reevaluating clients for continuance. GAAS vs. including consideration of significant issues that arose during the current or prior engagements. Confirming with staff that prohibited relationships do not exist. e. adequate.tone at the top emphasize quality D.

-restricted use -can be a separate report from FS U. If compilation will not be used by third parties mgt must mention this in engagement letter.s. Special Report . Such an opinion should not accompany the disclaimer or adverse opinion.Prepared on a Basis to Comply with a Regulatory Agency (restricted use) to mgt and directors An audit of specified elements.S. Staff qualifications.Compliance with Aspects of Contractual Agreements or Regulatory Requirements Related to Audited Financial Statements -negative assuranace on this report . auditing standards allow the expression of negative assurance on compliance as a by-product of a financial statement audit.Understanding of Client's Business-should understand the following a. such as ''Accountant's Compilation Report" or "Independent Accountant's Compilation Report. Title An appropriate title. as it would tend to overshadow or contradict the disclaimer or adverse opinion.a report is not specifically required for compilations unless u want to state no assurance -reviews -does not apply to other services(consulting on financial matters. Financial statements' form and content. A review is both an assurance engagement and an attest engagement. Form of the accounting records. assurance if adverse or disclaimer of opinion as a whole on this report. (Negative assurance) SSARS Applicability -compilations . Transaction types and frequency. " . A compilation is an attest engagement but not an assurance engagement. attestation standards allow for the expression of an opinion on compliance. Accounting basis used to prepare the financial statements. C. and SSARS would apply. -As a special engagement. preparing tax returns. Requirements for auditor during compilation 1. u. or items of a financial statement may be performed:. E. an opinion on specified elements may be expressed if it does not encompass so many items as to constitute a major portion of the financial statements. The accountant's report in a compilation engagement should include the following: a.used. or -In conjunction with an audit of financial statements Piecemeal Opinions Piecemeal opinions (expressions of opinion as to certain identified elements in the financial statements) should not be expressed when the auditor has expressed an adverse opinion or has disclaimed an opinion on the overall financial statements. A review is based on inquiry and analytical procedures performed by the CPA. b. (1) However. accounts. rendering manual or automated bookkeeping) -many adjusting entries could be considered preparation of financial statements. -explanatory paragraph stating the basis used. OCBOA Report .

Introductory Paragraph The introductory paragraph should: (1) Identify the entity. (3) Identify the financial statements. " b. implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements. Each page of the statements should be marked "See Accountant's Compilation Report" or "See Independent Accountant's Compilation Report. (4) Specify the date or period covered by the financial statements. Addressee The report should be addressed as appropriate. (5) State that the accountant has not reviewed or audited the financial statements and does not express an opinion or provide any assurance about whether the financial statements are in accordance with the applicable financial reporting framework. e. Date of the Accountant's Report This should be the date of the completion of the compilation. and for designing. f. (2) State that the financial statements have been compiled. Accountant's Responsibility Paragraph This paragraph should: (1) State that the accountant's responsibility is to conduct the compilation in accordance with SSARS issued by the AICPA.SSARS does not require that the compilation report be printed on the accountant's letterhead. Management's Responsibility Paragraph This paragraph should state that management is responsible for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework. Compilation of personal financial statements -if omit certain disclosures must not be used to obtain credit or for any other purpose than developing a financial plan.b. Additional Requirements compilations a. Review Requirements The performance requirements applicable to a review are: Understanding with client must be established L I earn and/or obtain sufficient knowledge of the entity's business nquiries should be addressed to appropriate individuals Analytical procedures should be performed Review-other procedures should be performed . and (2) State that the objective of a compilation is to assist management in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements. Signature of Accountant g.

The examiners frequently have incorrect responses stating. Review procedures-analytical procedures. not of external people or entities. SysTrust Engagements SysTrust engagements provide assurance with respect to the reliability of any . (3) Management's full and truthful responses to all inqUiries. "Make inquiries of outside. When a comfort letter is to be issued.CIient representation letter should be obtained from management Professional judgment should be used to evaluate results Accountant (CPA) should communicate results The inquiries are of internal personnel. and disclosure of business practices. (8) Additional representations related to matters specific to the entity's business and industry. information protection.. implementing.. -no explanatory paragraph for going concern if adequately disclosed. (7) KnOWledge of any material fraud or suspected fraud. inquiry. A CPA's independence. Fraud documentation could be made orally or written for review. Note: Comfort letters are not required by or filed with the SEC. An opinion would not be expressed. assuming a review of such information has been performed WebTrust Engagements WebTrust engagements provide assurance related to e-commerce. (2) Management's acknowledgment of its responsibility for designing. and maintaining internal control relevant to the preparation and fair presentation of the financial statements. Client Representation Letter from Management Must be Obtained Contents of Letter Management's representations should include: (1) Management's responsibility for the preparation and fair presentation of the financial statements and belief that they are fairly stated. assuming the financial statements are audited. and they are not considered to be part of the "registration statement" within the meaning of the Securities Act of 1933. B. Negative assurance is provided with respect to Unaudited financial statements. unaudited condensed interim financial statements. the CPA is required to perform a review of interim financial information in accordance with auditing standards. Compliance (as to form) of the financial statements with the SEC Act. (4) Representations about the completeness of information. (6) Acknowledgement of management's responsibility to prevent/detect fraud. (5) Information concerning subsequent events. the report would be modified or the accountant would withdraw." Corroberation or test of controls not required for a review. The CPA assesses a client's web site for predefined criteria that are designed to measure transaction integrity. and capsule financial information. When an accountant performing a compilation or review becomes aware of a GAAP departure.minutes For quaterly information required by SEC that is omitted then need explanatory paragraph. Positive assurance is provided with respect to: A.

1. Agreed-upon Procedures No assurance. If the client is the responsible party. failure to provide a written assertion constitutes a scope limitation. Agreed-upon procedures (excluding letters to underwriters and consulting services under SSCS and with specific prohibition of any attest engagement concerning assertions of solvency or insolvency). Compilation engagement . 6. HI-AM-SURE" you can perform these agreed-upon procedures. Association with Prospective Financial Statements A practitioner is associated with prospective financial statements primarily in one of three ways: 1. b. G. generally based on a variety of procedures. 2. No reference is made to financial statements. but procedures and findings are listed. A sample agreed-upon procedures report will be shown later in the text." 1. high level of assurance. 3. verification. Internal control over financial reporting. Compliance (as a specific engagement. Page 90 and 91 stds for attestation services. Written Assertion A written assertion is generally obtained in examination and review engagements. pg 95 Both financial forecasts and financial projections are appropriate for limited use.Review (negative assurance) Moderate level of assurance.defined electronic system. Statements on Standards for Attestation Engagements (SSAE) Statements on Standards for Attestation Engagements (SSAE) established by the AICPA provide information addressing the major attestation services: 1. Examination A positive opinion. Pro forma financial statements. and its use should be restricted. A review engagement subject to such a scope limitation is incomplete and the practitioner should withdraw. 5. inquiry. Attestation standards provide levels of assurance below that provided by a GAAS audit. Financial forecasts and projections. including search. the outcome depends upon whether the client is also the responsible party. not as part of an audit for which a special report is issued. Management's Discussion and Analysis. 2. No reference is made to generally accepted accounting principles. the report should be modified based on the scope limitation. and c. In an examination engagement. 4. a. generally based on inquiry and analytical procedures. b. and analysis. 3. Attestation standards are a natural extension of GAAS but differ conceptually from GAAS in three ways: a. If no written assertion is provided by management. An easy way to remember the attestation standards is "TIPPY-PASSER. and not as an engagement performed under Government Auditing Standards).

2. . Examination engagement (the report is generally to be used by a third party) 3. Agreed-upon procedures engagement Note that a review of prospective financial statements is not allowed.