Rittenberg/Schwieger/Johnstone Auditing: A Business Risk Approach Sixth Edition

Chapter 17

Communicating Audit and Attestation Results
Copyright © 2008 Thomson South-Western, a part of the Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license.

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Audit Reports
Designed to promote clear communication between auditor and financial statement reader by clearly stating

  

What was audited and the division of responsibility: management for the financial statements and the auditor for expressing an opinion (introductory paragraph) The nature of the audit process (scope paragraph) Auditor's opinion on the fair presentation of the financial statements (opinion paragraph) If an unqualified opinion cannot be expressed, reasons why (explanatory paragraph)

The fourth reporting standard requires auditors to either express an opinion or state why an opinion 2 cannot be expressed

What are the types of audit reports?
Standard 

unqualified

Unqualified opinion with modified wording Qualified Adverse Disclaimer
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  

The Standard Unqualified Report
 Statements

present fairly  No material departures from GAAP  Disclosures are adequate  All necessary audit procedures performed (no scope limitation)  No change in GAAP with material impact  Auditor is independent  No going concern problems

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The Unqualified Report with Modified Wording
Statements present fairly, but auditor wishes to disclose additional information
 Substantial

concern  Change in accounting principles  Justified departure from GAAP  Auditor wishes to emphasize particular event, transaction, or subsequent occurrence  Reference to other auditors  Changes in comparative statements, such as differences in the level of audit report or a change in auditors where the predecessor's opinion will not be reissued

doubt about client being a going

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The Qualified Report
Statements present fairly except for....
Material

GAAP

unjustified departure from disclosure

Inadequate Scope

limitation
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The Adverse Report
Statements, as a whole, do NOT present fairly
Pervasive

and material unjustified departure from GAAP of important disclosure
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Lack

The Disclaimer of Opinion
Auditor Scope

lacks independence

limitation going concern
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Substantial

problem

Modifications Affecting the Opinion
Departure from GAAP - whether the departure is justified or unjustified, amount and pervasiveness of the misstatement, and potential impact of misstatements on statement users determines whether an unqualified, qualified, or adverse opinion is issued. Scope limitation - imposed by client or circumstance, materiality of the amounts involved, auditor's ability to form an opinion on the statements without the evidence determines whether qualified or disclaimer is issued Going concern - depending on auditor's assessment of client's ability to remain a going 9 concern, auditor may issue unqualified opinion

Financial Statement Reviews
 Sometimes

a client does not need an audit. Practitioners can perform fewer procedures and report a lower, or no, level of assurance on the financial statements. The most common of these financial statement services are compilations and reviews.  The standards for compilations and reviews of financial statements of nonpublic entities are called Statements on Standards for Accounting and Review Services (SSARS)

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Financial Statement Reviews
(continued)

Inquiry and analytical procedures are performed for each significant account balance
Accountant Provides

does NOT assess internal control or perform substantive tests limited assurance that accountant is not aware of any reporting problems must be independent
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Accountant

Compilation
 Presents

management information in financial statement form without any form of assurance  The accountant must have general knowledge of client accounting records, accounting methods, and form and content of statements  The accountant is not required to perform procedures to verify, corroborate, or review client information  The accountant must read the statements to make sure they are free from obvious

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Compilation (continued)
 If

the accountant believes the statements are incorrect, incomplete, or misleading, s/he must obtain any additional information necessary to prepare accurate statements  Compiled statements may omit disclosures if the accountant believes the omission is not done to mislead, and it is noted in the compilation report  If the accountant is not independent of client, a separate paragraph is added to the compilation report stating lack of independence
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Reports on Other Financial Information: Special Reports
 Statements

prepared on a comprehensive basis other than GAAP (OCBOA)  Reporting on specified elements, accounts, or items of financial statements  Reporting on compliance with aspects of contractual agreements or regulatory requirements related to audited financial statements  Reporting on special-purpose financial presentations to comply with contractual agreements or regulatory provisions  Reporting on financial information presented in prescribed forms or schedules
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Interim Financial Information
The SEC requires publicly traded companies to have their quarterly financial information reviewed by their independent auditors
Review

procedures much the same as required by SSARS Reporting on interim statements presented separately Reporting on interim information accompanying audited annual financial statements

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Reports on Other Financial and Non-Financial Information
Prospective Financial Statements
 Forecasts

and projections  May compile (no assurance) or examine (positive assurance)

Pro forma financial information
 Historical

information adjusted for proposed or actual transactions

Compliance with laws and regulations
 Compliance

with requirements of specified laws, regulations, rules, contracts, or grants  Effectiveness of entity's internal control over compliance with specified requirements

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Evolving Assurance Services
In 1994, the AICPA established the Special Committee on Assurance Services to identify new assurance services. The SCAS identified six services:
Electronic

Commerce Business Performance Management Health Care Performance Management Risk Assessment Information Systems Reliability Elder Care Assurance

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