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Aud15 PPT 03
Aud15 PPT 03
3-1
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
Describe the parts of the standard
unqualified audit report for non-public
entities under AICPA auditing standards.
Specify the conditions required to issue the
standard unqualified audit report.
Understand reporting on financial
statements and internal control under
PCAOB auditing standards.
3-2
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
Describe the five circumstances when an
unqualified report with an emphasis-of-
matter explanatory paragraph or modified
wording is appropriate.
Identify the types of audit reports that can
be issued when an unqualified opinion is
not justified.
Explain how materiality affects audit
reporting decisions.
3-3
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
Draft appropriately modified audit reports
under a variety of circumstances.
Determine the appropriate audit report for
a given audit situation.
Understand use of international
accounting and auditing standards by U.S.
companies.
3-4
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
1
Describe the parts of the standard
unqualified audit report for non-public
entities under AICPA auditing standards.
3-5
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
1. Report title
2. Audit report address
3. Introductory paragraph
4. Management’s Responsibility
5. Auditor’s Responsibility
6. Opinion Paragraph
7. Name and Address of CPA firm
8. Audit report date
3-6
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3-7
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
2
Specify the conditions required to issue the
standard unqualified audit report.
3-8
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1. Includes all financial statements
2. Sufficient appropriate evidence
3. Financial statements present in accordance
with U.S.GAAP
4. No circumstances require an explanatory
paragraph or report modification
3-9
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3-10
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
3
Understand reporting on financial statements
and internal control under PCAOB auditing
standards.
3-11
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
Auditors of public companies subject to
Section 404 of the Sarbanes-Oxley Act must
report on the effectiveness of internal
control over financial reporting.
3-12
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Sarbanes- ICFR
Oxley Accelerated Filer Effectiveness
Sec.404 Audits
Permanent
2010 Non-accelerated
Filer Exemption
Legislation
3-13
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
Separate Report on Financial Statements and
Internal Control Over Financial Reporting
1. Introductory paragraph
2. Scope paragraph
3. Definition paragraph
4. Inherent limitations paragraph
5. Opinion paragraph
6. Cross-Reference Paragraph
3-14
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
3-15
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
4
Describe the five circumstances when an
unqualified report with an emphasis-of-
matter explanatory paragraph or modified
wording is appropriate.
3-16
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
1. Lack of consistent application of generally
accepted accounting principles
2. Substantial doubt about going concern
3. Auditor agrees with a departure from
promulgated accounting principles
4. Emphasis of a matter
5. Reports involving other auditors
3-17
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Auditors must note circumstances in which
accounting principles are not consistently
applied
3-18
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Significant recurring operating
losses or working capital deficiencies.
Inability of the company to pay its
obligations as they come due.
Loss of major customers, the
occurrence of uninsured catastrophes.
Legal proceedings, legislation that
might jeopardize the entity’s ability to operate.
3-19
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Departure may not require a qualified or
adverse opinion
3-20
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Under certain circumstances, the CPA may
want to emphasize specific matters regarding
the financial statements, even though the
CPA intends to express an unqualified opinion.
Financial
Material
Statement
Uncertainties
Comparability
3-21
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1. Make no reference in the audit report
22
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3-23
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
5
Identify the types of audit reports that can be
issued when an unqualified opinion is not
justified.
3-24
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
1. Scope limitation
2. GAAP departure
3-25
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A qualified opinion report can result from
a limitation on the scope of the audit or
failure to follow generally accepted
accounting principles.
3-26
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3-27
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Auditor believes the financial statements are
not presented fairly in conformity with GAAP.
3-28
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3-29
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Issued when the auditor is unable
to be satisfied that the overall financial
statements are fairly presented.
3-30
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3-31 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
6
Explain how materiality affects audit reporting
decisions.
3-32
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A misstatement in the financial statements
can be considered material if knowledge of
the misstatement would affect a decision
of a reasonable user of the statements.
3-33
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
Amounts are immaterial.
3-34
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Failure to
follow GAAP
Audit report
Qualified
Unqualified Adverse
opinion only
3-35
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Materiality Significance in Terms of Type of
Level Reasonable Users’ Decisions Opinion
3-36
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Dollar amount compared with a base
Measurability
3-37
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Scope
limitation
Audit report
Qualified scope
Unqualified Disclaimer
and opinion
3-38
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
7
Draft appropriately modified audit reports
under a variety of circumstances.
3-39
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
Auditor’s scope has been restricted
3-40
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
8
Determine the appropriate audit report for a
given audit situation.
Write
Decide Decide appropriate
Audit
type of report
Materiality Report
3-42
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The auditor is not independent.
3-43
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
9
Understand proposed use of international
accounting and auditing standards by U.S.
companies.
3-44
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
Globalization of world’s capital markets are
leading to calls for a single set of accounting
standards to be used around the world.
2015
SEC Implementation
If plan is approved?
Developing of IFRS
into U.S.
Workplan
3-45
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3-46
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
Copyright
3-47
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.