University:
California State University, Northridge
Course:
ACCT 460 | Auditing Principles and Analytics
Academic year:

2024
Views:

298

Pages:

21
Author:

Melany Woodward

Audit Reports Chapter 3 3-1 Learning Objective 5 Identify the types of audit reports that can be issued when an unqualified opinion is not justified. 3 - 17 Departures from An Unqualified Opinion 1. Scope limitation 2. GAAP departure 3. Auditor not independent 3 - 18 Qualified Opinion A qualified opinion report can result from a limitation on the scope of the audit or failure to follow generally accepted accounting principles. 3 - 19 Adverse Opinion It is used only when the auditor believes that the overall financial statements are so materially misstated or misleading that they do not present fairly the financial position or results of operations and cash flows in conformity with GAAP. 3 - 20 Disclaimer of Opinion It is issued when the auditor is unable to be satisfied that the overall financial statements are fairly presented. 3 - 21 Learning Objective 6 Explain how materiality affects audit reporting decisions. 3 - 22 Materiality 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 - 23 Levels of Materiality Amounts are immaterial. Amounts are material but do not overshadow the financial statements as a whole. Amounts are so material or so pervasive that overall fairness of the statements is in question. 3 - 24 Relationship of Materiality to Type of Opinion Materiality Significance in Terms of Type of Level Reasonable Users’ Decisions Opinion Users’ decisions are unlikely Immaterial to be affected. Unqualified Material Users’ decisions are likely to be affected. Qualified Highly material Users’ decisions are likely to be significantly affected. Disclaimer or adverse 3 - 25 Materiality Decisions Failure to follow GAAP Audit report Unqualified Qualified opinion only Adverse 3 - 26 Materiality Decisions  Dollar amount compared with a base  Measurability  Nature of the item 3 - 27 Materiality Decisions Scope limitation Audit report Unqualified Qualified scope and opinion Disclaimer 3 - 28 Learning Objective 7 Draft appropriately modified audit reports under a variety of circumstances. 3 - 29 Discussion of Conditions Requiring Departure  Auditor’s scope has been restricted  Statements are not in conformity with GAAP  Auditor is not independent 3 - 30 Learning Objective 8 Determine the appropriate audit report for a given audit situation. 3 - 31 Auditor’s Decision Process Determine whether any condition exists requiring a departure from a standard unqualified report.  Decide the materiality for each condition  Decide the appropriate type of report  Write the audit report 3 - 32 More Than One Condition Requiring a Departure or Modification The auditor is not independent. There is a scope limitation. There is a substantial doubt about the company’s ability to continue as a going concern. There is a deviation in the statements’ preparation in accordance to GAAP. 3 - 33 Number of Paragraphs in the Report Type of Report Standard unqualified Unqualified with explanatory paragraph Unqualified shared report with other auditors Qualified – opinion only Qualified – scope and opinion Disclaimer – scope limitation Adverse 3 4 3 4 4 3 4 3 - 34 Learning Objective 9 Understand proposed use of international accounting and auditing standards by U.S. companies 3 - 35 Proposed use of international accounting and auditing standards by U.S. companies Globalization of world’s capital markets are leading to calls for a single set of accounting standards to be used around the world. The SEC has a proposed roadmap that could lead to the use of IFRS by U.S. public companies beginning in 2014 3 - 36