What are the 3 types of GAAS problems that affect the auditor's opinion?
Insufficient evidence
Going concern
The auditor is not independent
What are the 2 modified opinions that the auditor can be offered due to GAAS issues?
Qualified
Disclaimer
When is a qualified opinion provided, due to issues with GAAS?
When the auditor is unable to obtain sufficient appropriate audit evidence on which to base an opinion, and the effects could be material, but not pervasive.
When is a disclaimer of opinion provided?
When the auditor is unable to obtain sufficient appropriate audit evidence on which to base an opinion, and the possible effects of the undetected misstatements could be both material and pervasive. OR
If the auditor is not independent (such as when the auditor creates the FS), OR
If the F/S are unaudited.
What are a few examples of a scope limitation that prevents an auditor from performing a complete audit?
None of the following is a scope limitation if there is a way to perform alternative procedures that would obtain the same result
Time constraints
Inability to obtain sufficient, appropriate audit evidence
Refusal of management to provide written representation and/or to acknowledge its responsibility for the fair presentation of the FS in conformity with GAAP
Refusal of the client's attorney to respond to inquiry
What are some topics that may be addressed in the Other-Matter paragraph of the auditor's report?
The reason why the auditor cannot withdraw from an engagement even when either material misstatement, fraud, deception, etc are discovered. (Ex may be due to law or regulation, the audit was substantially completed)
True / False: An auditor who has prepared the FS can perform the audit as long as a disclaimer of opinion is provided.
False
The auditor cannot audit the FS that the firm has prepared.
The auditor may disclaim the FS on the FS themselves, or in a separate note
"Unaudited" should be clearly marked on each FS and accompanying note
If the client refuses to correct an obvious error, a modified disclaimer noting the departure should be added.
The auditor should consider withdrawing from the engagement when the following 4 issues occur with the financial statements: They are...
false
fraudulent
deceptive
misleading
When issuing a qualified opinion for a nonissuer, which paragraphs of the auditor's report are modified?
Auditor’s Responsibility paragraph is modified
Basis for Qualified Opinion is added
Opinion paragraph is modified
What is the modification made to the Auditor's Responsibility section when issuing a qualified opinion for a nonissuer?
"Auditor believes that the audit evidence obtained is sufficient and appropriate to provide a basis for the qualified audit opinion."
What are the contents of the Basis of Qualified Opinion paragraph for a nonissuer? Where is this paragraph placed in the auditor's report?
Placed just prior to the Opinion paragraph
Heading "Basis for Qualified Opinion"
Description of the reasons for the inability to obtain sufficient appropriate audit evidence.
What are the contents of the Opinion paragraph when issuing a qualified opinion for a nonissuer? (Must be exact wording)
Heading "Qualified Opinion"
“In our opinion, except for the possible effects of the matter(s) described in the basis for qualified opinion paragraph, the financial statements are presented fairly in all material respects, in accordance with the applicable financial reporting framework.”
True / False: Management won't provide the appropriate information to complete the audit. The auditor suspects fraud. The auditor should issue an adverse opinion.
False
The auditor can only issue a disclaimer of opinion because the audit evidence isn't available to form an opinion.
When issuing a disclaimer of opinion for a nonissuer, which paragraphs of the auditor's report are modified?
Introductory paragraph is modified
Auditor’s Responsibility paragraph is modified
Basis for Qualified Opinion is added
Opinion paragraph is modified
What is the modification made to the Introductory paragraph when issuing a disclaimer of opinion for a nonissuer?
The paragraph should state the auditor “was engaged to audit” (we didn't actually audit, but were hired to do so) the financial statements.
What is the modification made to the Auditor's Responsibility section when issuing a qualified opinion for a nonissuer?
“Our responsibility is to express an opinion on the FS based on conducting the audit in accordance with auditing standards generally accepted in the USA. Because of the matter(s) described in the basis for disclaimer of opinion paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.”
What are the contents of the Basis for Disclaimer of Opinion paragraph for a nonissuer? Where is this paragraph placed in the auditor's report?
Placed just prior to the Opinion paragraph
Heading "Basis for Disclaimer of Opinion"
Description of the reasons for the inability to obtain sufficient appropriate audit evidence.
What are the contents of the Disclaimer of Opinion paragraph when issuing a qualified opinion for a nonissuer? (Must be exact)
Heading "Disclaimer of Opinion"
“Because of the significance of the matter(s) described in the basis for disclaimer of opinion paragraph, the auditor has not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion; and accordingly, the auditor does not express an opinion on the financial statements.”
When issuing a qualified opinion for an issuer, which paragraphs of the auditor's report are modified?
The Scope paragraph is modified
Basis for Qualified Opinion is added
Opinion paragraph is modified
How is the Scope paragraph modified when issuing a qualified opinion for an issuer?
Modify that “except as discussed in the following paragraph, we conducted our audits in accordance with the standards of the PCAOB (US)”
What are the contents of the Basis for Qualified Opinion paragraph for an issuer? Where is this paragraph placed in the auditor's report?
Placed just prior to the Opinion paragraph
No heading
Description of the reasons for the inability to obtain sufficient appropriate audit evidence.
What are the contents of the Opinion paragraph when issuing a qualified opinion for an issuer?
“In our opinion, except for the possible effects of the matter(s) described in the basis for qualified opinion paragraph, the financial statements are presented fairly in all material respects, in accordance with the applicable financial reporting framework.”
When issuing a disclaimer of opinion for an issuer, which paragraphs of the auditor's report are modified?
Introductory paragraph is modified
Scope paragraph is omitted
Basis for Qualified Opinion is added
Opinion paragraph is modified
What is the modification made to the Introductory paragraph when issuing a disclaimer of opinion for an issuer?
The paragraph should state the auditor “was engaged to audit” (we didn't audit, but we were engaged to) the financial statements and delete references to the auditor’s responsibility.
What are the contents of the Basis for Disclaimer of Opinion paragraph for an issuer? Where is this paragraph placed in the auditor's report?
Placed just prior to the Opinion paragraph
Heading "Basis for Disclaimer of Opinion"
Description of the reasons for the inability to obtain sufficient appropriate audit evidence.
What are the contents of the Disclaimer of Opinion paragraph when issuing a qualified opinion for an issuer?
“Because of the significance of the matter(s) described in the basis for disclaimer of opinion described above, the auditor has not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion; and accordingly, the auditor does not express an opinion on the financial statements.”
The entity hires your firm to audit their FS, but a fire consumes the warehouse where the entity stores their records. Your firm is unable to perform any of the audit work. Does the firm issue an opinion? If so, what opinion is warranted?
Yes, an opinion is provided
A Disclaimer of Opinion
True/False: When the auditor issues a qualified opinion due to a scope limitation, the opinion should refer to the scope limitation as the reason.
False
The auditor should refer to the possible effects on the financial statements.
