Auditing 6

The auditor must identify in the auditor's report those circumstances in which such principles (GAAP) have not been consistently observed in the current period in relation to the preceding period.

Address what the reports should say

The auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed, in the auditor's report. When the auditor cannot express an overall opinion, the auditor should state the reasons therefore in the auditor's report. In all cases where an auditor's name is associated with financial statements, the auditor should clearly indicate the character of the auditor's work, if any, and the degree of responsibility the auditor is taking, in the auditor's report.

When the auditor determines that informative disclosures are not reasonably adequate, the auditor must so state in the auditor's report

The auditor must state in the auditor's report whether the financial statements are presented in accordance with generally accepted accounting principles (GAAP).

No significant GAAP departure and no significant scope limitation

As of the date sufficient appropriate evidence has been collected to support the opinion

Name of the auditing firm - manual or printed

Must include a heading with the word "independent" such as Report of Independent Accountants

Entity, board of directors, shareholders, or combination

• Identify such information in explanatory paragraph
• Report on information

Engagement to report on just 1 of the basic financial statements

• Not necessary to refer to other auditors, usually only when others involved to material degree
• If referenced, referenced in each paragraph of audit report to some extent

• Limited reporting engagement
• Report based in part on other auditors

Auditor always has ability to add a paragraph to the audit report to highlight a particular area of concern, e.g., related party transactions

Paragraph can either precede or follow opinion paragraph; must follow when uncertainty or inconsistency; must precede when opinion on prior period financial statements changes

• If omitted, point out omission
• If incorrect, describe departure from guidelines

• Not required to audit supplementary information
• Should inquire of client management

• Uncertainties (including going concern)- must follow the opinion paragraph
• Justifiable Departure from promulgated GAAP
• Change in Accounting Principle - must follow the opinion paragraph
• Omitted quarterly data for SEC companies
• Required supplementary information omitted or incorrect
• Issues with other information
• Emphasis of a matter

If practicable, the auditor's report should identify the financial statement effects of the misapplication of GAAP

• Inadequate disclosure
• Unacceptable measurement principles

Mean that the financial statements, taken as a whole, are NOT fairly stated

• If practicable, include the omitted information in the auditor's report
• The auditor would not have to include a statement of cash flows, or segment information in the auditor's report

Meaning that the auditor has one or more reservations, although the financial statements, taken as a whole, are fairly stated

• GAAP departure
• Scope limitations

"We are not independent with respect to ... the financial statements and, accordingly, we do not express an opinion on them."

• Must mark each page unaudited
• Must not describe any procedures performed
• Must modify disclaimer to point out known GAAP departures

• Lack of independence
• Major scope limitation

1) Due to client imposed limitations (e.g., refusal to sign rep letter); 2) Due to other circumstances (e.g., weak internal controls)

Would modify disclaimer report to identify effects of any known GAAP departures

• Request client assistance in informing users that previous statements should not be relied upon and in issuing revised financial statements
• If client refuses, notify board, client, applicable regulators, and other users not to rely and consult legal counsel

Can use US format or foreign country's format

• Must follow US GAAS
• Must understand foreign country's accounting principles
• Obtain management's representation for use of financials

• Nothing if other audit procedures compensate
• Belatedly perform audit procedures
• If support opinion, document procedures
• If not, treat as subsequent discovery of facts existing at the report date

• Read current year's financial statements
• Obtain a letter of representation from management that nothing materially affects the financial statements previously reported

• Describing different conclusions about selected elements of the financial statements than expressed about the financial statements taken as a whole
• Prohibited

• State that the auditor has reported on the complete financial statements -- indicate the date and type
• Indicate whether the condensed financial statement information is fairly stated relative to the complete set of audited financial statements
• Information should be clearly marked condensed

• Audit report dated as of the date sufficient appropriate evidence collected
• May specify a later date applicable to a particular footnote added to the financial statements

• That PY financials were audited by other auditor
• Identify date and type of report issued
• Identify reasons for any modifications to report if not standard

• Internal control issues
• Changes in company's business activities and accounting practices
• Questions raised by analytical procedures
• Subsequent events and litigation issues

• Read financial information for GAAP consistency
• Perform analytical procedures
• Inquire of management

• Identify the interim financial statements and indicate management's responsibility
• Indicate adherence to AICPA standards; describe the procedures for a review; and indicate that the scope is "substantially less" than an audit
• Indicate whether any deficiencies were identified

• Compare the current and prior interim financial statements
• Consider interrelationships of financial and non-financial data
• Compare the client's recorded amounts with the auditor's expectations in view of current economic conditions and industry events

• Extend subsequent events procedures to effective date of registration statement
• Read any prospectus filed to verify accountant's name has not been used improperly

Report must refer to country or entity of origin, e.g., accounting standards generally accepted in the United States of America

Report must refer to country or entity of origin, e.g., auditing standards generally accepted in the United States of America

3 sentences - financial statements audited and management and auditor responsibilities

1 sentence - opinion

5 sentences - GAAS, assurance, evidence, assessment, and basis

Report refers only to specific financial statement audited

Access to information underlying basic financial statements must not be limited

Does not involve scope limitation; instead limited reporting objective

Auditor must be able to complete all procedures considered necessary

Includes sentence "We believe that our audits and the report of other auditors provide a reasonable basis for our opinion."

Referred to only as "other auditors," not mentioned by name

When impractical to review other auditor's work or when part audited by other CPA is material in relation to the whole

Affects each paragraph of the auditor's report

Areas of audit specifically mentioned in the introductory paragraph

Additional paragraph describing omitted or inadequate disclosure and effects on financial position, results of operations and cash flows, if practicable, or indicating that information is not reasonably determinable

Failure to present disclosures required by GAAP

Report includes additional paragraph describing omitted or inadequate disclosure and modified wording in opinion paragraph

If practicable, auditor should present required information in audit report; if not practicable, auditor can so indicate

When information can be obtained from accounts and records without substantial increase in effort by auditor

Additional paragraph noting omission of statement of cash flows and modification of opinion paragraph

Failure to include a statement of cash flows

Auditor is NOT required to prepare a missing statement of cash flows (or any missing financial statement)

Paragraph usually includes specific dollar amounts related to the GAAP departure, or may refer to a note to the financial statements where details are provided

Additional paragraph disclosing principal effects of GAAP departure, if practicable, or otherwise stating effects not reasonably determinable and modification of opinion paragraph