This preview shows pages 1–3. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Chapter 3 Audit Reports Audit reports can be covered at any time during the course. Some professors prefer it early, whereas others teach it near the end. It will cause no problem if you prefer to teach reports later or to split it into two segments as shown in the one- quarter syllabus. We find that students are able to comprehend the primary reporting issues early in the term. We therefore cover it early so that we can refer to reporting concepts throughout the term as we address various other topics. The way we teach audit reporting is less conceptual and more rule-oriented than any other part of the course. The following are the topics we cover: Chapter opening vignette Overview Parts of the audit report Categories of audit reports Combined reports on financial statements and internal control Unqualified audit report with explanatory paragraph or modified wording Conditions requiring a departure Audit reports other than unqualified Other issues Chapter Opening Vignette - The Audit Report Was Timely, But at What Cost? This vignette highlights several important issues. The first, and overriding issue, is the importance of knowing that the audit has been completely and properly performed before the audit report is issued. The case shows the severe penalty that can result from one poor judgment on the part of the auditor. The second issue is the effect of conflicting responsibilities that can occur in public accounting. Here, the partners participation in the engagement is essential, yet he was unable to give this audit sufficient attention until the last day of field work. Third, is the problem of time pressure to complete an audit by a deadline. This is especially common when filing a registration statement. The problem is that this is also a situation where risk is great. So the auditor is caught between a rock and a hard place. Fourth, is the notion of risk. The company is going public, which will provide management with great financial rewards. Audit risk is high because management, who has extensive control, is strongly motivated to overstate earnings. Business risk is also high because of the market aspects. Fifth, there are evidence issues involving managements representations, representations by the Companys attorney, and the weakness of a fax confirmation. Finally, there is the matter of the clients behavior and how the auditor reacts to it. A difficult aspect of auditing or any other business is how to deal with negative or threatening behavior. 3-1 Overview For the class period dealing with audit reporting, we take enough annual reports from different companies into class so that each student has at least one. We make sure there are a few explanatory paragraphs, and if possible, a few qualifications and modified wording opinions included in the annual reports. (Students do not keep the reports.) After we hand out the annual reports at the start of class, each student is asked to find the auditor's report. With the annual report as a frame of reference, we asked to find the auditor's report....
View Full Document
This note was uploaded on 01/23/2010 for the course ACCOUNTING auditing taught by Professor Pro-abuel-ezz during the Spring '10 term at Cairo University.
- Spring '10