Chapter 17 - Outlines Chapter 17-1 CHAPTER 17 REPORTS 2009...

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Unformatted text preview: Outlines Chapter 17-1 CHAPTER 17 REPORTS 2009 DIAGRAM OF AN AUDIT OF FINANCIAL STATEMENTS Plan Audit Obtain Understanding Of Client and its Environment, Including Internal Control Perform Risk Assessment Design Further Procedures Perform Tests of Controls Perform Substantive Procedures Complete the Audit Issue Audit Report Outlines Chapter 17-2 A. General 1. Types of Opinions Unqualified - Standard A "clean opinion" that may be issued when (1) financial statements presented in conformity with GAAP, (2) audit was performed in accordance with GAAS (or PCAOB standards, for publicly traded companies), including no scope limitations so significant as to prevent the auditors from gathering the evidence necessary to support their opinion and (3) when no conditions resulting in explanatory language exist. Unqualified - With Explanatory Language Issued when, due to certain circumstances, although financial statements follow GAAP, a matter needs to be referred to in the audit report. The report modification may or may not be required by the professional standards. Examples when explanatory language is required: (1) Substantial doubt about client's "going concern" status, (2) Lack of consistency between years in accounting principles followed. Example when explanatory language is not required: (1) Emphasis of a matter described in the financial statements. Qualified A report that states that the financial statements are presented fairly "except for" the effects of some matter. Two circumstances lead to qualified reports: Departures from GAAP For example, inappropriate inventory valuation method, or misreporting a material transaction. Scope limitations Auditors are unable to perform an audit procedure, and the procedure is considered essential. A scope restriction may be because of either client imposed or circumstance imposed. More on this later. Disclaimer Due to a significant scope limitation (or very major uncertainties, including going concern uncertainties) the auditor was unable to form an opinion on the fairness of the financial statements. Adverse A report that states that the financial statements are not a fair presentation. Only departures from GAAP that result in financial statements when taken as a whole are not presented fairly in conformity with GAAP lead to adverse opinions. NOTE: Departures from GAAP that are material lead to qualified opinions. Departures from GAAP that are extremely material, or so material as to result in misleading statements lead to adverse opinions. Outlines Chapter 17-3 2. The Standard Unqualified Report Know what is in the standard unqualified audit report for both, public and non-public companies: PUBLIC COMPANIES NON-PUBLIC COMPANIES A title that includes the word independent. Same A statement that the financial statements identified in the report were audited....
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Chapter 17 - Outlines Chapter 17-1 CHAPTER 17 REPORTS 2009...

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