Ch3review answer1

Ch3review answer1 - Chapter 3 Audit Reports Key objectives:...

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Chapter 3 Audit Reports Key objectives: 1. Describe the parts of the standard unqualified audit report. 2. Specify the conditions required to issue the standard unqualified audit report. 3. Understand combined reports on financial statements and internal control over financial reporting required under Section 404 of the Sarbanes–Oxley Act. 4. Describe the five circumstances when an unqualified report with an explanatory paragraph or modified wording is appropriate. 5. Identify the types of audit reports that can be issued when an unqualified opinion is not justified. 6. Explain how materiality affects audit reporting decisions. 7. Know the key terms that identify different audit reports. 8. Determine the appropriate audit report for a given audit situation. 1. Purpose of audit report Communicates auditor's work and conclusions reached. It's the auditor's product , and the only visible outcome of the audit process. 2. Short-form report (unqualified or "clean" opinion) A. When appropriate 1. All 4 statements and appropriate disclosure (An opinion can be issued on less than a full set of financial statements - see Ch. 24). GAAS specifically provides that in the case of omission of the cash flows statement, a qualified opinion is issued. 2. Three general standards have been followed. 3. Auditor has gathered sufficient evidence in accordance with GAAS 4. Statements in accordance with GAAP (including adequate disclosure) 5. No other circumstances (see types of reports below) B. There are seven parts to the report. It is important to understand the content of the three main paragraphs (in bold). Parts of Audit Report 14
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1. Title 2. Report addressee 3. Introduction 4. Scope 5. Opinion 6. CPA name 7. Date - The date is the last day of the auditor's fieldwork . Auditor is responsible for reporting on events occurring up to that date. C. Uniformity - see sample Ernst & Young and PricewaterhouseCoopers opinions on following page. 3. Expectations gap - What is the "expectations gap"? ( Discussion ) Expectation Gap Public expects Expectation Gap Audit provides Pre-Sox? Today The expectations gap is the difference between what the public expects, and what the audit provides. There are continued concerns about the quality of audits. Recent examples of perceived audit failures include Enron, WorlCom, Adelphia, Tyco and Sunbeam. As a result, the SEC has been critical of the profession, and the Public Oversight Board performed an extensive examination of audit effectiveness. The profession was also under attack in the mid- to late 1970's. The divisions for CPA firms and peer review came about in response to those attacks. 15
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This page includes sample reports from Deloitte and Touche and PricewaterhouseCoopers. The report meanings are the same, but PWC combines the three paragraphs in the standard report. Note that the Deloitte and Touche report includes an explanatory paragraph for consistency and is also dual-dated, and the PWC report is a shared report.
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Ch3review answer1 - Chapter 3 Audit Reports Key objectives:...

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