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Arens-chapter 22-answers to review questions

Arens-chapter 22-answers to review questions - 22-1...

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22-1 Auditor’s reports are important to users of financial statements because they inform users of the auditor’s opinion as to whether or not the statements are fairly stated or whether no conclusion can be made with regard to the fairness of their presentation. Users especially look for any deviation from the wording of the standard unqualified report and the reasons and implications of such deviations. 22-2 An unqualified report may be issued when the following five circumstances all occur: 1. An audit engagement has been undertaken. 2. The generally accepted auditing standards have been followed in all respects on the engagement. 3. Sufficient appropriate evidence has been accumulated and the auditor has conducted the engagement in a manner that enables him or her to conclude that the examination standards have been met. 4. The financial statements, which include the balance sheet, the income statement, the statement of cash flow, and the notes to the financial statements are fairly presented in accordance with an appropriate disclosed basis of accounting, which usually is Canadian generally accepted accounting principles. 5. There are no circumstances which, in the opinion of the auditor, would require the addition of an explanatory paragraph or modification of the wording of the report. 22-3 This response integrates the prior CICA Handbook requirements of Section 5400 and CAS 700. Refer to Figure 22-1. The unqualified auditor’s report consists of: 1. Report title . Section 5400.07 requires that the report be titled “Auditor’s Report.” (now CAS 700 par. 21) 2. Audit report addressee . The report is usually addressed to the company, its shareholders, or the board of directors. 3. Introductory paragraph or statement . The first paragraph of the report does three things: first, it makes the simple statement that the public accounting firm has done an audit . Second, it lists the financial statements that were audited, including the balance sheet dates and the accounting periods for the income statement and cash flow statement. Third, it previously stated that the statements are the responsibility of management and that the auditor’s responsibility is to express an opinion on the statements based on an audit. The new structure under CAS 700 has this third objective in two new, separate paragraphs. 4. Scope paragraph . The scope paragraph is a factual statement about what the auditor did in the audit. In it the auditor states that the audit was planned and performed in accordance with professional standards and that the auditor made judgments in applying those standards. The remainder briefly describes important aspects of an audit. [4 and 5 with CAS 700, which uses two separate paragraphs for management responsibility and auditor responsibility, with expanded explanations of those responsibilities] 5. [6. with CAS 700] Opinion paragraph. The final paragraph in the standard report states the auditor’s conclusions based on the results of the audit examination.
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