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Unformatted text preview: used should not be disclosed since the auditor was able to satisfy him or herself through alternate audit procedures. The lawsuit need not be discussed in the report since it has been included in a footnote. The following deficiencies are in Allison's report: 1. 2. 3. 4. The audit report is neither addressed nor dated and it does not contain a title. The audit report date should be the last day of field work. The balance sheet is as of a specific date, whereas the income statement and the statement of retained earnings are for a period of time. The scope paragraph should identify the period of time (usually one year). There are comparative statements, but the audit report identifies and deals with only the current year's financial statements. An opinion must also be included for the prior period financial statements. There is no separate introductory paragraph that states the financial statements audited, dates, and the responsibilities of management and the auditor. 9-37 3-27 (continued) 5. 6. 7. 8. 9. 10. 11. 12. 13. There is no separate scope paragraph that describes what an audit is. Two required sentences are completely omitted: "An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation." The audit was made in accordance with auditing standards generally accepted in the United States of America rather than generally accepted accounting standards. The word material is excluded from the scope paragraph (free of material misstatement). An additional paragraph should be included which describes the dividend restrictions and the refusal of the client to present a statement of cash flows. The opinion paragraph states that accounting principles were consistent with those used in the prior year. The opinion paragraph should make no reference to consistency. The opinion paragraph excludes the required phrase, "in all material respects." The opinion paragraph includes the words "generally accepted auditing standards" rather than the phrase "accounting principles generally accepted in the United States of America." A separate paragraph should be included stating that generally accepted accounting principles were not consistently applied. The opinion should be qualified rather than being unqualified. Qualifications are caused by the: (a) failure to present a statement of cash flows. (b) failure to disclose the dividend restrictions. 3-28 (a) CONDITION 1. None (b) MATERIALITY LEVEL Immaterial 2. None Not applicable 3. Failure to follow accounting standards Material (c) TYPE OF REPORT Unqualified— standard wording Unqualified— standard wording Qualified opinion only —except for 9-38 (d) MODIFIED WORDING / ADDITIONAL PARAGRAPHS (& OTHER COMMENTS) The amount is immaterial. The facts are adequately disclosed in the footnote. There is no indication questioning the ability of the business to continue operations. The auditor does not automatically add an explanatory paragraph simply because there is a risky business. The standards require the use of a qualified opinion for the failure to include a statement of cash flows. Third (GAAP/IFRS) 4. Substantial doubt about going concern Material Unqualified— explanatory paragraph 5. Scope of the audit has been restricted Highly material Disclaimer 6. Report involving other auditors Material Unqualified— modified wording paragraph must be added stating the omission. There is a question about the ability of the company to continue as a going concern. The auditor therefore must issue an unqualified report with an explanatory paragraph following the opinion. The client has restricted the scope of the audit and the auditor was not able to satisfy him or herself by alternative procedures. Because it was a client restriction rather than a condition beyond the client’s control causing the limitation, and because the limitation is highly material, a disclaimer is appropriate. Introductory paragraph is modified, second paragraph is added describing the scope restriction, scope paragraph is omitted, and opinion paragraph is a disclaimer of opinion. This is a shared audit report in which the auditor will identify the portion of work done by the other auditor in the introductory paragraph and still issue an unqualified opinion. The absolute dollar amounts of assets and revenues or percentages must be stated in the introductory paragraph. Introductory paragraph, scope paragraph, and opinion paragraph are all modified. 3-29 (a) CONDITION 1. Scope of the audit has been restricted (b) MATERIALIT Y LEVEL Highly material (c) TYPE OF REPORT (6) Disclaimer 9-39 (d) MODIFIED WORDING / ADDITIONAL PARAGRAPHS (& OTHER COMMENTS) The client has restricted the scope of the audit and the auditor was not able to satisfy him or herself by alternative procedures. Because it was a client restrictio...
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