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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:
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
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
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
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)
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
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
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:
failure to present a statement of cash flows.
failure to disclose the dividend restrictions. 3-28
1. None (b)
Immaterial 2. None Not applicable 3. Failure to follow
standards Material (c)
standard wording Qualified opinion
only —except for 9-38 (d) MODIFIED WORDING /
(& 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
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
concern Material Unqualified—
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
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)
1. Scope of the
audit has been
Highly material (c)
(6) Disclaimer 9-39 (d) MODIFIED WORDING /
(& 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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- Fall '13