In this chapter, the learning objectives are Know the situations that result in the addition of explanatory language to the standard unqualified audit report, be able to explain the conditions that lead to a departure from the standard unqualifiedunmodified audit report,...
Chapter Eighteen Reports on Audited Financial Statements © The McGraw-Hill Companies 2010 Audit Report with an Unmodified Opinion The Theaudit auditreport reportwith withan anunmodified unmodifiedopinion opinionis isissued issued when whenthe thefinancial financialstatements statementsconform conformto tothe the applicable applicablefinancial financialreporting reportingframework framework Nine NineElements Elements 1.1 Report Reporttitle title 2.2 Addressee Addressee 3.3 4.4 Introductory Introductoryparagraph paragraph Management’s Management’sresponsibility responsibility 5.5 6.6 Auditor’s Auditor’sresponsibility responsibility Auditor’s Auditor’sopinion opinion 7.7 8.8 Auditor’s Auditor’ssignature signature Audit Auditreport reportdate date 9.9 Auditor’s Auditor’saddress address © The McGraw-Hill Companies 2010 Audit Report with an Unmodified Opinion © The McGraw-Hill Companies 2010 Emphasis of Matter Paragraph and Other Matter Paragraph An emphasis of matter paragraph does not affect the auditor’s opinion because it can only be included in the audit report if the matter is appropriately presented or disclosed in the financial statements © The McGraw-Hill Companies 2010 An other matter paragraph does not affect the auditor’s opinion because it relates to a matter other than those required to be presented or disclosed in the financial statements Emphasis of Matter Paragraph AAmatter, matter,although althoughappropriately appropriatelypresented presentedor ordisclosed disclosedinin the thefinancial financialstatements, statements,that thatisisof ofsuch suchimportance importancethat thatititisis fundamental fundamentalto tousers’ users’understanding understandingof ofthe thefinancial financial statements statements •• The Theemphasis emphasisof ofmatter matterparagraph paragraphisisincluded includedimmediately immediately after afterthe theopinion opinionparagraph paragraphininthe theaudit auditreport reportand andthe theheading heading ‘Emphasis ‘Emphasisof ofMatter’ Matter’isisordinarily ordinarilyused used •• The Theparagraph paragraphincludes includesaaclear clearreference referenceto tothe thematter matterbeing being emphasized emphasizedand andto towhere whererelevant relevantdisclosures disclosuresthat thatfully fully describe describethe thematter mattercan canbe befound foundininthe thefinancial financialstatements statements •• The Theauditor auditorshould shouldindicate indicatethat thatthe theauditor’s auditor’sopinion opinionisisnot not modified modifiedininrespect respectof ofthe thematter matteremphasized emphasized © The McGraw-Hill Companies 2010 Emphasis of Matter Paragraph for Going-Concern Problems © The McGraw-Hill Companies 2010 Emphasis of Matter Paragraph An An emphasis emphasis of of matter matter paragraph paragraph isis used used only only ifif the the matter matter isis of of such such importance importance that that itit isis fundamental fundamental to to users’ users’understanding understanding of of the the financial financial statements statements Auditing Auditingstandards standardsgive givethese theseexamples: examples: ••An Anuncertainty uncertaintyrelating relatingto tothe thefuture futureoutcome outcomeof of exceptional exceptionallitigation litigationor orregulatory regulatoryaction action ••Early Earlyapplication application(where (wherepermitted) permitted)of ofaanew newaccounting accounting standard standardthat thathas hasaapervasive pervasiveeffect effecton onthe thefinancial financial statements statementsin inadvance advanceof ofits itseffective effectivedate date ••AAmajor majorcatastrophe catastrophethat thathas hashad, had,or orcontinues continuesto tohave, have, aasignificant significanteffect effecton onthe theentity’s entity’sfinancial financialposition position © The McGraw-Hill Companies 2010 Other Matter Paragraph •• The Theterm term‘other ‘othermatter’ matter’isisused usedbecause becausethe thematter matter communicated communicatedisisaamatter matterother otherthan thanthose thosethat thatare are presented presentedor ordisclosed disclosedin inthe thefinancial financialstatements statements •• The Theother othermatter mattermust mustrelate relateto tothe theunderstanding understandingof of the theaudit, audit,the theauditor’s auditor’sresponsibilities responsibilitiesor orthe theauditor’s auditor’s report report •• An Another othermatter matterparagraph paragraphisisheaded headed‘Other ‘OtherMatter’ Matter’ and andthe theparagraph paragraphisisincluded includedin inthe theaudit auditreport report immediately immediatelyafter afterthe theopinion opinionparagraph paragraphand andany any emphasis emphasisof ofmatter matter paragraph paragraph © The McGraw-Hill Companies 2010 Other Matter Paragraph © The McGraw-Hill Companies 2010 Conditions of Modification Scope Limitation Departure from the Applicable Financial Reporting Framework © The McGraw-Hill Companies 2010 Auditor’s inability to obtain sufficient appropriate evidence The financial statements are prepared or presented in a manner that conflicts with the applicable financial reporting framework Scope Limitation – Qualified Opinion © The McGraw-Hill Companies 2010 Departure from Applicable Financial Reporting Framework – Qualified Opinion © The McGraw-Hill Companies 2010 Departure from Applicable Financial Reporting Framework– Adverse Opinion © The McGraw-Hill Companies 2010 Special Reporting Issues Reports on comparative information Other information in documents containing audited financial statements © The McGraw-Hill Companies 2010 Reports on specialized areas Reports on Comparative Financial Information Corresponding Correspondingfigures figures are arecomparative comparative information informationwhere whereamounts amounts and and other other disclosures disclosures for forthe the prior priorperiods periodsare arean anintegral integral part partof ofthe thecurrent-period current-period financial financialstatements, statements, and andare areintended intendedto tobe beread read only only in inrelation relationto to current-period current-periodfigures figures Comparative Comparativefinancial financialstatements statements are areconsidered considered separate separatefinancial financialstatements statementsand and are are included included for forcomparison comparisonwith withthe thefinancial financialstatements statements of of the thecurrent currentperiod period © The McGraw-Hill Companies 2010 Corresponding Figures – Audit Report with a Qualified Opinion © The McGraw-Hill Companies 2010 Comparative Financial Statements – Audit Report with an Unmodified Opinion © The McGraw-Hill Companies 2010 Other Information in Documents Containing Audited Financial Statements The auditor has no responsibility beyond the financial information contained in the report, and he or she has no obligation to perform any audit procedures to corroborate the other information However, the auditor is required to read the other information and consider whether it is consistent with the information contained in the audited financial statements Annual Reports © The McGraw-Hill Companies 2010 Report on a Material Inconsistency © The McGraw-Hill Companies 2010 Reporting on Specialized Areas Reporting on financial statements prepared in accordance with a special purpose framework Reporting on single financial statements or elements of a financial statement Reporting on summary financial statements © The McGraw-Hill Companies 2010 Special Purpose Frameworks Tax Basis Cash Basis Regulatory Basis Contract Basis © The McGraw-Hill Companies 2010 Audit Report on Financial Statements prepared on a Tax Basis © The McGraw-Hill Companies 2010 A Single Financial Statements or Elements of Financial Statements In In some some situations situations an an auditor auditor may may be be engaged engaged to to audit audit aa single single financial financial statement, statement, specified specified elements, elements, accounts, accounts, or or items items of of the the financial financial statements statements General GeneralPurpose Purpose Framework Framework Basis of Accounting © The McGraw-Hill Companies 2010 Special Special Purpose Purpose Framework Framework Reporting on Summary Financial Statements © The McGraw-Hill Companies 2010 End of Chapter 18 © The McGraw-Hill Companies 2010 ... financialstatements statements are areconsidered considered separate separatefinancial financialstatements statementsand and are are included included for forcomparison comparisonwith withthe thefinancial financialstatements... information and consider whether it is consistent with the information contained in the audited financial statements Annual Reports © The McGraw-Hill Companies 2010 Report on a Material Inconsistency... financialstatements, statements, and andare areintended intendedto tobe beread read only only in inrelation relationto to current-period current-periodfigures figures Comparative Comparativefinancial financialstatements