What are the 5 basic types of Audit Opinions? SAS 79 (Au 508)
- Unqualified - Standard Report
- Unqualified with explanatory paragraph
- Qualified Opinion - “Except for”
- Adverse Opinion - “Do not present fairly”
- Disclaimer of Opinion - “We do not express an opinion”
Breaking down: Unqualified - Std Report (non public company)
- Address to 3rd party (never mgmt) - BOD, AC, SH
- Opening Paragraph: identify FS, indicate mgmt responsibility, indicate auditors responsibility to express opinion
- 2nd Pg; Scope - GAAS, emphasize reasonable assurance over free of material misstatement, describe approach of examining evidence, indicated assessed principals & estimates, state audit procedure provide reasonable basis for opinion.
- 3rd Pg: Opinion: Express an opinion and refer to confirmty GAAP
What is SAS 104 (AU 230) definition of reasonable assurance?
“while exercising due prof. care, auditor must plan and perform audit to obtain sufficient appropriate evidence so that audit risk will be low”
Difference in PCAOB Audit Report for Public Companies?
- title = “Report of Independent Registered Public Account Firm”
- Change Scope paragraph reference from GAAS to PCAOB
- Under Auditor Signature, there is city and State/or/country
What is “Emphasis of Matter SAS 79 (Au 508)” on the Opinon Report?
Optional explanatory paragraph at the end for following items:
- Significant RP
- Material uncertainties
- Important Sub events
What are some mandatory “Emphasis of Matter” reporting on the Opinion Report?
- Justifiable departure from GAAP
- Lack of inconsistency
- Uncertainty - Contingent liability
- Uncertainty - Going Concern
- Division of responsibility.
- Incorrect supplementary info
- Info required by FASB or GASB is omitted
- Not to refer to specialist unless report modified due to specialist finding
- Emphasis of a matter
What are the 4 standards of Reporting? (ANOE)
- Accordance with GAAP
- No New Principles - Consistency
- Omitted disclosures, none.
- Express an opinion
What is a qualified opinion?
Management refuses to correct FS to be in accordance to GAAP. Thus this is AKA as an “except for” opinion.
Auditor issues opinion that FS are fairly presented except for the listed departure from GAAP.
How is the departure from GAAP reporting in a qualified (except for) or Adverse opinion?
Immediately after scope paragraph and before opinion.
What is the second standard of reporting?
No new principles, consistency.
Auditor can concur to change or no concur.
How is a change in principles reported on the opinion when auditor concur or not concur?
if concur, explanatory paragraph after opinion paragraph.
If no concur, issue qualified opinon with an except for paragraph before opinion paragraph.
What is the 3rd reporting standards?
No omitted disclosures.
If there is an omitted disclosure how is it reported?
Common omitted disclosure is SOCF, which leads to qualified opinion. Explanatory paragraph before opinion.
What is the 4th reporting standard?
Express an opinion.
What type of opinion when auditor can rely and accept work of another auditor?
What if can rely but no accept responsibility?
Standard unqualified with no reference.
issue division of responsibility. Make reference in all paragraphs.
What is an uncertainty?
Not due to scope limitation but nature of the item itself has an uncertain resolution. i.e. unresolved lawsuit.
Auditor can disclose as an emphasis matter (optional) if feel the need to. This is always after the opinion.
How is going concern (uncertainty) required to be reported?
This is the one uncertainty that auditors are required to report after opinion paragraph.
What is a scope limitation? (qualified or disclaimer) and how is it reported?
When unable to express an opinion on an item. Reported after scope but before opinion.
When is a scope limitation a qualified opinion?
When scope limitation is not auditor or mgmt fault.
What are examples of a scope limitation with disclaimer opinion?
- no rep letter
- refusal to send legal confirms.
- inability to observe IO or confirm receivables
- inability of principal auditor to obtain subsidiary FS whose company investment is material to FS and examined by other auditors.
What is an adverse opinion?
Result of material departure from GAAP, inadequate disclosures, unreasonable accounting.
Explanatory paragraph before opinion paragraph.
When does disclaimer opinion occur?
results from material scope limitation or material uncertainty.
How is a disclaimer opinion reported?
- Remove auditor responsibility to express an opinion in intro paragraph
- No scope paragraph
- Explain disclaimer reason
- Say we did not express an opinion.
