Chapter 15 -- Reporting

Question 1

Section 15.1: The Auditor’s Reporting Responsibility

What is included in the Opinion Section of the Auditor’s Report?

Answer 1

The financial statements that are being audited:
* Balance Sheet
* Statement of Income
* Statement of Equity
* Statement of Cash Flows

Question 2

Section 15.2: The Auditor’s Report

What is included in the Opinion section of an auditor’s report?

Answer 2

• The first paragraph identifies the titles of the financial statements.
• Identifies the applicable financial reporting framework and its origin (i.e. GAAP, OCBOA).

Question 3

Section 15.2: The Auditor’s Report

What are the components of the auditor’s report?

Answer 3

• Opinion
• Basis for Opinion
• Responsibilities of Management for the Financial Statements
• Auditor’s Responsibilities for the Audit of the Financial Statements

Question 4

Section 15.2: The Auditor’s Report

What statement is included in the Auditor’s Responsibilities for the Audit of the Financial Statements?

Answer 4

“. . . we exercise professional judgment and maintain professional skepticism throughout the audit.”

Question 5

Section 15.2: The Auditor’s Report

When can an unqualified opinion be issued when only statistical sampling is used?

Answer 5

• The auditor must become satisifed that the procedures are reliable.
• The auditor must observe come counts and be satisifed that the sampling plan is reasonable and statiscally valid.
• The sampling plan has been properly applied.
• The results are reasonable

Question 6

Section 15.2: The Auditor’s Report

What is a critical audit matter (CAM)?

Answer 6

A critical audit matter (CAM) is any matter resulting from the audit of the financial statements that:
* Is either communicated, or must be communicated to the audit committee.
* Relates to material accounts and disclosures (i.e. possible material loss).
* Involves challenging, subject or complex auditor judgement.

Question 7

Section 15.3: Addressing and Dating the Report

What is report date is used when the auditor reissues a previous report for comparative purposes only and no changes were made?

Answer 7

The original date of the report is used.

Question 8

Section 15.3: Addressing and Dating the Report

When is dual dating used on the auditor’s report?

Answer 8

• Dual dating is used when a subsequent event disclosed in the financial statements occurs after the date of the auditor’s report but before the release of the auditor’s report.
• The auditor would use dual dating when they revise the wording of the report to assume responsibility for a specific subsequent event.

Question 9

Section 15.3: Addressing and Dating the Report

When is the earliest an audit report can be dated?

Answer 9

The date of the auditor’s report is based on when the auditor has obtained sufficient audit evidence to support an opinion.

Question 10

Section 15.4: Qualified Opinions

What causes a Qualified Opinion?

Answer 10

A qualified opinion is issued when:

• There is a material misstatement related to specific amounts in the financial statement that is not pervasive.
• Circumstances not controlled by the entity
• Circumstances related to the nature or timing of work due to the late engagement.
• Limitations imposed by management.
• Unjustifed change in accounting principle
• Scope limitation
• Omitting a financial statement from the audit (i.e. Statement of Cash Flow).

Question 11

Section 15.4: Qualified Opinions

What is included in a Qualified Opinion?

Answer 11

The qualified opinion report should include:

• A description of the financial effects
• An explanation on how the disclosures are misstated. Or
• Omitted information.

Question 12

Section 15.4: Qualified Opinions

What situation would cause an auditor to issue either a qualified or adverse opinion?

Answer 12

There is substantial doubt about the entity’s ability to continue as a going concern that is not adequately disclosed in the notes of the financial statements.

Question 13

Section 15.4: Qualified Opinions

What type of opinion is expressed when the financial statements are materially, but not pervasively, misstated?

Answer 13

Qualified opinion

Question 14

Section 15.4: Qualified Opinions

What would cause either a qualified or disclaimer to be issued?

Answer 14

• The auditor is unable to obtain sufficient appropriate evidence that would confirm that the financial statements, as a whole, are free from material misstatement.
• A refusal from the client’s attorney to provide a letter of inquiry would cause a qualified or disclaimer to be issued.

Question 15

Section 15.5: Adverse Opinions

What type of opinion is expressed when the financial statements are materially and pervasively misstated?

Answer 15

Adverse opinion

Question 16

Section 15.5: Adverse Opinions

What are the causes of an adverse opinion?

Answer 16

Sufficient evidence is obtained to conclude the that financial statements are materially misstated and pervasive.

Question 17

Section 15.6: Disclaimers of Opinion

What type of opinion is expressed if the client refuses the suggestions of an auditor in regard to disclosure of the financial statements?

Answer 17

• An adverse opinion will be issued if the financial statements lack adequate disclosure, and the client refuses to the auditor’s suggestions to correct the issue.
• The disclaimer of opinion should include a description of the departure, which should state the nature of the departure and the effects on the financial statements, as well as any other necessary information.

Question 18

Section 15.6: Disclaimers of Opinion

What causes a disclaimer of opinion?

Answer 18

• The auditor cannot obtain sufficient appropriate evidence, which results in the financial statements being materially misstated and pervasive.
• A scope limitation that results from circumstances not controlled by the entity.
• A scope limitation because of circumstances related to the nature of timing of the work (i.e. unable to confirm beginning inventory).
• A scope limitation due to limits imposed by management
• The auditor is unable to determine information due to an employee fraud scheme