Unqualified Auditor's Report
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32 terms
Terms | Definitions |
|---|---|
 Five Categories of Audit Reports | Standard unqualified (clean opinion) Unqualified with explanatory paragraph or modified wording Qualified Adverse Disclaimer |
| Qualified | Having met set conditions or requirements Limited, modified |
| Unqualified | Not having the usual or requisite talents, abilities, or accomplishments Not modified, limited, or restricted by conditions or exceptions |
| Auditor's Report for Nonpublic Clients: Report Title | Independent Auditor's Report |
| Auditor's Report for Nonpublic Clients:Identification of Addressee | To the Board of Directors of Example Company |
| Auditor's Report for Public Clients:Report Title | Independent Registered Auditor's Report |
| Auditor's Report for Public Clients: Identification of Addressee | To the Board of Directors of Example Company |
| Integrated Audit | auditor provides an opinion on both the financial statements and on internal control over financial reporting |
| Introductory Paragraph | States that an audit has been performed; identifies the financial statements and appropriate dates; states that the financial statements are the responsibility of the entity's management |
| Scope Paragraph—Nonpublic Clients | States that auditor followed GAAS or PCAOB standards and indicates that the audit only provides reasonable assurance. |
| An audit includes | examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation |
| Opinion Paragraph | Communicates the results of the audit. |
| Unqualified Audit Report with Explanatory Paragraph or Modified Wording | A complete audit took place with satisfactory results and financial statements are fairly presented, but the auditor believes that it is important or required to provide additional information |
| Inconsistent Application of GAAP:changes that affect consistency | require an explanatory paragraph, if material. Ex: change from LIFO to FIFO, Changes in reporting entities, such as the inclusion of an additional company, Corrections of errors involvng a principle. |
| Inconsistent Application of GAAP:changes that affect comparability | Changes in an estimate, such as a decrease in the life of an asset for depreciation purposes, Error corrections not involving principles, Changes because of substantially different transactions or events, Variations in format |
| Method of Disclosure for Inconsistent Application of GAAP | Three standard report paragraphs included without modification Separate explanatory paragraph AFTER opinion paragraph |
| Uncertainties | The effect of certain events on the client's financial position, results of operations, and cash flows cannot be reasonably estimated, such as: Possible effects of litigation Possible effects of income tax assessments |
| Uncertainties Disclosure | the auditor may add an explanatory paragraph, but is not obligated to do so |
| Substantial Doubt About Going Concern | Factors causing uncertainty about: client's ability to continue its operations meet its obligations for a reasonable period of time |
| Substantial Doubt About Going Concern | Significant recurring operating losses, Inability of the company to pay its obligations, Loss of major customers, the occurrence of uninsured catastrophes such as an earthquake or flood, or unusual labor difficulties, Legal proceedings |
| Disclosure of Substantial Doubt About Going Concern: | Three standard report paragraphs included without modification Separate explanatory paragraph AFTER opinion paragraph A disclaimer of opinion is allowed, but not required (rare in actual practice) |
| Auditor Agrees with a Departure from a Promulgated Principle | an unqualified opinion can be given A separate paragraph is required, and may be placed either before or after the opinion paragraph |
| Emphasis of a Matter | The existence of significant related party transactions Important events occurring subsequent to the balance sheet date Matters affecting the comparability of the financial statements with those of the preceding year, such as acquisition of a subsidiary |
| Disclosure of Emphasis of a Matter | an unqualified opinion is given. Three standard report paragraphs included without modification Separate explanatory paragraph BEFORE or AFTER opinion paragraph |
| Reports Involving Other Auditors | Common when the client has several widespread branches or subdivisions |
| Three methods of disclosure for Reports Involving Other Auditors | Make no reference to other auditors in the audit report (Standard three paragraphs), Make reference in the report to the other auditor (shared opinion or shared report), or Qualify the report or disclaim an opinion, depending on materiality |
| 5 basic types of audit reports | Standard unqualified report, Unqualified report with an explanatory paragraph, Qualified report, Adverse report, Disclaimer of opinion report |
| Standard unqualified report | no material violations of GAAP, disclosures are adequate, auditor was able to perform all of the necessary procedures, no change in accounting principle that had material effect, no weaknesses in internal controls, no significant doubt about going concern, auditor is independent |
| Unqualified report with an explanatory paragraph | justified departure from GAAP, inconsistent application of GAAP, going concern doubt, emphasis of a matter, and reference to other auditors |
| Qualified report | a material unjustified departure from GAAP, inadequate disclosure, a scope limitation |
| Adverse report | a pervasive and material unjustified departure from GAAP, lack of important disclosures |
| Disclaimer of opinion report | the auditor either lacked independence or was unable to obtain sufficient evidence to form an opinion on the overall fairness of the financial statements |
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