1、Audit ReportsChapter 2Learning Objective 1Describe the parts ofthe standard unqualifiedaudit report.Parts of the StandardUnqualified Audit Report1. Report title2. Audit report address3. Introductory paragraph4. Scope paragraph5. Opinion paragraph6. Name of CPA firm7. Audit report dateLearning Object

2、ive 2Specify the conditionsrequired to issue thestandard unqualifiedaudit report.Conditions for StandardUnqualified Audit Report1. All financial statements are included.2. The three general standards have beenfollowed in all respects on the engagement.3. Sufficient evidence has been accumulatedto co

3、nclude that the three standards offield work have been met.Conditions for StandardUnqualified Audit Report4. The financial statements are presented inaccordance with generally acceptedaccounting principles.5. There are no circumstances requiring theaddition of an explanatory paragraph ormodification

4、 of the wording of the report.Four Categoriesof Audit ReportsStandard unqualifiedUnqualified withexplanatory paragraphor modified wordingQualifiedAdverse or disclaimerLearning Objective 3Describe the five circumstanceswhen an unqualified report withan explanatory paragraphor modified wording isappro

5、priate.Unqualified Reportwith Explanation1. Lack of consistent application of generallyaccepted accounting principles.2. Substantial doubt about going concern.3. Auditor agrees with a departure from promulgated accounting principles.4. Emphasis of a matter.5. Reports involving other auditors.Consist

6、ency versusComparabilityChanges that affect consistency and requirean explanatory paragraph if they are material:1. Changes in accounting principles2. Changes in reporting entities3. Corrections of errors involving principlesConsistency versusComparabilityChanges that affect comparabilitybut not con

7、sistency:1. Changes in an estimate2. Error corrections not involving principles3. Variations in format and presentation of financial information4. Changes because of substantially different transactions or eventsSubstantial Doubtabout Going Concern1. Significant recurring operating losses or working

8、 capital deficiencies2. Inability of the company to pay its obligations as they come due3. Loss of major customers, the occurrence of uninsured catastrophes4. Legal proceedings, legislation, that might jeopardize the entitys ability to operateAuditor Agrees with a Departurefrom a Promulgated Princip

9、leThe auditor must be satisfied and must stateand explain, in a separate paragraph orparagraphs in the audit report, that adheringto the principle would have produced amisleading result in that situation.Emphasis on a MatterUnder certain circumstances, the CPA maywant to emphasize specific matters r

10、egardingthe financial statements, even though theCPA intends to express an unqualified opinion.Reports InvolvingOther Auditors1. Make no reference in the audit report.3. Qualify the opinion.2. Make reference in the report(modified wording report).Learning Objective 4Identify the types of auditreport

11、s that can be issuedwhen an unqualifiedopinion is not justified.Departures from anUnqualified Opinion1. Scope limitation2. GAAP departure3. Auditor not independentQualified OpinionA qualified opinion report canresult from a limitation on thescope of the audit or failure tofollow generally acceptedac

12、counting principles.Adverse OpinionIt is used only when the auditor believesthat the overall financial statements areso materially misstated or misleading thatthey do not present fairly the financialposition or results of operations and cashflows in conformity with GAAP.Disclaimer of OpinionIt is is

13、sued when the auditor is unableto be satisfied that the overall financialstatements are fairly presented.Learning Objective 5Explain how materiality affectsaudit reporting decisions.MaterialityA misstatement in the financial statementscan be considered material if knowledge ofthe misstatement would

14、affect a decisionof a reasonable user of the statements.Levels of MaterialityAmounts are immaterial.Amounts are material but donot overshadow the financialstatements as a whole.Amounts are so material or sopervasive that overall fairnessof the statements is in question. Relationship of Materialityto

15、 Type of OpinionMaterialityLevelSignificance in Terms ofReasonable Users DecisionsType ofOpinionUsers decisions are unlikelyto be affected.ImmaterialUnqualifiedUsers decisions are likelyto be affected.MaterialQualifiedUsers decisions are likelyto be significantly affected.HighlyMaterialDisclaimeror

16、AdverseMateriality DecisionsFailure tofollow GAAPAudit reportUnqualifiedQualifiedopinion onlyAdverseMateriality DecisionsDollar amount compared with a baseMeasurabilityNature of the itemMateriality DecisionsScopelimitationAudit reportUnqualifiedQualified scopeand opinionDisclaimerLearning Objective

17、6Draft appropriately modifiedaudit reports under a varietyof circumstances.Discussion of ConditionsRequiring DepartureAuditors scope has been restricted.Statements are not in conformity with GAAP.Auditor is not independent.Scope Restricted byClient or ConditionsImmaterialMaterialLevel of Materiality

18、ExtremelyMaterialUnqualifiedreportQualified scope, additionalparagraph, and qualifiedopinion (except for)Disclaimerof opinionStatements Not Prepared inAccordance With GAAPImmaterialMaterialLevel of MaterialityExtremelyMaterialUnqualifiedreportAdditional paragraphand qualified opinion(except for)Adve

19、rseopinionThe Auditor Is NotIndependentImmaterialMaterialLevel of MaterialityExtremelyMaterialDisclaimer of opinion(regardless of materiality)Learning Objective 7Determine the appropriateaudit report for a givenaudit situation.Auditors Decision ProcessDetermine whether any condition existsrequiring a departure from a standardunqualified report.Decide the materiality for each