REPORTING ON AUDITED FINANCIAL STATEMENTS

PURPOSE OF AUDITOR’S REPORT

• INDICATE RESPONSIBILITIES– MANAGEMENT RESPONSIBLE FOR FINANCIAL

STATEMENTS

– AUDITOR RESPONSIBLE TO EXPRESS AN OPINION

• SCOPE – AUDITOR FOLLOWED GAAS

• OPINION– FINANCIAL STATEMENTS IN ACCORDANCE

WITH GAAP

STANDARDS OF REPORTING• STATE WHETHER F/S ARE PER GAAP

• IDENTIFY CIRCUMSTANCES IN WHICH GAAP HAVE NOT BEEN CONSISTENTLY OBSERVED

• DISCLOSURE IN THE F/S ARE REGARDED AS REASONABLE UNLESS OTHERWISE STATED

• EXPRESS AN OPINION ON THE F/S AS A WHOLE

THE FOURTH STANDARD OF REPORTING (AU 508.04)

• THE REPORT SHALL EITHER CONTAIN AN EXPRESSION OF OPINION REGARDING THE FINANCIAL STATEMENTS, TAKEN AS A WHOLE, OR AN ASSERTION TO THE EFFECT THAT AN OPINION CANNOT BE EXPRESSED. WHEN AN OVERALL OPINION CANNOT BE EXPRESSED, THE REASONS THEREFOR SHOULD BE STATED. IN ALL CASES WHERE AN AUDITOR'S NAME IS ASSOCIATED WITH FINANCIAL STATEMENTS, THE REPORT SHOULD CONTAIN A CLEAR-CUT INDICATION OF THE CHARACTER OF THE AUDITOR'S WORK, IF ANY, AND THE DEGREE OF RESPONSIBILITY THE AUDITOR IS TAKING.

UNQUALIFIED AUDITOR’S REPORT

• TITLE– MUST INCLUDE THE TERM

“INDEPENDENT”

• ADDRESS– STOCKHOLDERS, BOD, COMPANY

• INTRODUCTION– REFER TO F/S, RESPONSIBILITIES OF

MANAGEMENT AND AUDITOR

• SCOPE– GAAS, REASONABLE ASSURANCE,

DEFINE AUDIT

• OPINION– GAAP, FAIR PRESENTATION

• FIRM NAME

• DATE– END OF FIELD WORK

• CONDITIONS FOR UNQUALIFIED OPINION– GAAS

• GENERAL, FIELDWORK, REPORT

– GAAP• F/S PER GAAP

• ADEQUATE DISCLOSURE

EXPLANATORY LANGUAGE ADDED TO STANDARD UNQUALIFIED REPORT

• OTHER AUDITORS

• DEPARTURE FROM PROMULGATED GAAP

• GOING CONCERN

• LACK OF CONSISTENCY

• EMPHASIS OF A MATTER

OTHER AUDITORS

• PRINCIPAL AUDITORS?– MATERIAL PORTION– KNOWLEDGE OF OVERALL FINANCIALS– IMPORTANT PORTION

• RELY ON OTHER AUDITOR?– REPUTATION– INDEPENDENCE

• ASSUME RESPONSIBILITY FOR OTHER AUDITOR?– CORRESPONDENT FIRM, AGENT OF

PRINCIPAL AUDITOR, OR IMMATERIAL PORTION OF F/S

– NO CHANGE IN AUDIT REPORT

• DON’T ASSUME RESPONSIBILITY FOR OTHER AUDITOR?– MODIFY INTRODUCTION (PERCENTAGE

OF WORK DONE BY OTHER AUDITOR), SCOPE AND OPINION PARAGRAPHS

DEPARTURE FROM PROMULGATED GAAP

• RULE 203 [ET SECTION 203.01] OF THE CODE OF PROFESSIONAL CONDUCT OF THE AICPA STATES:

• A MEMBER SHALL NOT (1) EXPRESS AN OPINION OR STATE AFFIRMATIVELY THAT THE FINANCIAL STATEMENTS OR OTHER FINANCIAL DATA OF ANY ENTITY ARE PRESENTED IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES OR (2) STATE THAT HE OR SHE IS NOT AWARE OF ANY MATERIAL MODIFICATIONS THAT SHOULD BE MADE TO SUCH STATEMENTS OR DATA IN ORDER FOR THEM TO BE IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, IF SUCH STATEMENTS OR DATA CONTAIN ANY DEPARTURE FROM AN ACCOUNTING PRINCIPLE PROMULGATED BY BODIES DESIGNATED BY COUNCIL TO ESTABLISH SUCH PRINCIPLES THAT HAS A MATERIAL EFFECT ON THE STATEMENTS OR DATA TAKEN AS A WHOLE…

• ...IF, HOWEVER, THE STATEMENTS OR DATA CONTAIN SUCH A DEPARTURE AND THE MEMBER CAN DEMONSTRATE THAT DUE TO UNUSUAL CIRCUMSTANCES THE FINANCIAL STATEMENTS OR DATA WOULD OTHERWISE HAVE BEEN MISLEADING, THE MEMBER CAN COMPLY WITH THE RULE BY DESCRIBING THE DEPARTURE, ITS APPROXIMATE EFFECTS, IF PRACTICABLE, AND THE REASONS WHY COMPLIANCE WITH THE PRINCIPLE WOULD RESULT IN A MISLEADING STATEMENT.

GOING CONCERN• SUBSTANTIAL DOUBT EXISTS ABOUT THE

ENTITY’S ABILITY TO CONTINUE AS A GOING CONCERN ONE YEAR BEYOND THE DATE OF THE F/S

• OBTAIN INFORMATION ABOUT MANAGEMNT’S PLANS AND ASSESS THE LIKELIHOOD OF SUCH PLANS BEING IMPLEMENTED

• IF SUBSTANTIAL DOUBT REMAINS– ADD EXPLANATORY PARAGRAPH– COULD DISCLAIM

CONSISTENCY

• GAAP AND ACCOUNTING CHANGES– CHANGE IN PRINCIPLE

• CUMULATIVE EFFECT

• RESTATE FOR SOME

• CHANGE FROM NON-GAAP TO GAAP IS CORRECTION OF AN ERROR (PRIOR-PERIOD ADJUSTMENT)

– CHANGE IN ESTIMATE• PROSPECTIVE

– CHANGE IN ENTITY• RESTATE

• CHANGES AFFECTING COMPARABILITY PER GAAS– CHANGE IN PRINCIPLE– CHANGE IN ENTITY (DISCRETIONARY)– CORRECTION OF ERROR IN PRINCIPLE

(NON-GAAP TO GAAP)– CHANGE IN PRINCIPLE THAT IS

INSEPARABLE FROM A CHANGE IN ESTIMATE

• ADD PARAGRAPH AFTER OPINION

EMPHASIS OF A MATTER

• AUDITOR CAN ADD PARAGRAPH BEFORE OR AFTER OPINION TO EMPHASIZE– COMPONENTS OF A LARGER BUSINESS– RELATED PARTY TRANSACTIONS– SUBSEQUENT EVENTS– ETC

DEPARTURES FROM UNQUALIFIED OPINION

• GAAS – AUDITOR HAS NOT PERFORMED

SATISFACTORY AUDIT– DOES NOT HAVE KNOWLEDGE IF F/S

ARE FAIRLY STATED OR NOT– QUALIFY OR DISCLAIM DEPENDING ON

MATERIALITY

• SCOPE (GAAS) LIMITATION– AUDITOR IMPOSED (NOT

INDEPENDENT)– CLIENT IMPOSED– CONDITION IMPOSED

• QUALIFIED REPORT– QUALIFY SCOPE AND OPINION

• DISCLAIMER– NO OPINION

• GAAP - AUDITOR NOT SATISFIED AS TO FAIRNESS OF F/S– AUDITOR HAS KNOWLEDGE THAT THE

F/S ARE NOT FAIRLY STATED – QUALIFY OR ADVERSE DEPENDING ON

MATERIALITY

• QUALIFIED OPINION DUE TO GAAP DEPARTURE– QUALIFY OPINION PARAGRAPH

• ADVERSE OPINION – THE F/S DO NOT PRESENT FAIRLY IN

ACCORDANCE WITH GAAP

OTHER REPORTING ISSUES• PIECEMEAL OPINIONS (EXPRESSIONS OF

OPINION AS TO CERTAIN IDENTIFIED ITEMS IN FINANCIAL STATEMENTS) – SHOULD NOT BE EXPRESSED WHEN THE

AUDITOR HAS DISCLAIMED AN OPINION OR HAS EXPRESSED AN ADVERSE OPINION ON THE FINANCIAL STATEMENTS TAKEN AS A WHOLE BECAUSE PIECEMEAL OPINIONS TEND TO OVERSHADOW OR CONTRADICT A DISCLAIMER OF OPINION OR AN ADVERSE OPINION.

• COMPARATIVE STATEMENTS– CHANGE PRIOR OPINION

• THE REPORT ON THE F/S OF THE PRIOR PERIOD SHOULD BE UPDATED IF AN AUDITOR BECOMES AWARE OF CIRCUMSTANCES OR EVENTS THAT EFFECT THOSE PRIOR PERIOD F/S

– CHANGE AUDITORS• REFER TO PREDECESSOR AUDITOR OR

• ATTACH PREDECESSOR’S REPORT