Essay on Ch 12 Notes

Submitted By angeloflilies
Words: 2614
Pages: 11

4 Parts of Audit Report
1. Introductory paragraph
a. F/S and years examined
2. Management’s Responsibility section
a. Management responsible for financial statements
b. Management responsible for internal control
3. Auditor’s Responsibility section
a. Auditor responsible for issuing opinion on financial statements
b. Audit conducted in accordance with GAAS
c. Audit provides reasonable assurance
4. Opinion
Are F/S presented in accordance with applicable financial reporting framework (GAAP)?
(Additional paragraph – Identifies departure from GAAP)
First 4 Sentences:
1. Intro: We have audited the accompanying F/S of Company, which comprise the balance sheet as of December 31, 2014, and the related statements of income, changes in shareholders’ equity, and cash flows for the year then ended, and the related notes to the F/S.
2. Management’s responsibility for the F/S: Management is responsible for the preparation of these F/S in accordance with accounting principles generally accepted in the US of A; this includes the design, implantation, and maintenance of internal control relevant to the preparation and fair presentation of F/S that are free from material misstatement, whether due to fraud or error.
3. Auditor’s responsibility: Our responsibility is to express an opinion on these F/S based on our audit.
4. Opinion: In our opinion, the F/S referred to above present fairly, in all material respects, the financial position of Company as of December 31, 2014, and the results of its operation and its cash flows for the year then ended in accordance with accounting principles generally accepted in the US of A.
4 types of opinion
1. An unmodified opinion in which the conclusion is that the F/S present the financial condition, results of operations, and cash flows in accordance with GAAP. (Until recently, this type of opinion was referred to as an unqualified opinion).
2. A qualified opinion in which the conclusion is that, with the exception of one or more issues, the financial statements present the financial condition, results of operations, and cash flows in accordance with GAAP. Qualified opinions use the phrase except for in describing the issues that give rise to the qualification. Interestingly, although the term “qualified” normally has a positive connotation, qualified opinions are issued when one or more issues are encountered during the audit.
3. An adverse opinion, in which the conclusion is that the financial statements do not present the financial condition, results of operations, and cash flows in accordance with GAAP.
4. A disclaimer of opinion, in which the auditors do not express an opinion on the fairness of the entity's financial statements.
Fresno Green Company, What opinion will the auditor need to issue Unmodified- No material issue
What is qualified opinion and changes to the audit report - Scope Limitation: Qualified Opinion
Issued when scope limitations are material, but not pervasive
Report Modifications:
Add paragraph preceding the opinion paragraph describing the scope limitation
Modify opinion paragraph (“In our opinion, except for”)
Clovis Yellow Company, What opinion will the auditor need to issue?
Qualified: If the departure is sufficiently material to affect users' decisions based on the financial statements but can be compartmentalized, the auditors must qualify the opinion. By “compartmentalized,” we mean that the departure can be isolated to a particular account group (e.g., accounts receivable not valued at net realizable value) or transactions (e.g., failure to capitalize leases) without affecting other accounts to a material extent.
Adverse opinion and changes
Adverse: On the other hand, if the GAAP departure is pervasive, affecting numerous accounts and financial statement relationships, or is material to the point that the financial statements as a whole are misleading, the auditors must issue an adverse opinion. As noted earlier, in an adverse opinion, auditors conclude that the…