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Describe the parts of the standard unqualified audit report for non-public entities under AICPA auditing standards. Specify the conditions required to issue the standard unqualified audit report. Understand reporting on financial statements and internal control under PCAOB auditing standards.
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Describe the five circumstances when an unqualified report with an emphasis-ofmatter explanatory paragraph or modified wording is appropriate. Identify the types of audit reports that can be issued when an unqualified opinion is not justified. Explain how materiality affects audit reporting decisions.
3-3 Copyright 2014 Pearson Education
Draft appropriately modified audit reports under a variety of circumstances. Determine the appropriate audit report for a given audit situation. Understand use of international accounting and auditing standards by U.S. companies.
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Describe the parts of the standard unqualified audit report for non-public entities under AICPA auditing standards.
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1. Report title 2. Audit report address 3. Introductory paragraph 4. Managements Responsibility 5. Auditors Responsibility 6. Opinion Paragraph 7. Name and Address of CPA firm 8. Audit report date
3-6 Copyright 2014 Pearson Education
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Specify the conditions required to issue the standard unqualified audit report.
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1. Includes all financial statements 2. Sufficient appropriate evidence 3. Financial statements present in accordance with U.S.GAAP 4. No circumstances require an explanatory paragraph or report modification
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Understand reporting on financial statements and internal control under PCAOB auditing standards.
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Auditors of public companies subject to Section 404 of the Sarbanes-Oxley Act must report on the effectiveness of internal control over financial reporting. PCAOB Auditing Standard 5 requires the audit of internal control to be integrated with the audit of the financial statements.
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SarbanesOxley Sec.404
Accelerated Filer
2010 Legislation
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Non-accelerated Filer
Permanent Exemption
Separate Report on Financial Statements and Internal Control Over Financial Reporting
1. Introductory paragraph
2. Scope paragraph 3. Definition paragraph 4. Inherent limitations paragraph 5. Opinion paragraph 6. Cross-Reference Paragraph
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Describe the five circumstances when an unqualified report with an emphasis-ofmatter explanatory paragraph or modified wording is appropriate.
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1. Lack of consistent application of generally accepted 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
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Auditors must note circumstances in which accounting principles are not consistently applied
Auditor should modify the report when a material change occurs by adding an explanatory paragraph in the report
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Significant recurring operating losses or working capital deficiencies. Inability of the company to pay its obligations as they come due. Loss of major customers, the occurrence of uninsured catastrophes. Legal proceedings, legislation that might jeopardize the entitys ability to operate.
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Under certain circumstances, the CPA may want to emphasize specific matters regarding the financial statements, even though the CPA intends to express an unqualified opinion.
Subsequent Events
Material Uncertainties
Copyright 2014 Pearson Education
1. Make no reference in the audit report 2. Make reference in the report (modified wording report) 3. Qualify the opinion
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Identify the types of audit reports that can be issued when an unqualified opinion is not justified.
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1. Scope limitation
2. GAAP departure
3. Auditor not independent
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A qualified opinion report can result from a limitation on the scope of the audit or failure to follow generally accepted accounting principles.
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Auditor believes the financial statements are not presented fairly in conformity with GAAP.
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Issued when the auditor is unable to be satisfied that the overall financial statements are fairly presented.
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Explain how materiality affects audit reporting decisions.
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A misstatement in the financial statements can be considered material if knowledge of the misstatement would affect a decision of a reasonable user of the statements.
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Amounts are material but do not overshadow the financial statements as a whole.
Amounts are so material or so pervasive that overall fairness of the statements is in question.
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Audit report
Unqualified
Adverse
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Significance in Terms of Reasonable Users Decisions Users decisions are unlikely to be affected. Users decisions are likely to be affected. Users decisions are likely to be significantly affected.
Measurability
Nature of the item
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Unqualified
Disclaimer
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Draft appropriately modified audit reports under a variety of circumstances.
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Determine the appropriate audit report for a given audit situation.
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Determine whether any conditions exists requiring a departure from a standard unqualified report.
Decide Materiality
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The auditor is not independent. There is a scope limitation. Going concern uncertainty exists. Statements are not prepared in accordance with GAAP.
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Understand proposed use of international accounting and auditing standards by U.S. companies.
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Globalization of worlds capital markets are leading to calls for a single set of accounting standards to be used around the world.
2015 Implementation of IFRS into U.S.
If plan is approved?
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Copyright
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
3-47 Copyright 2014 Pearson Education