CAEA 3228

ADVANCED AUDITING

Audit Reports

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

3-1

Describe the parts of the

standard
unqualified audit report.

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

3-2

Parts of the Standard

Unqualified Audit Report
1.
2.
3.
4.
5.
6.
7.

Report title
Audit report address
Introductory paragraph
Scope paragraph
Opinion paragraph
Name of CPA firm
Audit report date

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

3-3

Specify the conditions required to issue the

standard unqualified audit report.

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

3-4

Conditions for Standard

Unqualified Audit Report
1. Includes all financial statements
2. Three general standards are met
(general standards, standards of
fieldwork and standards of reporting)

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

3-5

Conditions for Standard

Unqualified Audit Report
4. Financial statements comply with GAAP
5. No circumstances require an explanatory
paragraph or report modification

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

3-6

Four Categories of Audit

Reports

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

3-7

Describe the five circumstances when an

unqualified report with an explanatory

paragraph or modified wording is
appropriate.

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

3-8

Unqualified Report with

Explanatory Paragraph
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

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Lack of Consistent Application of

GAAP
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

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Substantial Doubt About

Going Concern

Significant recurring operating

losses orworking 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.
2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Auditor Agrees with a

Departure
from a Promulgated Principle

Departure may not require a qualified or

adverse opinion
The auditor must separately explain in the
audit report that adhering to the principle
would have produced a misleading result.

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Emphasis of a Matter
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

Related Party
Transactions

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Reports Involving Other

Auditors
1. Make no reference in the audit report
2. Make reference in the report
(modified wording report)
3. Qualify the opinion

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Reports Involving Other

Auditors

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Identify the types of audit reports that can

be issued when an unqualified opinion is
not justified.

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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More Than One Condition Requiring

a Departure or Modification
The auditor is not independent.
There is a scope limitation.
Going concern uncertainty exists.
Statements are not prepared in
accordance with GAAP.
2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Qualified Opinion
A qualified opinion report can result from
a limitation on the scope of the audit or
failure to follow generally accepted
accounting principles.

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Qualified Opinion

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Adverse Opinion
Auditor believes the financial statements are
not presented fairly in conformity with GAAP.

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Adverse Opinion

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Disclaimer of Opinion
It is issued when the auditor is unable
to be satisfied that the overall financial
statements are fairly presented.

It can arise only from a lack of

knowledge by the auditor.

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Disclaimer of Opinion

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Explain how materiality affects audit

reporting decisions.

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Materiality
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.

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Levels of Materiality
Amounts are immaterial.
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
2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Relationship of Materiality to
Type of Opinion
MaterialitySignificance in Terms of
Type of
Level
Reasonable Users DecisionsOpinion
Users decisions are unlikely
Immaterialto be affected.
Unqualified
Material

Users decisions are likely

to be affected.

Qualified

Highly
Users decisions are likely Disclaimer
material to be significantly affected. or adverse
2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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Thank you for your attention

Dr. Noor Adwa Sulaiman
Room A1-10,
Consultation Hours:
Monday (23pm) and by appointment
Email: nooradwa.sulaiman@gmail.com

2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley

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