COMPLETING THE AUDIT AND REPORTING RESPONSIBILITIES Part Six

CHAPTER 18 REPORTS ON AUDITED FINANCIAL STATEMENTS AND SPECIAL REPORTING ISSUES

ELEMENTS OF THE AUDITOR'S STANDARD UNQUALIFIED AUDIT REPORT The report title The addressee The introductory paragraph The scope paragraph The opinion paragraph The audit report date The name of the auditor

EXPLANATORY LANGUAGE ADDED TO THE STANDARDUNQUALIFIED AUDIT REPORT Opinion based in part on the report of another auditor. Going concern. Agreement with a departure from GAAP. Lack of consistency. Emphasis of a matter.

REPORTING ON A GOING CONCERN The audit report should include an explanatory paragraph such as the following: The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 6 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 6. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

DEPARTURES FROM AN UNQUALIFIED REPORT Conditions: Scope limitation. Statements not in conformity with GAAP. Auditor is not independent.

SCOPE LIMITATION A scope limitation results from an inability to obtain sufficient competent evidence about some part or parts of the financial statements.

SCOPE LIMITATION Examples: Inability to observe inventory. Inability to confirm accounts receivable. Inability to obtain audited financial statements for a long-term investment that is accounted for using the equity method.

STATEMENTS NOT IN CONFORMITY WITH GAAP If the financial statements are materially affected by a departure from GAAP, the auditor should express a qualified or adverse opinion.

STATEMENTS NOT IN CONFORMITY WITH GAAP Examples: An accounting principle that is not acceptable. Inadequate disclosure. A lack of justification for a change in accounting principle.

AUDITOR NOT INDEPENDENT If an auditor is not independent, a disclaimer of opinion should be issued. The auditor should not state the reasons for the lack of independence nor describe any audit procedures performed.

SPECIAL REPORTING ISSUES Reporting on comparative financial statements. Other information contained in audited financial statements. Special reports.

REPORTS ON COMPARATIVE FINANCIAL STATEMENTS Different reports on comparative financial statements. A change in the report on the prior-period financial statements. Report of predecessor auditor.

OTHER INFORMATION Auditing standards provide guidance for the auditor's consideration of other information included in documents contained in (1) annual reports of entities or (2) other documents to which the auditor devotes attention at the client's request. The auditor should read the other information and consider whether such information is consistent with the information contained in the audited financial statements.

SPECIAL REPORTS Financial statements prepared on a comprehensive basis of accounting other than GAAP. Specified elements, accounts, or items of a financial statement. Compliance with aspects of contractual agreements or regulatory requirements related to audited financial statements. Financial presentations to comply with contractual agreements or regulatory provisions. Financial information presented in prescribed forms or schedules that require a prescribed form of auditor's report.

FINANCIAL STATEMENTS PREPARED ON A COMPREHENSIVE BASIS OTHER THAN GAAP Tax basis. Cash (or modified cash) basis. A definite set of criteria having substantial support.

SPECIFIED ELEMENTS, ACCOUNTS, OR ITEMS There are situations where the auditor may be engaged to audit only part (specified elements, accounts, or items) of the financial statements Examples: A report on rentals, royalties, or profit participation. The provision for income taxes.

COMPLIANCE REPORTS RELATED TO AUDITED FINANCIAL STATEMENTS An auditor may be asked to report on an entity's compliance with certain contractual agreements or regulatory requirements related to audited financial statements. The auditor provides negative assurance as to compliance with the provisions of the loan agreement.

COMPLIANCE REPORTS RELATED TO AUDITED FINANCIAL STATEMENTS Negative assurance consists of a statement that, as a result of specified procedures, nothing came to the auditor's attention that indicated that the provisions of the loan agreement were not complied with.

SPECIAL-PURPOSE FINANCIAL PRESENTATIONS Incomplete presentations. Non-GAAP, non-OCBOA presentations.

CHAPTER 18 REPORTS ON AUDITED FINANCIAL STATEMENTS AND SPECIAL REPORTING ISSUES