The Auditor’s Report

Types of Audit Reports n Unqualified Opinion Standard Report Modified Report n Qualified Opinion Scope Qualification GAAP Departure Qualification n Adverse Opinion n Disclaimer of Opinion Correspondence YES YES, but... NO DON’T KNOW

Types of Audit Reports n Unqualified Opinion Standard Report Modified Report –Added explanatory language without explanatory paragraph with explanatory paragraph

Added Explanatory Language n In accordance with accounting principles of foreign nations n Opinion based in part on report of another auditor n Departure from a promulgated accounting principle n Uncertainties (General) n Going Concern Uncertainties

Added Explanatory Language (Continued) n Inconsistent application of accounting principles n Comparative financial statements - updated reports n Information outside the basic financial statements n Emphasis of a matter

Updated Reports

Explanatory Language- Consistency As discussed in Note X to the financial statements, the Company changed its method of computing depreciation in 19X2.

Explanatory Paragraph - Uncertainty

Going Concern Uncertainty

Explanatory Paragraph - Rule 203 Departure

Accounting Issues Departure from GAAP Consistency UnqualifiedQualifiedAdverseDisclaimer Auditing Issues Lack of evidence By condition By client restriction Uncertainty General Going concern Lack of independence X X X X X Types of Audit Reports

GAAP Departures Qualified opinion Adverse opinion

GAAP Departures -- Qualified Opinion

Inadequate Disclosure - Qualified Opinion

GAAP Departures -- Adverse Opinion

Scope Limitations Qualified opinion Disclaimer of opinion

Scope Limitation -- Qualified Opinion

Scope Limitation -- Disclaimer of Opinion

Old Terms zShort-form audit report zPiecemeal opinions zCertificate and certified audit zSubject to qualification zClean opinion zClean audits

Communicating with Stockholders zOther information in an annual report zStockholders’ meetings

Communicating with Audit Committees zInternal control structure related matters zMaterial weaknesses zOther audit committee communications

Communicating with Management z Management letter z Conferences with management

Ethics Professional Ethics and the Auditing Environment

Elements of a Profession z Systematic Theory z Professional Authority z Community Sanction z Regulative Codes z Culture

Organizations, Standards, and Enforcement

Organizations zAICPA zFASB zGASB zState Boards of Accountancy zState Societies of CPAs

Code of Professional Conduct zSection I - Principles zSection II - Rules, Interpretations, and Rulings zRule Sections: yResponsibilities to the public (100 and 200) yResponsibilities to the client (300) yResponsibilities to colleagues (400) yOther responsibilities (500)

Responsibilities to the Public: Independence, Integrity, and Objectivity Example of Organization of the Rules of Conduct: Rule Section on Independence, Integrity and Objectivity

Responsibilities to the Public: General and Technical Standards

Responsibilities to Clients

Other Responsibilities

Quality Control zIndependence zAssigning personnel to engagements zConsultation zSupervision zHiring zProfessional development zAcceptance and continuance of clients zInspection

Monitoring and Enforcement z Peer review z Ethics enforcement z Public Oversight Board

External Regulation zSEC zLegal Liability

Organizations zAICPA zFASB zGASB zState Boards of Accountancy zState Societies of CPAs