Chapter 18Reports on Audited FinancialStatements (AU-C 700)McGraw-Hill/IrwinCopyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Reporting on the Financial Statement Audit: The Standard Unqualified ReportThe standard unqualified report is issued when the auditor has gathered sufficient evidence, the audit has been performed in accordance with PCAOB standards, and the financial statements conform to GAAP.Eight ElementsReport titleAddresseeIntroductory paragraphScope paragraphOpinion paragraphExplanatory paragraph referring to the audit of ICFRName of auditorAudit report dateLO# 118-*

LO# 1Standard Unqualified Audit Report(PCAOB)18-*

Adjustments to the Standard Unqualified/Unmodified Financial Statement Audit Report1. Modified Wording: Opinion based in part on the report of another auditor5. Explanatory Paragraph: Reference to report on audit of ICFR3. Explanatory Paragraph: Lack of consistency4. Explanatory Paragraph: Additional emphasisLO# 22. Explanatory Paragraph:Going concern18-*

LO# 21. Reference to Other Auditors18-*

2. Going ConcernLO# 218-*

3. Lack of ConsistencyLO# 218-*

4. Additional EmphasisUnder certain circumstances an auditor may want to emphasize a specific matter regarding the financial statements even though he or she intends to express an unqualified/unmodified opinion. This information should be presented in an explanatory paragraph.LO# 218-*

Conditions for Departure from Unqualified/Unmodified Report1. ScopeLimitation2. Departurefrom GAAP3. Lack of AuditorIndependenceLO# 318-*

Departures from an Unqualified/Unmodified Financial Statement Audit ReportQualifiedexcept for(1 or 2 ,not pervasive)Disclaimer(1 or 3)Adverse(2, pervasive)LO# 418-*

LO# 5 Effect of Materiality

18-*

Discussion of Conditions Requiring Other Types of Financial StatementAudit ReportsScope LimitationNot in Conformity with GAAPAuditor Not IndependentLO# 518-*Auditor Not IndependentNot in Conformity with GAAPAuditor Not IndependentScope LimitationNot in Conformity with GAAPAuditor Not Independent

Scope LimitationNot in Conformity with GAAPAuditor Not IndependentLO# 5Discussion of Conditions Requiring Other Types of Financial StatementAudit Reports18-*

Special Reporting Issues Different reports on comparative financial statementsChange in report on prior-period financial statementsReport by a predecessor auditorLO# 618-*

Different Reports onComparative Financial Statements LO# 618-*

Different Reports onComparative Financial Statements LO# 618-*

Change in Report on Prior PeriodLO# 618-*

Report by a Predecessor AuditorThe predecessor auditor should do the following before reissuing a report on prior-year financial statements published for comparative purposes: Read the financial statements of the current period. Compare the prior-period financial statements reported on with the current-year financial statements. Obtain a letter of representation from the current-year or successor auditor.LO# 618-*

Other Information in Documents Containing Audited Financial StatementsAnnual ReportsRegistration StatementsThe auditor has no responsibility beyond the financial information contained in the report, and he or she has no obligation to perform any audit procedures to corroborate the other information. However, the auditor is required to read the other information and consider whether it is consistent with the information contained in the audited financial statements.LO# 718-*

Special ReportsFinancial statements prepared on a comprehensive basis of accounting other than GAAPSpecified elements, accounts, or items of a financial statementCompliance with aspects of contractual agreements or regulatory requirementsLO# 718-*

Financial StatementsPrepared According to a Special Purpose FrameworkRegulatory BasisTax BasisCash (or Modified Cash) BasisContractual BasisLO# 818-*

In some situations an auditor may be engaged to audit only part (or specified elements, accounts, or items) of the financial statements.Specific Elements, Accounts, or Items of a Financial StatementLO# 9Rather than auditing specified elements, accounts, or items, an auditor may be engaged to apply only agreed-upon procedures.18-*

LO# 9Agreed-Upon Procedures Report18-*

Compliance Reports Related to Audited Financial StatementsThe auditor provides negative assurance as to compliance with the provisions of contractual agreements or regulatory requirements.LO# 1018-*

Modify wording of intro scope, and opinion*Substantial doubt about going concern

Reasonable period of time is 1 year

*Top Box: requires explanatory paragraphChange in accounting principle: GAAP to GAAP Ex. LIFO to FIFOChange in reporting entity: subsidiary now reporting on their ownCorrection of an error in principle: Non GAAP to GAAP

Bottom Box: Just require a disclosure in the footnotes*Type 2 event: Tornado destroys building*SEC does not except qualified or adverse opinion*In our opinion except for: qualified opinion*