AFM202 Lecture Notes - Lecture 1: Internal Control, Audit Risk, Audit Evidence

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Amazon.com, Inc.

We have audited Amazon.com, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Amazon.com, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Amazon.com, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Amazon.com, Inc. as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2013 of Amazon.com, Inc. and our report dated January 30, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Seattle, Washington

January 30, 2014

Please answer the following:

review the audit report prepared by the auditors. Let us know the name of the company, the name of the CPA firm that prepared the audit report and tell us the type of opinion that was provided. Also, discuss the role of the audit firm in the audit process.

The following auditor’s report was drafted by a staff accountantof Nathan and Mat-
thew, CPAs, at the completion of the audit of the comparativefinancial statements

of Monterey Partnership for the years ended December 31, 2015and 2014. Mon-
terey is a privately held company that prepares its financialstatements on the income

tax basis of accounting. The report was submitted to theengagement partner, who

reviewed matters thoroughly and properly concluded that anunmodified opinion

should be expressed. The draft of the report prepared by aninexperienced staff audi-
tor is as follows:

Auditor’s Report

We have audited the accompanying financial statements ofMonterey Partnership,

which comprise the statements of assets, liabilities, andcapital–income tax basis as

of December 31, 2015, and the related statements of revenue andexpenses–income

tax basis and of changes in partners’ capital accounts–incometax basis for the year

then ended, and the related notes to the financialstatements.

Final PDF to printer

Auditor’s Responsibility

We conducted our audit in accordance with standards establishedby the AICPA.

Those standards require that we plan and perform the audit toobtain reasonable assur-
ance about whether the financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidenceabout the

amounts and disclosures in the financial statements. Theprocedures selected depend

on the auditor’s judgment, including the assessment of the risksof material mis-
statement of the financial statements, whether due to fraud orerror. An audit also

includes evaluating the appropriateness of accounting policiesused as well as evalu-
ating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained issufficient and appropriate

to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to abovepresent fairly, in all

material respects, the assets, liabilities, and capital ofMonterey Partnership as of

December 31, 2015, and its revenue and expenses and changes inpartners’ capital

accounts for the year then ended in conformity with generallyaccepted accounting

principles applied on a consistent basis.

Basis of Accounting

We draw attention to Note 2 of the financial statements, whichdescribes the basis

of accounting. The financial statements are prepared on thebasis of accounting the

Partnership uses for income tax purposes. Accordingly, thesefinancial statements

are not designed for those who do not have access to thePartnership’s tax returns.

Our opinion is not modified with respect to this matter.

Nathan and Matthew, CPAs

April 3, 2016

Required:

Identify the errors and omissions in the auditor’s report asdrafted by the staff audi-
tor. Group the errors and omissions by paragraph, where applicable.Do not redraft

the report.

I am trying to find NOT unqualified opinion. Some reports do not say "unqaulified." Does it mean that they are NOT UNQUALIFIED? Here is a report. If it is not unqualified, please explain me why it is not unqualified. In other words, it is qualified or adverse.

To the Board of Directors and Stockholders

Duonas Corp.

We have audited the accompanying balance sheets of Duonas Corp. as of June 30, 2017 and 2016, and the related statement of operations, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits include examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also include assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Duonas Corp. as of June 30, 2017 and 2016 and the related statement of operations, changes in stockholders’ equity and cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has had no revenues and earnings since inception. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans concerning these matters are also described in Note 2, which includes achieving profitable operations and raising additional funds. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ TAAD, LLP

Diamond Bar, CA

September 1, 2017