ACC 411 Lecture 3: 3

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12 Feb 2017
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1Auditing Lecture Notes- May 18th 2016
Chapter Three
Audit Reports
15 ed.
Vignette Discussion-
Always make sure audit is completely & appropriately done before report is
issued
CPA’s usually experience lack of time to devote to just one client at a time
Time pressure (cave to pressure) to complete is great & risk is great so what
should you do
Can you trust mgmt. when their future rewards may be so great?
How should you react to client’s behavior?
Example of the opening story: auditor falsely accept the audit due to pressure but it
turns out to be a fraud. All the things were so scattered, not that he does not know any
better or careless. Trying to keep everybody happy includes SEC. There is a deadline,
so he is pushed to make a decision.
Audit Report
Series of checklists, final little completion. The report is really the last step of the audit.
Planning, testing everything is being done. Report is the final thing. Scan the number and
see if the report is clean.
Actually the final step in the audit process Why study it now? to understand what you
are working towards.
It is used to explain the “character” of the auditor’s work and “degree” of responsibility
taken for the financial statements.
Public report is easier but understand the difference.
8 basic parts to a standard unqualified audit report for Non-Public Companies P.49
AICPA
Figure 3-1 shows this report.
She is okay with either way as long as you clearly label it. 3-1 and 3-3
1. Report Title word independent must be used
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2. Address- to stockholders but can also be to company or board of directors
3. Introductory Paragraph
*says an audit has been done
*lists FS’s which were audited
4. Management’s Responsibility states that management is responsible for the FS’s
5. Auditor’s Responsibility Scope Paragraph a lot of words; auditors are
responsible for the opinion, and scope tells what auditor did during the audit. Idea
of reasonableness is presented here. We are not guaranteeing the correctness of
the FS. We are trying our best to say it is reasonable.
6. Opinion Paragraph conclusion, which is an opinion based upon professional
judgment, not a guarantee. The opinion is actually the audit report.
7. Name and Address of CPA Firm (city and state)
8. Audit Report Date (date field work is completed) the last day you show up
physically to the client. The last day when you truly go out and wrap things up. **
Public Company Reports PCAOB
There are 7 parts to this standard unqualified report. The report title, address, CPA firm
name and audit report date are similar as for Non-Public. The three detailed paragraphs
are similar yet somewhat different. (Introductory, Scope, & Opinion)
They are provided in Figure 3-3. “Standard Unqualified Report on Comparative
Statements for a U.S. Public Company PCAOB Auditing Standards”
This is the report you are required to learn word-for-word for quiz purposes.
Auditors of larger public companies must also issue an opinion on internal control over
financial reporting. This can be done as a separate or a combined report. (See Figure 3-4
for the separate report.) Larger public companies are known as “accelerated filers”. “75
million of equity security.” Non- accelerated filers (smaller companies) do not need this
report on internal controls over financial reporting.
Four Categories of Audit Reports
(Figure 3-2……….pg. )
Standard Unmodified- “qualifiers” everything is good except the qualifiers. Clean,
unqualified, needs no modification, no exception. This is the best report.
four conditions have been met
Pg. 51 lists 4 requirements that must be met before an unqualified opinion can be issued
* four statements are included in the FS
* sufficient evidence has been accumulated and auditor conducted the engagement to
conclude the audit was performed in accordance with auditing standards
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