Auditing and assurance services 14e by arens chapter 03

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Audit Reports Chapter http://www.authorstream.com/shengv n/ ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 3-1 Learning Objective Describe the parts of the standard unqualified audit report ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 3-2 Parts of the Standard Unqualified Audit Report Report title Audit report address Introductory paragraph Scope paragraph Opinion paragraph Name of CPA firm Audit report date ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 3-3 Parts of the Standard Unqualified Audit Report ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 3-4 Learning Objective Specify the conditions required to issue the standard unqualified audit report ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 3-5 Conditions for Standard Unqualified Audit Report Includes all financial statements Three general standards are met Complies with the three standards of field work ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 3-6 Conditions for Standard Unqualified Audit Report Financial statements comply with GAAP No circumstances require an explanatory paragraph or report modification ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 3-7 Four Categories of Audit Reports ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 3-8 Learning Objective Understand reporting on financial statements and internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 3-9 Reporting on Internal Control over Financial Reporting Auditors of public companies subject to Section 404 of the Sarbanes-Oxley Act must report on the effectiveness of internal control over financial reporting PCAOB Auditing Standard requires the audit of internal control to be integrated with the audit of the financial statements ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 10 Materiality A misstatement in the financial statements can be considered material if knowledge of the misstatement would affect a decision of a reasonable user of the statements ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 31 Levels of Materiality Amounts are immaterial Amounts are material but not overshadow the financial statements as a whole Amounts are so material or so pervasive that overall fairness of the statements is in question ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 32 Materiality Decisions Failure to follow GAAP Audit report Unqualified Qualified opinion only ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley Adverse - 33 Relationship of Materiality to Type of Opinion Materiality Significance in Terms of Level Reasonable Users’ Decisions Type of Opinion Users’ decisions are unlikely Immaterial to be affected Unqualified Material Users’ decisions are likely to be affected Qualified Highly material Users’ decisions are likely to be significantly affected Disclaimer or adverse ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 34 Materiality Decisions  Dollar amount compared with a base  Measurability Nature of the item ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 35 Materiality Decisions Scope limitation Audit report Unqualified Qualified scope and opinion ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley Disclaimer - 36 Learning Objective Draft appropriately modified audit reports under a variety of circumstances ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 37 Discussion of Conditions Requiring Departure  Auditor’s scope has been restricted Statements are not in conformity with GAAP Auditor is not independent ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 38 Learning Objective Determine the appropriate audit report for a given audit situation ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 39 Auditor’s Decision Process Determine whether any condition exists requiring a departure from a standard unqualified report Decide Materiality Decide appropriate type of report ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley Write Audit Report - 40 More Than One Condition Requiring a Departure or Modification The auditor is not independent There is a scope limitation Going concern uncertainty exists Statements are not prepared in accordance with GAAP ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 41 Number of Paragraphs in the Report Type of Report ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 42 Learning Objective Understand proposed use of international accounting and auditing standards by U.S companies ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 43 Proposed Use of International Accounting and Auditing Standards by U.S companies Globalization of world’s capital markets are leading to calls for a single set of accounting standards to be used around the world SEC Developing Workplan If plan is approved? ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 2015 Implementation of IFRS into U.S - 44 End of Chapter ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 45 ... Hall Business Publishing, Auditing 14/e, Arens/ Elder/Beasley 3-3 Parts of the Standard Unqualified Audit Report ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/ Elder/Beasley 3-4 Learning... Three general standards are met Complies with the three standards of field work ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/ Elder/Beasley 3-6 Conditions for Standard Unqualified... Publishing, Auditing 14/e, Arens/ Elder/Beasley 3-7 Four Categories of Audit Reports ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/ Elder/Beasley 3-8 Learning Objective Understand reporting
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