Auditing Lecture 2 Auditing Reports

Front 1

8 Parts of unqualified opinion are?

Back 1

1. Report Title
2. Audit Report Address
3. Introductory Paragraph
4. Scope Paragraph
5. Opinion Paragraph
6. Concluding Paragraph
7. Audit Report Date
8. Auditor Signature

Front 2

Report Title

Back 2

Auditing standards require that the report be titled and that the title include an indication of the reference rule to be followed (example: “in accordance with Article n. 156 of Law Decree n. 58 dated 24 February 1998”).

Front 3

Introductory Paragraph

Back 3

a)It states that the CPA firm has done an audit.
b)It lists the FSs that were audited, including the accounting period for the income statement.
c)It states that the statements are the responsibility of management and that the auditor’s responsibility is to express an opinion on the statements based on an audit.

Front 4

Scope Paragraph

Back 4

The scope paragraph is a factual statement about what the auditor did in the audit. It states that the audit is designed to obtain a reasonable assurance about whether the statements are free on material misstatement. The use of the word material conveys that auditors are responsible only to search for significant misstatements that affect users’ decisions. The use of the term reasonable assurance is intended to indicate that an audit cannot be expected to completely eliminate the possibility that a material misstatement will exist in the FSs. An audit only provides a high level of assurance but is not a guarantee. The remainder of the scope paragraph discusses the audit evidence accumulated and states that the auditor believes that the evidence accumulated was appropriate for circumstances to express the opinion presented. The words test basis indicate that sampling was used rather than an audit of every transaction and amount on the statements.

Front 5

Opinion paragraph

Back 5

The final paragraph states the auditor’s conclusions based on the results of the audit.

Front 6

Concluding paragraph

Back 6

In this paragraph the auditor pronounce his/her opinion concerning the coherence between the Director’s report and the Financial Statements.

Front 7

Audit Report Date

Back 7

The appropriate date for the report is the one on which the auditor completed the auditing procedures in the field. This date is important to users because it indicates the last day of the auditor’s responsibility for the review of significant events that occurred after the date of the FSs.

Front 8

Auditor Signature

Back 8

The Italian regulation requires the auditor responsible for the auditing activity to sign the report. By signing the report, the auditor takes the full responsibility of the opinion expressed.

Front 9

Five Conditions an Unqualifed Report must meet are?

Back 9

A.All statements are included in the FSs.
B.Auditing standards and laws have been followed in all respect on the engagement.
C.Sufficient appropriate evidence has been accumulated
D.Financial statements are presented in accordance with IFRS/ITA GAAP.
E.There are no circumstances requiring the addition of an explanatory paragraph or modification of the wording of the report.

Front 10

The unqualified audit report with an explanatory paragraph or modified wording

Back 10

meets the criteria of a complete auditing with satisfactory results and FSs that are fairly presented but the auditor believes it is important to provide additional information.

Front 11

There are five circumstances when an unqualified report with explanatory paragraph is appropriate, they are?

Back 11

A.LACK OF CONSISTENT APPLICATION OF IFRS/ITAGAAP
B. SUBSTANTIAL DOUBT ABOUT GOING CONCERN
- The auditor’s concern is the possibility that the client may not be able to continue its operations or meet its obligation within a reasonable period
C.AUDITOR AGREES WITH A DEPARTURE FROM A PROMULGATED PRINCIPLE
D.EMPHASIS OF A MATTER
E. REPORTS INVOLVING OTHER AUDITORS

Front 12

When to use a Qualified Opinion

Back 12

A Qualified Opinion can result from a substantial limitation on the scope of the audit or failure to follow IFRS/ITA GAAP. It can be used only when the auditor concludes that the overall FSs are fairly stated.
When an auditor issues a qualified report he/she MUST use the term except for in the opinion paragraph.

Front 13

When to use Adverse Opinion

Back 13

An Adverse Opinion is used only when the auditor believes that the overall FSs are so materially misstated or misleading that they do not present fairly the financial position or results of operations in conformity with IFRS/ITA GAAP. The adverse opinion report can arise only when the auditor has knowledge, after an adequate investigation, of the absence of conformity. It is used only when the condition is highly material.

Front 14

When to use a Disclaimer Opinion

Back 14

A Disclaimer of Opinion is issued when the auditor has been unable to satisfy him/herself that the overall FSs are fairly presented. The necessity for disclaiming an opinion may arise because of a severe limitation on the scope of the audit or the presence of doubts the auditor is not able to dissipate. The disclaimer is distinguish from an adverse opinion in that it can arise only from a lack of knowledge by the auditor.
It is used only when the condition is highly material.

Front 15

Material Misstatements

Back 15

A misstatement in the FSs can be considered material if knowledge of the misstatement will affect a decision of a reasonable user of the statements.