[pfitz092]

Just took my second Becker Final Exam and am confused with their explanation for one of the MC.

“Which of the following is true about modifications to the independent auditor’s unmodified opinion report?

A. An auditor would modify different paragraphs when rendering either a qualified opinion due to a departure from GAAP or an adverse opinion due to a departure from GAAP.

B. Modifications to the independent auditor’s report result in qualified, adverse or negative assurance opinions, or a disclaimer of opinion.

C. A disclaimer of opinion and an adverse opinion both include modification to the introductory paragraph.

D. An auditor would modify the same paragraphs when rendering either a qualified opinion due to a departure from GAAP or a qualified opinion due to a scope limitation. ”

Explanation:

Choice “D” is correct. A qualified opinion due to a scope limitation and a qualified opinion due to a GAAP departure require a paragraph preceding the opinion paragraph titled “Basis for Qualified Opinion”.

Choice “A” is incorrect. When there is a departure from GAAP that has a material effect on the financial statements, a Basis for Opinion paragraph is inserted before the opinion paragraph, and the opinion paragraph is modified. This is true regardless of whether the opinion is qualified or adverse.

Choice “C” is incorrect. An adverse opinion does not require modification of the introductory paragraph, which contains the client name and the financial statements that are being audited, along with the date of the financial statements and a statement that the auditor is performing an audit. When a disclaimer of opinion is issued, the beginning of the introductory paragraph is changed from “We have audited” to “We were engaged to audit”.

Choice “B” is incorrect. A “negative assurance opinion” is not one of the independent auditor’s opinions. The possible opinions are unmodified, qualified, adverse or disclaimer.

………………………..

I was quickly able to eliminate A & C.

I next eliminated D for the following reason- according to my Audit textbook (which even provides an illustration of this example), a qualified opinion due to a scope limit has a standard intro paragraph, and in addition to an explanatory paragraph and modified opinion paragraph, results in a slight modification to the scope paragraph as follows, “Except as discussed in the following paragraph, we conducted our audits in accordance with standards of the PCAOB…”.

I defaulted to choosing B, even though I should’ve known better than to choose something with a so-called “Negative assurance opinion” as an option.

Does it make a difference that my textbook example is referencing an audit report for an issuer? Was Becker referring to the audit report of a nonissuer? If so, do qualified opinions from scope limits on issuers result in modifications to the scope paragraph whereas qualified opinions from scope limits on nonissuers ONLY result in modifications to the opinion paragraph and the inclusion of an explanatory paragraph discussing the basis for the mod?

Lastly- on the CPA test on Monday should I assume that any question about an auditor’s report is asking about an audit report on a NONISSUER (unless the question says otherwise?)

Sorry for the long post. Hope someone can clarify…

 

 

[s2sylvir]

It's D, because it only says that the same paragraphs are modified, not how or the wording of the paragraphs (which are going to be different).

On the exam, they will specify if it's issuer or nonissuer when relevant.

BEC - PASS (79)
AUD - PASS (63, 71, 74, 74, 83)
REG - PASS (88)
FAR - PASS (58, 89)

Becker for all + FAR 10 Point Combo

[jackaroe]

Looking through PCAOB standards, I don't see the term ‘unmodified' in a report title. PCAOB issues reports using the pre-clarified standards. Look for the terms ‘issuer' or ‘public company' or ‘PCAOB' in the questions.

[Anonymous]

At this point in the game it doesn't matter what your textbook says, all referencing it is going to do is unnecessarily complicate the exam and confuse you further. Follow the Becker review.

While knowing the form of the different audit reports is important, this question really isn't quizzing that concept as much as it is the level of assurance provided in an audit. Choice “B” tries to trick you into answering that a “negative assurance opinion” is an acceptable alternative when an unmodified opinion is not justified.

Audit = positive assurance

Review = negative assurance

Compilation = no assurance

The objective of an audit engagement is to provide positive assurance the financial statements are fairly stated and free from material misstatement. Unlike review engagements, the auditor obtains corroborative evidence as a basis for providing this level of assurance. In a review report one would expect to see a phrase such as “we are not aware of any material modifications that should be made to the accompanying financial statements” if negative assurance is provided. In an audit, if an auditor had reason to modify his opinion then it would necessarily imply that either a.) the auditor became aware of material misstatements in the financial statements or, b.) was not able to obtain enough evidence to support an unmodified opinion. In either scenario, offering negative assurance as an alternative just does not make sense. Therefore answer “B” is wrong.

It is imperative you understand the different levels of assurance provided, though you seem to have an understanding as your initial instinct was to not go with “B”. Try not to over-think the questions and you should be fine.

[pfitz092]

Thanks everyone

[ocboa]

good explanation

[Author]

Replies