[Jessica527]

I struggle with understanding specifically what type of opinion results from the audit of FS. The problem area I have is when to go from Unqualified to Qualified opinion. Here is my basic understanding:

1. Unqualified: FS have been prepared using GAAP and they were consistently applied. Adequate disclosure of all material areas.

2. Qualified: When 1 or 2 situations arise where the FS do not comply with GAAP.

3. Adverse: FS are materially mistated

4. Disclaimer: Can not conclude an opinion.

Is there any easy way to remember what type of opinion for the FS? I know in some of my practice simulations, it will say “What type of opinion would you conclude based on these facts?” And a lot of the time I am stuck either between U & Q, or Q & A.

Thank you in advance!!!

FAR - 68 (Gleim), 73 (Yaeger)
AUD - 74, 71 (Gleim)
BEC - ?
REG - ?

[Kentucky1]

Qualified is:

Scope Limitation

Failure to present one of the basic FS

An Unjustified Departure from GAAP

Inconsistency from accounting principle

Unreasonable estimates

[Jessica527]

@Kentucky1 — Thank you!!

To add to your explanation, my follow up question would be at what point would it then be an adverse opinion?

For example:

Set of FS are presented, but IS is missing = Qualified opinion

Would it only be an adverse opinion if the statements that were presented were materially misstated?

Thank you again!

FAR - 68 (Gleim), 73 (Yaeger)
AUD - 74, 71 (Gleim)
BEC - ?
REG - ?

[Morganf]

Although my scores show I'm struggling with audit, I believe this is one topic I have down. I recommend drawing a chart, doing your best to memorize it, and writing it down on your scrap paper when you walk in before starting the exam.

REPORT MODIFICATIONS:

Unqualified w/ added an explanatory paragraph —- Inconsistent GAAP application, Going Concern, Emphasis of a matter, Justified GAAP departure. (remember “IG” for the first 2, the only two that require the added paragraph to go AFTER the opinion, others can be after or before)

Unqualified w/ all 3 paragraphs modified —- shared report (referencing another auditor)

Unjustified GAAP departure — Qualified or Adverse

Disclosures —- Qualified or Adverse

Scope Limitation — Qualified or Disclaimer

Going Concern — Unqualified or Disclaimer

Independence — Disclaimer

Also to comment on Kentucky1's list of Qualified Opinions:

It makes sense logically to issue a Qualified “except for” opinion when one of the basic FS is omitted, and people may do it in practice, but that thinking could steer you wrong on the test. Technically, reporting on only one of the basic financial statements does not preclude an unqualified opinion (AU508.33-34). However, I'm not sure what would happen if a company asked you to report on only the balance sheet, yet insisted on also presenting other unaudited financial statements.

Here's the relavent AU standards link taken from the PCAOB website:

AU 508.33

Limited reporting engagements.The auditor may be asked to report on one basic financial statement and not on the others. For example, he or she may be asked to report on the balance sheet and not on the statements of income, retained earnings or cash flows. These engagements do not involve scope limitations if the auditor's access to information underlying the basic financial statements is not limited and if the auditor applies all the procedures he considers necessary in the circumstances; rather, such engagements involve limited reporting objectives. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. 79, December 1995.]

AU 508.34

An auditor may be asked to report on the balance sheet only. In this case, the auditor may express an opinion on the balance sheet only. An example of an unqualified opinion on a balance-sheet-only audit follows (the report assumes that the auditor has been able to satisfy himself or herself regarding the consistency of application of accounting principles):

BEC - 88
AUD - 69, 74, 93
FAR - 78
REG - 79

[jenuno01]

@Morgan nice summary. And if an auditor is asked to only report on one Financial Statement, this involves a limited reporting engagements..so I think the audit report would only mention the statement they audited instead of mentioning B/S, I/S, and Stmt of Cash Flows. Let's say the auditor is asked to only audit the Balance Sheet, they can accept this engagement as long as they have access to other statements…the auditor would only would mention the B/S on the audit report and not the other financials.

Class of 2012

[Morganf]

Jenuno brings up a good point. The important words to look for when asked the “report on just 1 FS” question is “as long as you have access to other statements / information is not withheld.” If these words are absent, the answer could be Qualified opinion due to scope limitation.

BEC - 88
AUD - 69, 74, 93
FAR - 78
REG - 79

[Kentucky1]

I agree with what you guys are saying. I guess I was just under the assumption that if you issue a report and the client wishes to not have the cash flow statement present then that would be a qualified opinion. This wouldn't turn into an adverse opinion at any time from what I can understand because there isn't really any materiality factor here. This may be incorrect and I don't want to lead you in the wrong direction….but it's what I thought to be correct.

[jenuno01]

@Kentuck, you are correct. If you are engaged to audit a full set of Financials, but the client wants to exclude the Cash Flows Statement..you would give a Qualified Opinion because of a Scope Limitation. The reason it can't be an Adverse opinion is because there is no serious material GAAP problem (that you are aware of anyway). Adverse Opinions are given when there are very material problems with estimates, Non-GAAP transactions, Bad Disclosures, and unjustified departures from GAAP.

Class of 2012

[Morganf]

This may seem silly, but I know very little about reviews and agreed upon procedures. Even knowing this weakness and specifically trying to read up on it, I still know very little.

What would you give as an opinion if you have to reduce the whole engagement from an audit to review, presumably b/c of a scope limitation? Do reviews even have opinions or are they all just “negative/limited assurance”?

My entire knowledge of reviews is pretty much:

– offer “limited” or “negative” assurance

– they don't do control, substantive, or internal control testing

– largely analytical procedures & inquiry of management (no legal, bank, AR inquiries)

– Questions regarding internal control & reviews are sometimes yes, sometimes no…. Guessing usually yes to understand the environment of internal control, and no to testing internal control.

– the report should have the word “Independent” in the title.

^^ seems pathetic and sad compared to what I know about Audits.

BEC - 88
AUD - 69, 74, 93
FAR - 78
REG - 79

[Jessica527]

Thank you all for the feedback. @Morganf – I really think it is a great idea to write it down as soon as I get in there too.

This has been a struggle of mine but I think I am getting closer to getting a full understanding of it.

FAR - 68 (Gleim), 73 (Yaeger)
AUD - 74, 71 (Gleim)
BEC - ?
REG - ?

[Author]

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