Qualified Audit Opinion & Adverse Opinion | AUD CPA Review #5

cpa review aud

To start this CPA Review video, I wanted to mention when you mentioned one more thing about the unmodified opinion, just in case this comes up in the CPA Exam, if the auditor wants to address other reporting responsibilities in the audit report, other than generally accepted auditing standards, again, if the auditor wants to address other auditing responsibilities in the audit report, other than generally accepted auditing standards, well.

Before the introductory paragraph, you would now have a heading report on the financial statements. That would be before the introductory paragraph report on the financial statements, and then after the opinion paragraph, you would have another paragraph with a heading report on other legal and regulatory requirements.

You might see that now so far. What we've basically said in these classes is that if there's no problem with the financial statements, no problem with the financials and no problem with the audit. The client deserves a clean opinion, an unmodified opinion. Well, what if there is a problem with the financial statements?

Let's get into this. What if there's a problem with the financials? What if there's a problem with the audit? Well, of course. Now an unmodified opinion is not going to be possible. Let's start with a problem with the financial statements. What if us gaap, it's not consistently applied. What if there is a significant departure from us gaap or whatever applicable financial reporting framework you're testing?

Again, it could be efforts but will stay with us gaap. It's all with us. gaap is not consistently applied. If there has been a significant departure from U S gaap, what if disclosures are not adequate and complete? If there's a problem with the financial statements, as I say, it's a different world because if there's a material gaap problem, if there's a material gaap or disclosure problem, the auditor has to issue a qualified opinion.

That results in a qualified opinion. If it's a very material pervasive on all-encompassing a pervasive gaap problem, the auditor has to issue an adverse opinion. So remember that if there's a material gaap, problem, qualified opinion, very material, pervasive adverse opinion, if you look in your viewer's guide, you'll see an example.

Of a qualified opinion. Notice when you write a qualified opinion, the introductory paragraph, exactly the same management responsibility paragraph. Exactly the same. Isn't it good that everything is memorized? You've got that unmodified opinion memorized, so you can just focus in now on the changes, look at the auditor's responsibility paragraph.

It is different. Now the auditor's responsibility paragraph concludes by saying, we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion. So now we add an explanatory paragraph before the opinion paragraph because we're modifying the opinion and it has a heading basis for a qualified opinion.

So you see the difference in approach. We're now adding. An explanatory paragraph before the opinion paragraph because we're modifying the opinion and as I say, it has a heading basis for a qualified opinion. It says the company's financial statements do not disclose significant related party transactions.

In our opinion, disclosure of this information is required by accounting principles generally accepted in the United States of America. And now we modify our opinion paragraph in our opinion, except for this is an except-for qualified opinion in our opinion, except for the omission of the information disclosed in the basis for a qualified opinion.

Paragraph. The financial statements referred to above. Present fairly in ex. It's an except-for qualified opinion. When you go to that CPA Exam, make sure you know cold. The changes that have to be made. Well, what if it is a very material pervasive, you know, all-encompassing gaap or disclosure problem. Well, now the auditor has to issue an adverse opinion.

And then your viewer's guide, you'll see an example of the adverse opinion notice introductory paragraph, exactly the same management responsibility paragraph. Exactly the same. But the auditor's responsibility now concludes by saying, we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our adverse opinion.

Now you know what's coming. Now we have to add an explanatory paragraph before the opinion power, right? Because we're modifying the opinion. This example says, as described in note X to the financial statements. The company carries its property, plant equipment at appraised values, and of course, now the opinion paragraph is very different in our opinion because of the significance of the matter discussed in the basis for the adverse opinion.

Paragraph. The financial statements referred to above. Do not present fairly. This is the opposite of a clean opinion. It's an adverse opinion. It is. The last thing. The client wants, but apparently, in this case, has earned it. Why aren't they disclosing that information? They won't disclose it. Then we have to slap them down with an adverse opinion.

So you see how you handle problems with the financial statements. If there's a material gaap problem, an except-for qualified opinion, very material gaap problem adverse. In our next class, we'll continue our discussion of reporting issues. Keep studying. Don't fall behind. I'll see you in the next class.

 
 
Is your CPA Review on track for Exam Day?

Download the Free NINJA Study Planner.
 
 

Related Posts

cpa review aud

CPA Exam Audit Questions – Audit Reports | AUD CPA Review #7

In this AUD CPA Review class, we’re going to continue our discussion on reporting issues, and I want to begin with the 14 CPA Exam audit questions that I assigned for you to finish before starting this class. So let’s look at these AUD questions. In the first question, they say an auditor most likely […]

cpa review aud

Audit Scope Limitations | AUD CPA Review #6

Welcome back to this CPA Review class, we’re going to continue our discussion on reporting issues, and you’ll remember that in our last class we talked about what we do in terms of the audit report. If there is a problem with the financial statements, if there’s a gap or disclosure problem, we know if […]

Leave a Reply