Unmodified Opinion Audit Report | Bisk CPA Review AUD #2

cpa review aud

In this AUD CPA Review class, we're really going to be talking about step six, where we form our Unmodified Opinion and issue our Audit Report. And you know what the client wants. You know that what the client wants out of any audit is a clean opinion, an unmodified opinion. That's the client wants a clean opinion, an unmodified opinion.

So I think that's a good place for us to start. How does your client deserve? An unmodified opinion. How does your client earn an unmodified opinion? How is it earned? Well, to get an unmodified opinion, it's really very simple. The client has to meet six requirements to get an unmodified opinion. Six requirements.

Number one, there can't be any significant departures from us gap, no significant departures from us generally accepted accounting principles or. Whatever financial framework we're testing, it could be Ivers, but in this CPA Exam class, we'll assume it's us generally accepted accounting principles, but that is the first requirement.

They can't be any significant departures from us. Gap number two, U S gap must've been consistently applied, consistently applied between accounting periods. Step three. They must be adequate and disk and complete disclosures, adequate and complete disclosures. And I want you to notice something. If you bracket those first three requirements together, why don't you write this in your notes next to those three requirements?

What are we saying? In a nutshell, they can't be any problem with the financial statements. When we say there can't be any significant departures from US gap. Us gap must've been consistently applied between accounting periods. Adequate and complete disclosures. What we're saying, bottom line, there can't be any problem with the financial statements now, four, five, and six.

Number four, there can't be any significant uncertainties. Number five, no significant scope limitations, and number six, no significant going concern problems. Now, bracket four, five and six together. What are we saying in four, five, and six when we say there can't be any significant uncertainty. No significant scope limitation, no significant going on.

No, no significant going concern problems, aren't we saying in those last three, no problems with the audit? Isn't that really the bottom line? What we're saying to our client is if you want to deserve an unmodified opinion, if you think you've earned an unmodified opinion, then there can't be any problem with the financial statements.

The first three, and they can't be any problem with the audit. The last three. Now, if you look in the viewer's guide, you'll see an example of the standard unmodified opinion, and this is really the foundation of all your studying in the area of reporting. You must memorize, I mean this memorize word for word, the standard unmodified opinion.

You'll find if you do that, you're much stronger than the reporting in reporting. In the reporting area because if you memorize the standard unmodified opinion and you don't really know it cold now later, you just have to make sure you know what modifications are made to the standard unmodified opinion in certain situations.

Then you can focus on modifications, but let's look at the standard unmodified opinion. Notice the heading independent auditor's report. They'll just write in the heading independent auditor's report. Remember. If an accountant, if an auditor is going to provide any type of assurance on financial information, any kind of assurance on financial information, the auditor must be independent, independent, in fact, independent in appearance.

If the auditor is going to provide any type of assurance on financial information. And remember the goal of an audit is to provide what reasonably positive assurance that the financial statements are free of any material misstatements. We're providing reasonably positive assurance that the financial statements are free of any material errors and fraud, but we are provided reasonable assurance.

So the auditor must be independent. So that's right. That's right up front, independent auditor's report. Now it's addressed to the company, the board of directors, the shareholders, but never management, not management. Now this report starts. With the introductory paragraph. The introductory paragraph says, we have audited notice.

We make, we make our level of service obvious. We state our level of Serbia service immediately. We're not doing our review. We're not doing a compilation. The level of service is laid out. We have audited the accompanying financial statements of XYZ company, which comprise the balance sheet as of December 31 year one, and the related statements of income.

Changes in stockholders' equity and cash flows for the year that ended, and the related notes to the financial statements. That's the introductory paragraph. Now with the standard unmodified opinion does its layout very clearly management's responsibility and the auditor's responsibilities. So notice the next paragraph has a title management's responsibility for the financial statements.

What we're going to call on these classes. The management responsibility paragraph, but the actual title is management's responsibility for the financial statements. Let's take a look at it. Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America.

This

includes the design, implementation, and maintenance of internal control. Relevant. To the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. That is the management responsibility paragraph. And now the most involved paragraph, the auditor's responsibility paragraph.

It says, our responsibility is to express an opinion on these financial statements based on our audit. Very clear. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Now, there might be more than one set of standards. You could say we conducted our audit in accordance with auditing standards, generally accepted in the United States of America, and in accordance with standards of the public company accounting oversight board, if it's an issuer.

Or we could say we conducted our audit in accordance with auditing standards, generally accepted in the United States of America, and in accordance with international standards of auditing. Just keep in mind. That they might be more than one set of standards that we follow. Okay. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement on audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.

The procedures selected depend on the auditor's judgment. Including the assessment of the risks of material misstatement, of the financial statements, whether due to fraud or error in making those risk assessments. The auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances.

But not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management as well as evaluating the overall presentation of the financial statements.

And now the bottom line, the last sentence, we believe. That the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. And then finally, of course, the opinion paragraph. In our opinion, the financial statements referred to above, present fairly. This is a clean opinion.

This is an unmodified opinion. It's what the client wanted its client hope for present fairly in all material respects. The financial position of XYZ company as of December 31 year one and the results of its operations and its cash flows for the year that ended in accordance with accounting principles generally accepted in the United States of America.

It is signed either manually or by the printed signature of the firm. When is it dated? It's dated no earlier. Remember, the audit report is dated no earlier than the date on which the auditor. Obtain sufficient appropriate audit evidence on which to base the opinion. Remember, the audit report is always dated no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the opinion that it's a standard unmodified opinion.

Now, I said, memorize it, and I meant memorize it word for word. You want to get to the point where. You could sit down at your laptop and just print that out. Just type it out. Know it word for word, believe me, they test it word for word. Multiple choice can get very picky about the wording. They could have a simulation where they give you a version of the report with all kinds of mistakes in it and ask you to sort out what's wrong with it.

You can only do that if you know the report cold. Now I also want to mention international standards. There are a couple of major differences when you do a standard unmodified opinion under international standards of auditing, for example, in international standards of auditing. In the introductory paragraph, they also refer to the summary of significant accounting policies and other explanatory information.

So remember that if it's international standards of auditing. In the introductory paragraph, they would also refer to a summary of significant accounting policies and other explanatory information in the auditor's responsibility paragraph. They would also state that auditing standards require that the auditor must comply with ethical requirements.

They include that too, and in international standards, you can refer to the. Fair presentation of the financial statements or you can refer to financial statements that give a true and fair view.

 
 

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