Standard Unqualified Audit Report

1. Standard Unqualified Audit Report Must have independent in the title Addressed to Board or Stockholders Intro paragraph CPA firm that did audit List of which financial statements period of financial statements financial statements are responsibility of management auditor only expresses an opinion

2. Standard unqualified audit report Scope paragraph reasonable assurance free of material misstatement evidence on a test basis assess accounting principals and estimates name of country of principals Audit is the basis of our opinion

3. Standard unqualified audit report Opinion paragraph Financial Statements are presented fairly in all material respects in conformity with GAAP Name of firm Date of report (date fieldwork complete)

4. What makes report unqualified? All financial statements are presented The 3 general standards are fulfilled training independence due professional care The 3 fieldwork standards are met planned and supervised understanding of internal control sufficient evidential matter

5. What makes report unqualified? Conformity with GAAP No extra paragraph is needed

6. Internal Control Sarbanes Oxley Section 404Combined report PCAOB Standard 2 requires internal control audit and financial statement audit be integrated, however you can still issue separate or combined reports See Figure 3-3 for combined report

7. Internal Control Sarbanes Oxley Section 404Combined report Changes from standard report Registered Public Accounting Firm Audited management report on Internal Controls Criteria is COSO for report on internal controls Standards of the PCAOB ADD Definition Paragraph

8. Internal Control Sarbanes Oxley Section 404Combined report Definition paragraph maintenance of records GAAP Fraud prevention Inherent limitations paragraph

9. Unqualified report with explanatory paragraph Reasons for paragraph inconsistent GAAP (one year to next) Change from FIFO to LIFO correction of errors in principles additional company added to consolidated reports Going Concern problem (one year) reoccurring losses inability to pay obligations catastrophes legal proceedings

10. Unqualified report with explanatory paragraph Auditor agrees with departure from GAAP Need to emphasize something like related party disclosure Other auditors have been involved in some of the work

11. When other auditors are used No reference in report if immaterial portion of audit or principal auditor reviewed work of other auditor Reference in the report if shared opinion (this does not require separate paragraph) Qualify the opinion when you (as auditor) are not willing to assume any responsibility for the other auditors work

12. Departure from unqualified report Scope limitation caused by client caused by circumstances Not GAAP Auditor is not independent

13. Other reports Qualified (except for paragraph) Adverse --rarely used Disclaimer--cannot gives an opinion due to scope limitation or non-independent auditor

14. Materiality A misstatement is material if knowing it would affect a decision of a reader of the financial statements We determine materiality by looking at the amounts of the misstatements in ratio to net income or total assets We combine unadjusted misstatements to get overall misstatements

15. Levels of Materiality Amounts immaterial Amount is material but does not overshadow the financial statements as a whole Pervasive errors

16. Decisions on Materiality Failure to follow GAAP Dollar amounts in ratio and combined misstatements measurability (lawsuits) Nature of misstatement fraudulent affect future period psychic effect (trend of increasing earnings) contractual obligations (debt restrictions)