Forming the Audit Opinion

1. Forming the Audit Opinion CAS 200 - Overall objectives of the independent auditor and the conduct of an audit in accordance with Canadian auditing standards CAS 450 - Evaluation of misstatements identified during the audit CAS 520 – Analytical procedures CAS 560 – Subsequent events CAS 700 - Forming an opinion and reporting on financial statements CAS 705 - Modifications to the opinion in the independent auditor’s report CAS 706 - Emphasis of matter paragraphs and other matter paragraphs in the independent auditor’s report CAS 710 - Comparative information – correspond figures and comparative financial statements

2. OVERALL EVALUATION OF EVIDENCETO FORM THE AUDIT OPINION To achieve the overall objective of an audit, the auditor needs to formulate and report an audit opinion on the financial statements. In reaching this goal, auditors need to • exercise • and maintain throughout planning and performing the audit.

3. Professional judgment is defined as the application of • relevant training, knowledge, and experience • within the context provided by auditing, accounting, and ethical standards, • in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement. Auditor judgments must include evaluating management’s judgments

4. The auditor judgment about managements judgements are made by considering such issues as those following: Are any assumptions used justified and documented by management? Were ranges of probable outcomes considered and documented by management?

5. Professional skepticism refers to an auditor attitude that includes CAS 200 – Professional skepticism is necessary to the critical assessment of audit evidence

6. Prior to forming an audit opinion: All decisions and conclusions need to be well documented

7. AUDIT EVIDENCE AND MISSTATEMENTS The engagement partner reviews the files to make a final evaluation of the adequacy of the work. Judgment is applied to evaluate If at any point in the audit the findings suggest materiality or risk assessments should be revised, auditors must determine if it is necessary to go back and perform additional procedures to respond to the revised materiality or risk.

8. Overall Evaluation of Evidence to form an Opinion The financial statements, including note disclosure, are the responsibility of Any adjustments uncovered in the audit will be presented to the auditee Management is responsible for approving

9. Misstatements CAS 450 - Evaluation of misstatements identified during the audit Audit tests provided a basis for deciding if unadjusted errors are material. Unadjusted errors need to be aggregated by category to see if they total to a material amount. Auditors use:

10. Summary of Unadjusted Items Worksheet

11. FORMING AN AUDIT OPINION - CAS 700 The first decision is whether the audit team has obtained The auditor must also decide whether the applicable reporting framework chosen by management Acceptable reporting frameworks can be either fair presentation frameworks Or compliance frameworks

12. Who has the final responsibility to assess the fair presentation of the financial statements? Assesses whether the overall presentation, structure, and content of the financial statements and notes represent the underlying transactions and events

13. Dual-Dating in the Audit Report Dual-dating refers to the dating of the audit report as the end of field work along with an additional later date attached to a Type II subsequent event. Not required if auditor is willing to extend subsequent procedures through later date.

14. Responsibilities After the Audit Report Has Been Issued Two issues may arise after the audit report has been issued: Auditors are not generally required to perform procedures after the report is issued but

15. Subsequent Discovery of Facts When an auditor learns of facts that are important after the audit report has been issued, the auditor must determine:

16. SIGNIFICANT MATTER PARAGRAPHS: ADDITIONAL INFORMATION IN THE AUDIT REPORT There are two types of additions possible under CAS 706: • emphasis of matter (EOM) paragraphs • or other matter (OM) paragraphs. EOM paragraphs are required when a material uncertainty regarding the going concern assumption is properly disclosed, and an unmodified opinion is given. OMs can refer to other information included with the financial statements, such as MD&A or comparative information from other periods,

17. Auditor Communications The interim and final work includes a number of different forms of audit correspondence.

18. Communication with Audit Committees (or Equivalent) Auditor should review with management in advance information to be covered with the audit committee.

19. Problem EP 16-4, Page 882 At the end of her audit of Jolie Angelique Inc., Emma concludes that there are material misstatements affecting many accounts, with the result that the financial statements as a whole are misleading. The company’s management refuses to adjust the financial statements, however. REQUIRED: • List the four forms of modified opinions set out in CAS 705. • Explain which form of audit opinion would be appropriate in this situation.

20. Problem DC 16-3, Page 883 The auditors of CRX Inc. financial statements for the year ended December 31, 20X7, have decided that there is substantial doubt that CRX can continue to exist as a going concern because the company has experienced significant operating losses since 20X5 and has had to get permission from its lenders to postpone its debt payment requirements. CRX’s management has agreed to describe the problems in the president’s message to the shareholders in their annual report but has decided not to reflect this situation in the notes to the financial statements. REQUIRED: Discuss fully the type of audit opinion to be issued in this situation, including a description of any information that would be necessary to the standard report. Describe what change(s) would be necessary for CRX to obtain an unmodified opinion in this case.

21. Problem DC 16-4, Page 883 Yue is auditing the accounts receivable for Slawson & Slawson, LLP, a large law partnership. The managing partner of the law firm has prohibited the auditor from confirming any of the law firm’s accounts receivable. The lawyers are concerned that their clients would consider it a breach of confidentiality for the auditor to know that they had engaged the lawyer’s services and would not understand that the auditor is also operating under strict rules that require confidentiality. The accounts receivable balance is highly material. Yue is not able to satisfy himself as to the receivable balance by alternative means. REQUIRED: • Describe the type and format of audit opinion that should be issued in this case. • Explain the type of evidence that Yue was trying to obtain by confirming the law firm’s accounts receivable balances, and then explain the assertion(s) and specific audit objectives that this evidence relates to. • Why do you think it was not possible to obtain evidence by alternative means?