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Audit Reports

Audit Reports. Chapter 3 There are four types of audit reports: (1) Unqualified: Clean opinion or report تام , مطلق , خالي من التحفظات (2) Qualified متحفظ (3) Adverse رأي معاكس (4) Disclaimer امتناع عن ابداء الرأي. Parts of the Standard Unqualified Audit Report اجزاء التقرير المطلق.

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Audit Reports

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  1. Audit Reports Chapter 3 There are four types of audit reports: (1) Unqualified: Clean opinion or report تام , مطلق , خالي منالتحفظات (2) Qualified متحفظ (3) Adverse رأي معاكس (4) Disclaimer امتناع عن ابداء الرأي

  2. Parts of the Standard Unqualified Audit Reportاجزاء التقرير المطلق • Report titleعنوان التقرير • The title should include the word ‘independent’ • 2. Audit report address لمن يوجة التقرير • To its stockholders • 3. Introductory paragraphفقرة المقدمة • It’s the first paragraph does three things • The CPA firm has done an audit • It tests the financial statements that were audited • States that the statements are the responsible of management • and the auditor’s responsibility is to express an opinion. • 4. Scope paragraphفقرة نطاق التدقيق • States that the audit is designed to obtain reasonable assurance • about whether the statements are free from material misstatments

  3. Parts of the Standard Unqualified Audit Reportاجزاء التقرير المطلق • A test base indicate that sampling was used rather than an audit • transactions and amounts on the statements. • 5. Opinion paragraphفقرة ابداء الرأي • states that the auditor conclusions based on the result of the • audit. The phrase “ in our opinion” indicates that there may be some • information risk associated with the financial statement, although the • statements have been audited. • 6. Name of CPA firmاسم شركة التدقيق • 7. Audit report dateتاريخ تقريرالتدقيق • the date of completion the audit work.

  4. Conditions for StandardUnqualified Audit Report 1. All financial statements are included. 2. The three general standards have been followed in all respects on the engagement. 3. Sufficient evidence has been accumulated to conclude that the three standards of field work have been met.

  5. Conditions for StandardUnqualified Audit Report 4. The financial statements are presented in accordance with generally accepted accounting principles. 5. There are no circumstances requiring the addition of an explanatory paragraph or modification of the wording of the report.

  6. Four Categories of Audit Reports 1. Standard unqualified تام , مطلق , خالي من التحفظات 2. Unqualified with explanatory paragraph or modified wording تام مع فقرة ايضاح او كلمات معدلة 3. Qualified تقرير متحفظ 4. Adverse or disclaimer تقرير معاكس او امتناع

  7. Sarbanes-Oxley Act This Act requires the auditor of a public company to attest to management’s report on the effectiveness of internal control over financial reporting. PCAOB Auditing Standard 2 requires the audit of internal control to be integrated with the audit of the financial statements.

  8. Sarbanes-Oxley Act Combined Report on Financial Statements and Internal Control Over Financial Reporting 1. Introductory paragraph 2. Scope paragraph 3. Definition paragraph 4. Inherent limitations التقيدات المتوارثةparagraph 5. Opinion paragraph

  9. Unqualified Report withExplanatory Paragraphfive circumstanceswhen an unqualified report withan explanatory paragraph ormodified wording is appropriate 1. Lack of consistent application of generally accepted accounting principles قصور في تطبيق المعايير المحاسبية بشكل ثابت 2. Substantial doubt about going concern شك كبير حول استمرارية الشركة 3. Auditor agrees with a departure frompromulgated تشريعات رسميةaccounting principlesفي ظروف غير طبيعية 4. Emphasis of a matter 5. Reports involving other auditors

  10. Substantial Doubt AboutGoing Concernشك مادي كبير حول استمرارية الشركة 1.Significant recurring operating losses or working capital deficiencies.خسائر تشغيلية متكررة اوعجز مهم في راس المال التشغيلي 2. Inability of the company to pay its obligations as they come due.عدم مقدرة الشركة على دفع التزاماتها عندما يحين موعد سدادها 3. Loss of major customers, the occurrence of uninsured catastrophes.خسارة كبار العملاء, الحدث كراثة غي مؤمنة 4. Legal proceedings, legislation that might jeopardize the entity’s ability to operate. قضية قانونية مرفوعة ضد الشركة, تشريعات تعرض مقدرة الشركة واستمرارية التشغيل للخطر

  11. Auditor Agrees with a Departurefrom a Promulgated Principle The auditor must be satisfied and must state and explain, in a separate paragraph or paragraphs in the audit report, that adheringالالتزام to the principle would have produced a misleading result in that situation.

  12. Emphasis of a Matter Under certain circumstances, the CPA may want to emphasize specific matters regarding the financial statements, even though the CPA intends to express an unqualified opinion. تحت ظروف معينة ربما المدقق يريد ان يؤكد على حدث محدد له علاقة بالقوائم المالية بالرغم من ان نية المدقق اصدار تقرير نظيف. هذه الظروف مثل احداث مهمة لاحقة لتاريخ الميزانية

  13. Reports Involving Other Auditors 1. Make no reference in the audit report 2. Make reference in the report (modified wording report) 3. Qualify the opinion

  14. Identify the types of audit reports that can be issued when an unqualified opinion is not justified. Learning Objective 5

  15. Departures from AnUnqualified Opinion 1. Scope limitation 2. GAAP departure 3. Auditor not independent

  16. Qualified Opinionالرأي المتحفظ A qualified opinion report can result from (1) a limitation on the scope of the audit or (2) failure to follow generally accepted accounting principles. The auditor use ‘ except for’ in the opinion paragraph The scope of the audit has been restricted, When the auditor has not accumulated sufficient evidence To conclude whether financial statement are stated in Accordance of GAAP نطاق او مجال التدقيق مقيد من قبل الشركة او ظروف اخرى, عندما لايستطيع المدقق تجميع ادلة كافي لتكوين رأي فيما اذا القوائم المالية تم اعدادها وفق المعايير المحاسبية المتعارف عليها.

  17. Adverse Opinion رأي معاكس It is used only when the auditor believes that the overall financial statements are so materially misstatedتحريف مادي or misleading thatthey do not present fairly the financial position or results of operations and cash flows in conformity طبقا لwith GAAP. يستخدم عندما يعتقد المدقق ان هناك تحريف مادي او تظليل ادى الى عدم عرض المركز المالي ونتيجة عمليات الشركة بشكل عادل. كما انها لم تعرض التدفق النقدي بشكل يتفق مع المبادىء المحاسبية المتعارف عليها

  18. Disclaimer of Opinion امتناع عن ابداء الرأي It is issued when the auditor is unable غير قادر to be satisfied that the overall financial statements are fairly presented. The adverse opinion report can ariseينشأ only when the Auditor has knowledge, after an adequate investigation, Of the absence of conformity.

  19. how materiality affectsaudit reporting decisions?Materiality تعريف المادية A misstatement التحريفin the financial Statementscan be considered material if knowledge ofthe misstatement would affect a decisionof a reasonable user of the statements.

  20. Levels of Materiality Amounts are immaterial.المقاديير المحرفة غير مادية Amounts are material but do not overshadow لايلقي بتاثيرة the financial statements as a whole. Amounts are so material or so pervasiveيتغلغل, يعم that overall fairness of the statements is in question.

  21. Relationship of Materiality toType of Opinion Materiality Level Significance in Terms of Reasonable Users’ Decisions Type of Opinion Immaterial Users’ decisions are unlikely to be affected. Unqualified Material Users’ decisions are likely to be affected. Qualified Highly material Users’ decisions are likely to be significantly affected. Disclaimer or adverse

  22. Discussion of ConditionsRequiring Departure • Auditor’s scope has been restricted • Statements are not in conformity with GAAP • Auditor is not independent

  23. Auditor’s Decision Process Determine whether any condition exists requiring a departure from a standard unqualified report. • Decide the materiality for each condition • Decide the appropriate type of report • Write the audit report

  24. More Than One Condition Requiringa Departure or Modification The auditor is not independent. There is a scope limitation. There is a substantial doubt about the company’s ability to continue as a going concern. There is a deviation in the statements’ preparation in accordance to GAAP.

  25. Number of Paragraphsin the Report Type of Report Standard unqualified 3 Unqualified with explanatory paragraph 4 Unqualified shared report with other auditors 3 Qualified – opinion only 4 Qualified – scope and opinion 4 Disclaimer – scope limitation 3 Adverse 4

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