...INTERNATIONAL STANDARD ON AUDITING 700 FORMING AN OPINION AND REPORTING ON FINANCIAL STATEMENTS (Effective for audits of financial statements for periods beginning on or after December 15, 2009) Introduction Scope of this ISA 1. This International Standard on Auditing (ISA) deals with the auditor’s responsibility to form an opinion on the financial statements. It also deals with the form and content of the auditor’s report issued as a result of an audit of financial statements. 2. ISA 7051 and ISA 7062 deal with how the form and content of the auditor’s report are affected when the auditor expresses a modified opinion or includes an Emphasis of Matter paragraph or an Other Matter paragraph in the auditor’s report. 3. This ISA is written in the context of a complete set of general purpose financial statements. ISA 8003 deals with special considerations when financial statements are prepared in accordance with a special purpose framework. ISA 8054 deals with special considerations relevant to an audit of a single financial statement or of a specific element, account or item of a financial statement. 4. This ISA promotes consistency in the auditor’s report. Consistency in the auditor’s report, when the audit has been conducted in accordance with ISAs, promotes credibility in the global marketplace by making more readily identifiable those audits that have been conducted in accordance with globally recognized standards. It also helps to promote the user’s understanding...
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...Chapter 3 Audit Reports Key objectives: 1. Describe the parts of the standard unqualified audit report for non-public entities under AICPA auditing standards. 2. Specify the conditions required to issue the standard unqualified audit report. 3. Understand reporting on financial statements and internal control over financial reporting required under PCAOB auditing standards. 4. Describe the five circumstances when an unqualified report with an emphasis-of-matter explanatory paragraph or modified wording is appropriate. 5. Identify the types of audit reports that can be issued when an unqualified opinion is not justified. 6. Explain how materiality affects audit reporting decisions. 7. Know the key terms that identify different audit reports. 8. Determine the appropriate audit report for a given audit situation. 1. Purpose of audit report • Communicates auditor's work and conclusions reached. • It's the auditor's product, and the only visible outcome of the audit process. 2. Short-form report (unqualified or "clean" opinion) A. When appropriate 1. All 4 statements and appropriate disclosure (An opinion can be issued on less than a full set of financial statements - see Ch. 24). GAAS specifically provides that in the case of omission of the cash flows statement, a qualified opinion is issued. 3. Auditor has gathered sufficient appropriate evidence in accordance with GAAS ...
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...brief. They give a pithy summary of the audit and a few other details. I found the brevity of the traditional style surprising because companies pay out large sum of money for audits, the audits are important, and the auditing report summarizes the final opinion of the audit. The proposed edition is helpful since it elaborates the auditor’s opinion and findings. Briefly, the proposed revamped version does the following, not done in the typically current style. As outlined by Wall Street Journal: • It places the most crucial part, the auditor’s opinion, in the introduction. • It clarifies the auditor’s terminology, such as the meaning of “ reasonable assurance” and “material misstatement”. • It details who is responsible—in the case of a multinational firm, which auditing department – for which aspects of the audit. • It summarize the scope of the audit in more details, providing a more comprehensive accounts of which aspects of the company in question was subject to the audit. • It includes an emphasis paragraph that details the auditor’s review of the most significant aspects of the company’s financial profile. • It highlights potentially risky aspects of the company’s financial practices. • It adds a section containing the auditor’s concerning other financial aspects such as the management’s judgment, the company’s accounting policies, etc. • It identifies the individual, who is primarily responsible for the audit in case of any legal proceedings. These...
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...Chapter 3 Audit Reports Key objectives: 1. Describe the parts of the standard unqualified audit report for non-public entities under AICPA auditing standards. 2. Specify the conditions required to issue the standard unqualified audit report. 3. Understand reporting on financial statements and internal control over financial reporting required under PCAOB auditing standards. 4. Describe the five circumstances when an unqualified report with an emphasis-of-matter explanatory paragraph or modified wording is appropriate. 5. Identify the types of audit reports that can be issued when an unqualified opinion is not justified. 6. Explain how materiality affects audit reporting decisions. 7. Know the key terms that identify different audit reports. 8. Determine the appropriate audit report for a given audit situation. 1. Purpose of audit report • Communicates auditor's work and conclusions reached. • It's the auditor's product, and the only visible outcome of the audit process. 2. Short-form report (unqualified or "clean" opinion) A. When appropriate 1. All 4 statements and appropriate disclosure (An opinion can be issued on less than a full set of financial statements - see Ch. 24). GAAS specifically provides that in the case of omission of the cash flows statement, a qualified opinion is issued. 3. Auditor has gathered sufficient appropriate evidence in accordance with GAAS 4. Statements in accordance...
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... Whether to issue an unqualified opinion based on the evidence already obtained, disclaim an opinion, or follow up on the information provided by the chairperson of the board, knowing that the client may not pay for the additional audit time spent. 2. What to tell the second client. Providing confidential information will violate the Code of professional conduct but if it is not provided, the second client may purchase Hi-Sail, which could be a bad investment, and the auditor might lose the second client. The parties are affected and their rights are 1. Management, including the president and controller, have the right to have the audit completed on a timely and cost-effective basis and to a proper consideration of their claims. 2. The board of directors, including the chairperson, have the right to insist that the financial statements be fairly presented by management and on a timely and effective audit. The chairperson has a right to be heard and to have the auditor obtain evidence to support or contradict his claims. 3. Current and prospective creditors and investors, including the second client and any other prospective purchaser of Hi-Sail, have the right to receive fairly presented financial statements on a timely basis and to an unbiased opinion on those statements. 4. The individual auditor and audit firm have the right to be paid for services rendered and to have access to all evidence needed to form an opinion on the statements. 5. The public...
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...Table of content 1. Question a 2 2. Question b 5 3. Question c 6 4. Question d 9 5. Question e 10 6. Question f 11 7. Reference 16 a) As the auditor, describe the concerns you have that may suggest fraud is occurring in the company. The Fraud Triangle ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley The fraud triangle originated from Donald Cressey's hypothesis (Donald R. Cressey, 1973). The fraud triangle is a model for explaining the factors that cause someone to commit occupational fraud (acfe, n.d.). Type of fraud: Management fraud Fraudulent financial reporting Misappropriation of assets. (Arens/Elder/Beasley, 2012) ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley At the types of fraud, usually the Management fraud are including fraudulent financial reporting and the misappropriation of assets. Why the company will occurs the fraud, because the employees and managers have incentive, opportunities and attitude...
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...18-15 | a | | 18-21 | c | 18-22 a. The auditor would issue an unqualified audit report with modified wording for the reliance on the other auditors. In this case, the principal auditor does not intend to take responsibility for the other auditor's work. b. The auditor should issue a qualified audit report because management has not complied with GAAP. The auditor is not required to prepare the statement of cash flows for disclosure in the audit report. c. This approach is not in accordance with GAAP because such contingencies must be disclosed in the notes to the financial statements if the amount of the contingency cannot be reasonably estimated. A departure from GAAP such as this one requires either a qualified or an adverse opinion, depending on the materiality of the item in question. In this case the potential settlement is likely to be very large given the proportions of the tragedy in terms of human loss and suffering. In addition, the tragedy may well threaten the company’s ability to be involved in similar projects in the future and perhaps its own survival. Thus, an adverse opinion is very likely the most appropriate response. d. Because the client wouldn’t allow the confirmations to be sent, the appropriate response would generally be either a qualified opinion or a disclaimer of opinion for a scope limitation imposed by the client’s management, depending on the materiality of accounts receivable....
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...accounting change can affect comparability but not consistency because an accounting principle can be consistently applied even when the underlying data used to apply it may change. For example, when the estimate of the useful life of a building changes, the company may still consistently apply straight-line depreciation, but the depreciation expense will not be comparable to that of the previous year due to the change in estimate. 18-3 An example of a client-imposed scope limitation is where a client requests that the auditor not confirm accounts receivable because of concerns about creating conflicts with customers over amounts owed. An example of a circumstances-imposed scope limitation is when the auditor is not engaged to conduct the audit until after year-end. Under such circumstances, the...
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...CASE 1.10 DHB INDUSTRIES, INC. Synopsis David Brooks founded DHB Industries in the early 1990s. Throughout its existence, the principal operating unit of DHB was its Point Blank subsidiary that manufactured bullet-resistant vests for use by law enforcement and military personnel. Sales of protective vests accounted for more than 95 percent of DHB’s revenues each year. DHB and its free-spirited founder were often in the media spotlight. In 2005, a large number of the company’s protective vests were recalled due to alleged “life-threatening flaws.” A few months earlier, Brooks and his top two subordinates, the company’s COO and CFO, were widely criticized when they realized huge stock market gains after selling the majority of their DHB stock. Brooks, alone, realized a stock market gain of more than $180 million when he sold two-thirds of his total ownership interest in DHB, an interest that he had acquired for a small fraction of that amount. In July 2006, Brooks was ousted as DHB’s CEO by the company’s board. Over the following year, a forensic investigation of DHB’s accounting records revealed that the company’s impressive operating results from 2003 through 2005 had been the product of a massive accounting fraud. Brooks and his two subordinates had routinely and blatantly altered DHB’s accounting records to achieve the earnings targets that he had established for the company. The primary account manipulated...
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...1) NZICA has set out strong fundamental principles of the code of ethics regarding what an auditor imbody while carrying out an audit. These include XRB PES 110-150; * Integrity * Objectivity and independence * Professional competence and due care * Confidentiality * Professional behavior If someone’s an auditor from a professional body, he has to follow XRB or his professional bodies’ ethical code. In this case Pearson is part of NZICA and in turn must follow the standards set out by the XRB as NZICA follow XRB standards. NZICA’s has 14 rules of Ethics that is underpinned by the above standards set out by the XRB. Although NZICA evaluation of Pearson has been through and they have found Pearson in breach of few the above standards their fine/Cost of $38,000 seems on the low side he was also banned from auditing a public issuer years with the exception of four non - specified companies. In review of the charges against Pearson set out by NZICA I find that they met expectations in the following Standards. The institute found that Pearson was in breach of professional competence in turn in breach of Rule 11 and 9 of the code of ethics. Professional competence Rule 11 1) Information available indicating collective provision for doubtful debts yet, accepting assertions from SCF management that no collective provision for doubtful debts was required. 2) Failing to assess, evaluate and document uncorrected misstatements relating to provisions...
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...Transcript of ZZZZ Best Company, Inc ZZZZ Best Company, Inc Case 1.9 Audit Review VS Full Audit Review • The accountant is not aware of any misstatements or material modifications that need to be made • Limited assurance • Auditor has no opinion on the financial statements, just looks them over Barry Minkow- 16 years old 1982 Carpet cleaning business turned insurance restoration Tom Padgett and Interstate Appraisal Services Ernst & Whinney- elaborate scheme to convince them History 1. Client imposed audit limitations 2. Limitations of audit evidence 3. Importance of auditor communication when one resigns & 8K filing Key Issues Audit- • Auditor obtains a high level of assurance • Auditor can express an opinion about the accuracy and level of assurance • Auditor tests internal controls and tests for misstatements and obtains and understanding of the entities internal control and fraud risk Matt Sepiol Samantha Claysen Limitations of Audit Evidence AU 326- Audit Evidence Auditors Used Confirmation, Documentation, and Analytical Procedures AU 326.08- Information from outside sources is better than from internal sources Confirmations were made by Tom Padgett who was involved in the scheme. Interstate Appraisal Services and Assured Property Management provided the Documentation Was Involved in Fraud Collusion amongst outside Parties Gives Evidence Limitations The client receiving payment doesn't prove the existence of those contracts. No third...
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...misled investors in 2010 and 2011. Diamond restated its 2012 financial statements. In reviewing the SEC filing of Diamond Foods, Inc., I found that its auditors at first issued an unqualified opinion on its 2012 financial statements. “In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Diamond Foods, Inc. and subsidiaries as of July 31, 2012 and 2011 …” However, due to the discovery of the accounting scandal, the firm subsequently restated its opinion in its 2013 audit report: “Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of July 31, 2013 …” In the company’s restated financial statements of 2012, the company stated that an internal investigation was launched and found sufficient evidence that payments for Walnut was recorded in the wrong period, and quarterly estimates of its walnut cost was also wrong. In addition, the company’s accounts payable and accrued expenses related to the walnut business is also misstated for the previous 2 years. The company performed an extensive review of its invoices and made this determination. It’s important to notice that in 2007, the auditor issued an unqualified opinion, but with an explanatory paragraph, “Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls...
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...Gaviola, Harold Dave B. BSA-V Assignment in COMED421/0180/8:30-9:30PM PSA 401: Auditing in a Computer Information Systems Environment - The increasing availability of computer-based accounting systems that is capable of meeting both functional and economic circumstances of even the smallest entity impacts on the audits of those entities. Small entities’ accounting systems often make use of personal computers. Philippine Auditing Practice Statement 1001, “CIS Environments—Stand-Alone Personal Computers” gives additional guidance regarding the special considerations of such an environment. - Small entities are likely to use less sophisticated hardware and software packages than large entities (often “packaged” rather than developed “in house”). Nevertheless, the auditor has sufficient knowledge of the computer information system to plan, direct, supervise, and review the work performed. The auditor may consider whether specialized skills are needed in an audit. - Because of the limited segregation of duties, the use of computer facilities by a small entity may have the effect of increasing control risk. For example, it is common for users to be able to perform two or more of the following functions in the accounting system. • Initiating and authorizing source documents. • Entering data into the system. • Operating the computer. • Changing programs and data files. • Using or distributing output. • Modifying the operating systems. - The use of computer information...
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...CASE 5-7 MARCUS YAMABUTO Summary Marcus Yamabuto graduated from State University in June 2007 and he began working for Huang & Garcia in September 2007, a large regional firm. Yamabuto’s first major audit was assigned was Dunco, a secondary manufacturer of plasma monitors that sells its to major manufacturers. Yamabuto was assigned to review sale documents and freight, the terms of the sale, and the proper cutoff treatment. Yamabuto discovered $2.4 million of revenue that had been prematurely recognized for the year ended December 31, 2007. He determined the problem by matching the invoices with corresponding freight bills, and then he noticed that the shipping date of one transaction was January 2, 2008 Question 1 What advice would you give to Yamabuto ? Include in your answer the reasons for providing that advice from both accounting and ethical perspectives. I will advise that as an auditor should give qualified opinion when the financial statements is a differences of opinion with management on the application of GAAP that is material in amount or material because of the nature of the difference in Dunco invoices with corresponding freight bills. Besides, Yamabuto also must give reasonable statements to Dunco, he was checks all transactions financial statement 2007 to 2008. Furthermore, Yamabuto a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statement are free of material misstatement, whether caused by...
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...6-22 a. The function of the independent auditor in the audit of financial statements is expression of an opinion on the fairness with which they present, in all material respects, financial position, results of operations, and its cash flows in conformity with generally accepted accounting principles. The auditor's report is the medium through which he expresses his opinion or, if circumstances require, disclaims an opinion. In either case, he states whether his audit has been made in accordance with generally accepted auditing standards. These standards require him to state whether, in his opinion, the financial statements are presented in conformity with generally accepted accounting principles and to identify those circumstances in which such principles have not been consistently observed in the preparation of the financial statements of the current period in relation to those of the preceding period. The responsibilities of the independent auditor in the audit of financial statements are planning and performing the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. Because of the nature of audit evidence and the characteristics of fraud, the auditor is able to obtain reasonable, but not absolute, assurance that material misstatements are detected. b. The responsibilities of the independent auditor for the detection of fraud is provide reasonable assurance of detecting material...
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