MODERN AUDITING MODERN AUDITING 7th Edition 7th Edition Developed by: Dr. Raymond N. Johnson, CPA Gregory K. Lowry, MBA, CPA John Wiley & Sons, Inc. William C. Boynton William C. Boynton California Polytechnic State California Polytechnic State University at San Luis Obispo University at San Luis Obispo Raymond N. Johnson Raymond N. Johnson Portland State University Portland State University Walter G. Kell Walter G. Kell University of Michigan University of Michigan
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MODERN AUDITING 7th Edition Developed by: Dr. Raymond N. Johnson, CPA Gregory K. Lowry, MBA, CPA John Wiley & Sons, Inc. William C. Boynton California.
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MODERN AUDITING MODERN AUDITING 7th Edition7th Edition
MODERN AUDITING MODERN AUDITING 7th Edition7th Edition
Developed by:Dr. Raymond N. Johnson, CPAGregory K. Lowry, MBA, CPA
John Wiley & Sons, Inc.
William C. BoyntonWilliam C. BoyntonCalifornia Polytechnic State California Polytechnic State University at San Luis ObispoUniversity at San Luis Obispo
Raymond N. JohnsonRaymond N. JohnsonPortland State UniversityPortland State University
Walter G. KellWalter G. KellUniversity of MichiganUniversity of Michigan
Chapter 20: Reporting on Audited Financial Statements
Chapter 20: Reporting on Audited Financial Statements
• Standards of Reporting
• The Standard Auditor’s Report
• Departures from the Standard Auditor’s Report
• Other Reporting Considerations
1st Reporting Standard1st Reporting Standard
• The report shall state whether the financial statements are presented in accordance with generally accepted accounting principles.
1st Reporting Standard1st Reporting Standard
The auditor’s opinion as to conformity with GAAP should be based on his or her judgment as to whether:
• The accounting principles selected and applied have general acceptance
• The accounting principles are appropriate in the circumstances
• The financial statements, including the related notes, are informative of matters that may affect their use, understanding, and interpretation
• The information presented in the financial statements is classified and summarized in a reasonable manner
• The statements reflect the underlying events and transactions in a manner that presents the financial position, results of operations, and cash flows within reasonable and practicable limits
2nd Reporting Standard2nd Reporting Standard
• The report shall identify those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.
• Objectives– Assurance about comparability– Reporting when comparability has been affected by
material changes in accounting principles
3rd Reporting Standard3rd Reporting Standard
• Informative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report.
• Objectives– Assurance about disclosure– Reporting when disclosure is inadequate
4th Reporting Standard4th Reporting Standard
• The report shall either contain:– An expression of opinion regarding the financial statements, taken as a
whole, or
– An assertion to the effect that an opinion cannot be expressed. When an overall opinion cannot be expressed, the reasons therefore should be stated.
• In all cases where an auditor’s name is associated with financial statements, the report should contain a clear-cut indication of the character of the auditor’s work, if any, and the degree of responsibility the auditor is taking.
The Standard Auditor’s ReportThe Standard Auditor’s Report
• Information accompanying audited financial statements
• Financial statements prepared for use in other countries.
Auditor is Not IndependentAuditor is Not Independent
• One paragraph report stating:– That the auditor is not independent,
– The financial statements were not audited, and
– The firm does not express an opinion on the financial statements.
Comparative Financial Statements
Comparative Financial Statements
• Different Opinions (AU 508.67)
• Updating an opinion (AU 508.68)
• Change in auditors (AU 508.70)
Information Accompanying Audited Financial Statements
Information Accompanying Audited Financial Statements
• Supplementary information is an essential part of an entity’s financial reporting. (AU 550 / 558)
• Limited procedures– Inquiry– Comparison of the information for consistency with other
available data
• Standard report, except:– Required supplementary information is omitted– Material departure from prescribed guidelines– Auditor unable to complete prescribed procedures– Auditor is unable to remove substantial doubts about whether
the information conforms to prescribed guidelines
Financial Statements Prepared for Use in Other Countries (AU 534)
Financial Statements Prepared for Use in Other Countries (AU 534)
• If for use in Other Country ONLY– U.S. Style Report– Report of the Other Country
• If for use in the U.S.– Qualified or Adverse Opinion, depending upon the