Quiz 18: Reports on Audited Financial Statements

Business

Auditor's Association with Financial Statements It is stated in the fourth standard of reporting that the auditor is associated with the client's financial statements. This association implies that the auditor's report must contain an opinion concerning the financial statements taken as a whole or state the reasons why an opinion cannot be issued. The auditor's association with financial statements approves that the persons relying on the financial statements can understand the degree of responsibility of the auditor. The auditor gives his consent to use his or her name in the annual report to convey his authorization.

Accounting Changes A consistent and comparable financial statement is the outcome of proper maintenance of fundamental principles of accounting. The auditor categorizes accounting changes into changes that affect consistency and those that do not affect consistency. A change that affects comparability and consistency is explained in the explanatory paragraph of the audit statement. This change has material effect. Accounting changes affect comparability and consistency. These changes include changes in accounting principles, changes in reporting entity, and correction of errors. Some changes affect comparability, but do not affect consistency. These changes include change in accounting estimate, changes occurred in the classification and reclassification, and all other changes that have a material effect in the future period.All the changes that do not affect materiality are disclosed in the foot notes of the financial statements.

Scope Limitation The following are the examples of client-imposed and condition-imposed scope limitation: Example of client - imposed scope limitation: When a client requests the auditor not to disclose the accounts receivable because of adverse effect over customer relations, the auditor issues a qualified opinion depending on the materiality of accounts receivable. Example of condition - imposed scope limitation: When the auditor is not engaged to perform the audit until the year end of the period, he may not be able to observe inventory. The auditor should be seriously alert when the client requests to place a limit on the scope of the engagement, because the client may be trying to prevent the auditor from ascertaining the material misstatements. According to accounting standards, if any limitations are forced by the client, then the auditor should refuse that opinion on the financial statements.

There is no answer for this question

There is no answer for this question

There is no answer for this question

There is no answer for this question