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Matched Legal Cases: ['§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508', '§508']

reports on audited Financial statements.pdf | Auditor's Report | Financial Audit
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AU Section 508*
(Supersedes sections 505, 509, 542, 545, and 546.) Source: SAS No. 58; SAS No. 64; SAS No. 79; SAS No. 85; SAS No. 93; SAS No. 98. See section 9508 for interpretations of this section. Effective for reports issued or reissued on or after January 1, 1989, unless otherwise indicated.
.01 This section applies to auditors' reports issued in connection with audits1 of historical ﬁnancial statements that are intended to present ﬁnancial position, results of operations, and cash ﬂows in conformity with generally accepted accounting principles. It distinguishes the types of reports, describes the circumstances in which each is appropriate, and provides example reports. .02 This section does not apply to unaudited ﬁnancial statements as described in section 504, Association With Financial Statements, nor does it apply to reports on incomplete ﬁnancial information or other special presentations as described in section 623, Special Reports. .03 Justiﬁcation for the expression of the auditor's opinion rests on the conformity of his or her audit with generally accepted auditing standards and on the ﬁndings. Generally accepted auditing standards include four standards of reporting.2 This section is concerned primarily with the relationship of the fourth reporting standard to the language of the auditor's report. .04 The fourth standard of reporting is as follows:
The auditor must either express an opinion regarding the ﬁnancial statements, taken as a whole, or state that an opinion cannot be expressed, in the auditor's
* This section has been revised to reﬂect the conforming changes necessary due to the issuance of Statement on Auditing Standards No. 93. 1 An audit, for purposes of this section, is deﬁned as an examination of historical ﬁnancial statements performed in accordance with generally accepted auditing standards in effect at the time the audit is performed. Generally accepted auditing standards include the ten standards as well as the Statements on Auditing Standards that interpret those standards. In some cases, regulatory authorities may have additional requirements applicable to entities under their jurisdiction and auditors of such entities should consider those requirements. 2 This section revises the second standard of reporting as follows: 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. Previously, the second standard required the auditor's report to state whether accounting principles had been consistently applied. As revised, the second standard requires the auditor to add an explanatory paragraph to his report only if accounting principles have not been applied consistently. (See section 420, Consistency of Application of Generally Accepted Accounting Principles.) Paragraphs .17–.19 of this section provide reporting guidance under these circumstances.
AU §508.04
report. When the auditor cannot express an overall opinion, the auditor should state the reasons therefor in the auditor's report. In all cases where an auditor's name is associated with ﬁnancial statements, the auditor should clearly indicate the character of the auditor's work, if any, and the degree of responsibility the auditor is taking, in the auditor's report.
[Revised, November 2006, to reﬂect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 113.] .05 The objective of the fourth standard is to prevent misinterpretation of the degree of responsibility the auditor is assuming when his or her name is associated with ﬁnancial statements. Reference in the fourth reporting standard to the ﬁnancial statements "taken as a whole" applies equally to a complete set of ﬁnancial statements and to an individual ﬁnancial statement (for example, to a balance sheet) for one or more periods presented. (Paragraph .65 discusses the fourth standard of reporting as it applies to comparative ﬁnancial statements.) The auditor may express an unqualiﬁed opinion on one of the ﬁnancial statements and express a qualiﬁed or adverse opinion or disclaim an opinion on another if the circumstances warrant. .06 The auditor's report is customarily issued in connection with an entity's basic ﬁnancial statements—balance sheet, statement of income, statement of retained earnings and statement of cash ﬂows. Each ﬁnancial statement audited should be speciﬁcally identiﬁed in the introductory paragraph of the auditor's report. If the basic ﬁnancial statements include a separate statement of changes in stockholders' equity accounts, it should be identiﬁed in the introductory paragraph of the report but need not be reported on separately in the opinion paragraph since such changes are part of the presentation of ﬁnancial position, results of operations, and cash ﬂows.
The Auditor’s Standard Report
.07 The auditor's standard report states that the ﬁnancial statements present fairly, in all material respects, an entity's ﬁnancial position, results of operations, and cash ﬂows in conformity with generally accepted accounting principles. This conclusion may be expressed only when the auditor has formed such an opinion on the basis of an audit performed in accordance with generally accepted auditing standards. .08 The auditor's standard report identiﬁes the ﬁnancial statements audited in an opening (introductory) paragraph, describes the nature of an audit in a scope paragraph, and expresses the auditor's opinion in a separate opinion paragraph. The basic elements of the report are the following: a. b. c. A title that includes the word independent3 A statement that the ﬁnancial statements identiﬁed in the report were audited A statement that the ﬁnancial statements are the responsibility of the Company's management4 and that the auditor's responsibility is to express an opinion on the ﬁnancial statements based on his or her audit
3 This section does not require a title for an auditor's report if the auditor is not independent. See section 504, Association With Financial Statements, for guidance on reporting when the auditor is not independent. 4 In some instances, a document containing the auditor's report may include a statement by management regarding its responsibility for the presentation of the ﬁnancial statements. Nevertheless, the auditor's report should state that the ﬁnancial statements are management's responsibility.
AU §508.05
generally accepted accounting principles6 ) The manual or printed signature of the auditor's ﬁrm The date7 of the audit report
i. see section 530.
f. the auditor should refer to the guidance in section 534.] 6 A U. accounting principles generally accepted in the United States of America or U. effective for reports issued or reissued on or after June 30. evidence supporting the amounts and disclosures in the ﬁnancial statements Assessing the accounting principles used and signiﬁcant estimates made by management Evaluating the overall ﬁnancial statement presentation[5]
e. 93.]
AU §508. Dating of the Independent Auditor's Report. The opinion should include an identiﬁcation of the United States of America as the country of origin of those accounting principles (for example. 93.] 7 For guidance on dating the auditor's report.
A statement that the auditor believes that his or her audit provides a reasonable basis for his or her opinion An opinion as to whether the ﬁnancial statements present fairly.
The form of the auditor's standard report on ﬁnancial statements covering a single year is as follows: Independent Auditor's Report
We have audited the accompanying balance sheet of X Company as of December 31. October 2000.S. auditing standards generally accepted in the United States of America or U. and cash ﬂows for the year then ended. h. 69. 2001 by Statement on Auditing Standards No.S. These ﬁnancial statements are the responsibility of the Company's management.08
[5] [Footnote deleted.
g. retained earnings. in all material respects.Reports on Audited Financial Statements
d. In those circumstances.S. Reporting on Financial Statements Prepared for Use in Other Countries. j. the ﬁnancial position of the Company as of the balance sheet date and the results of its operations and its cash ﬂows for the period then ended in conformity with generally accepted accounting principles. October 2009. Our responsibility is to express an opinion on these ﬁnancial statements based on our audit. and the related statements of income. to reﬂect conforming changes necessary due to the withdrawal of SAS No. [Footnote renumbered by the issuance of Statement on Auditing Standards No. entity that have been prepared in conformity with accounting principles generally accepted in another country. 20XX.
A statement that the audit was conducted in accordance with generally accepted auditing standards and an identiﬁcation of the United States of America as the country of origin of those standards (for example.S. auditor also may be engaged to report on the ﬁnancial statements of a U. [Footnote added. on a test basis. generally accepted auditing standards) A statement that those standards require that the auditor plan and perform the audit to obtain reasonable assurance about whether the ﬁnancial statements are free of material misstatement A statement that an audit includes— (1) (2) (3) Examining.
These ﬁnancial statements are the responsibility of the Company's management. present fairly. in all material respects. the ﬁnancial position of X Company as of [at] December 31. 20X2 and 20X1." [Footnote renumbered by the issuance of Statement on Auditing Standards No.]
8 If statements of income. An audit also includes assessing the accounting principles used and signiﬁcant estimates made by management. and cash ﬂows are presented. Our responsibility is to express an opinion on these ﬁnancial statements based on our audits. effective for reports issued or reissued on or after June 30. as well as evaluating the overall ﬁnancial statement presentation. but the balance sheet(s) as of the end of one (or more) of the prior period(s) is not presented. the phrase "for the years then ended" should be changed to indicate that the auditor's opinion applies to each period for which statements of income. evidence supporting the amounts and disclosures in the ﬁnancial statements. 93. on a test basis. We believe that our audits provide a reasonable basis for our opinion. such as "for each of the three years in the period ended [date of latest balance sheet]. An audit includes examining.596
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. and cash ﬂows for the years then ended. 2001. We believe that our audit provides a reasonable basis for our opinion. the ﬁnancial statements referred to above. An audit also includes assessing the accounting principles used and signiﬁcant estimates made by management. and the results of its operations and its cash ﬂows for the years then ended in conformity with accounting principles generally accepted in the United States of America. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. retained earnings. 93. on a test basis. as well as evaluating the overall ﬁnancial statement presentation. In our opinion. In our opinion. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the ﬁnancial statements are free of material misstatement. retained earnings. and cash ﬂows are presented on a comparative basis for one or more prior periods. [Signature] [Date]
The form of the auditor's standard report on comparative ﬁnancial statements8 is as follows: Independent Auditor's Report
We have audited the accompanying balance sheets of X Company as of December 31. the ﬁnancial position of X Company as of [at] December 31. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the ﬁnancial statements are free of material misstatement. and the related statements of income. [Signature] [Date]
[As amended.]
AU §508. in all material respects. and the results of its operations and its cash ﬂows for the year then ended in conformity with accounting principles generally accepted in the United States of America.08
. evidence supporting the amounts and disclosures in the ﬁnancial statements. 20X2 and 20X1. by Statement on Auditing Standards No. retained earnings. the ﬁnancial statements referred to above. An audit includes examining. present fairly. October 2000. 20XX.
an explanatory paragraph may precede or follow the opinion paragraph in the auditor's report. and cash ﬂows of the entity in conformity with generally accepted accounting principles. while not affecting the auditor's unqualiﬁed opinion.09 The report may be addressed to the company whose ﬁnancial statements are being audited or to its board of directors or stockholders.Reports on Audited Financial Statements
. for example.08. An adverse opinion states that the ﬁnancial statements do not present fairly the ﬁnancial position. results of operations.]
AU §508. October 2000. A disclaimer of opinion states that the auditor does not express an opinion on the ﬁnancial statements. or to the proprietor. This is the opinion expressed in the standard report discussed in paragraph .
These opinions are discussed in greater detail throughout the remainder of this section. while not affecting the auditor's unqualiﬁed opinion on the ﬁnancial statements. to the general partner. This section is organized by type of opinion that the auditor may express in each of the various circumstances presented. The auditor's opinion is based in part on the report of another auditor (paragraphs . An unqualiﬁed opinion states that the ﬁnancial statements present fairly.] 10 See footnote 3. A qualiﬁed opinion states that. the ﬁnancial position. in such a case. this section describes what is meant by the various audit opinions:
Unqualiﬁed opinion. . results of operations. the ﬁnancial position.12–. 93. Occasionally.11
. Explanatory language added to the auditor's standard report. Qualiﬁed opinion. A report on the ﬁnancial statements of an unincorporated entity should be addressed as circumstances dictate. Disclaimer of opinion. [Footnote renumbered by the issuance of Statement on Auditing Standards No. or cash ﬂows of the entity in conformity with generally accepted accounting principles. October 2000.10 These circumstances include: a. in all material respects. results of operations.11 Certain circumstances.
Explanatory Language Added to the Auditor’s Standard Report
. to the partners. Adverse opinion. in all material respects. Certain circumstances. except for the effects of the matter(s) to which the qualiﬁcation relates. may require that the auditor add an explanatory paragraph (or other explanatory language) to his or her report. 93.13). [Footnote renumbered by the issuance of Statement on Auditing Standards No. and cash ﬂows of the entity in conformity with generally accepted accounting principles. the ﬁnancial statements present fairly. an auditor is retained to audit the ﬁnancial statements of a company that is not a client.10 This section also discusses the circumstances that may require the auditor to depart from the standard report and provides reporting guidance in such circumstances.
9 Unless otherwise required by the provisions of this section. the report is customarily addressed to the client and not to the directors or stockholders of the company whose ﬁnancial statements are being audited. may require that the auditor add an explanatory9 paragraph (or other explanatory language) to the standard report.
h. effective for reports issued or reissued on or after February 29. 20X2 and 20X1. There is substantial doubt about the entity's ability to continue as a going concern. Part of Audit Performed by Other Independent Auditors. Certain circumstances relating to reports on comparative ﬁnancial statements exist (paragraphs .13 An example of a report indicating a division of responsibility follows: Independent Auditor's Report
We have audited the consolidated balance sheets of ABC Company and subsidiaries as of December 31. 79. f.69 and .12
. Selected quarterly ﬁnancial data required by SEC Regulation S-K has been omitted or has not been reviewed.18). and cash ﬂows for the years then ended. (See section 543.16–.14–. Other information in a document containing audited ﬁnancial statements is materially inconsistent with information appearing in the ﬁnancial statements.72–. October 2000.09 of section 558. when applicable. December 2010. to consider the adequacy of ﬁnancial statement disclosure and to include an explanatory paragraph in the report to reﬂect his or her conclusions. These references indicate division of responsibility for performance of the audit. [As amended.07–. Revised.11 of section 550.598
b.15). November 2002. the auditor may add an explanatory paragraph to emphasize a matter regarding the ﬁnancial statements (paragraph . to reﬂect conforming changes necessary due to the issuance of Statement on Auditing Standards No. Required Supplementary Information).]
AU §508. and the related consolidated statements of income. The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern. (See section 722. retained earnings.74).
11 Section 341A. (See paragraph . paragraph .)
c. describes the auditor's responsibility to evaluate whether there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time and. e. he or she should disclose this fact in the introductory paragraph of his or her report and should refer to the report of the other auditor in expressing his or her opinion.11 There has been a material change between periods in accounting principles or in the method of their application (paragraphs .
In addition. d. in part. Interim Financial Information. 93. Other Information in Documents Containing Audited Financial Statements. by Statement on Auditing Standards No.]
Opinion Based in Part on Report of Another Auditor
. Revised.) . 1996.19). to reﬂect conforming changes necessary due to the issuance of SAS Nos.) When a designated accounting standard setter requires information to accompany the entity's basic ﬁnancial statements (see paragraphs .
To prevent the ﬁnancial statements from being misleading because of unusual circumstances. 118–120. the ﬁnancial statements contain a departure from an accounting principle promulgated by a body designated by the AICPA Council to establish such principles (paragraphs .50.12 When the auditor decides to make reference to the report of another auditor as a basis. [Footnote renumbered by the issuance of Statement on Auditing Standards No.
g. for his or her opinion.68–.
not associated with the departure from a promulgated principle. a wholly-owned subsidiary. October 2009. effective for reports issued or reissued on or after June 30. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. the statements or data contain such a departure and the member can demonstrate that due to unusual circumstances the ﬁnancial statements or data would otherwise have been misleading. and our opinion. on a test basis. is based solely on the report of the other auditors.
. the auditor's report should include. the member can comply with the rule by describing the departure. the information required by the rule. 2001. evidence supporting the amounts and disclosures in the ﬁnancial statements. and total revenues of $_______ and $_______ for the years then ended. it is appropriate for the auditor to express an unqualiﬁed opinion with respect to the conformity of the ﬁnancial statements with generally accepted accounting principles unless there are other reasons. An audit includes examining. If. the ﬁnancial position of ABC Company and subsidiaries as of December 31. 69. In such a case. 93. [Title of section 411 amended.
Departure From a Promulgated Accounting Principle
. Our responsibility is to express an opinion on these ﬁnancial statements based on our audits. in all material respects.15
. if practicable. and the results of their operations and their cash ﬂows for the years then ended in conformity with accounting principles generally accepted in the United States of America.01] of the Code of Professional Conduct of the AICPA states:
A member shall not (1) express an opinion or state afﬁrmatively that the ﬁnancial statements or other ﬁnancial data of any entity are presented in conformity with generally accepted accounting principles or (2) state that he or she is not aware of any material modiﬁcations that should be made to such statements or data in order for them to be in conformity with generally accepted accounting principles. present fairly. respectively.15 When the circumstances contemplated by Rule 203 (ET section 202 paragraph .Reports on Audited Financial Statements
These ﬁnancial statements are the responsibility of the Company's management. by Statement on Auditing Standards No. and the reasons why compliance with the principle would result in a misleading statement. insofar as it relates to the amounts included for B Company.14 Rule 203 [ET section 203. not to do so. We did not audit the ﬁnancial statements of B Company. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.]
AU §508. which statements reﬂect total assets of $_______ and $________ as of December 31. In our opinion. Revised. Those statements were audited by other auditors whose report has been furnished to us. the consolidated ﬁnancial statements referred to above. 20X2 and 20X1. 20X2 and 20X1. to reﬂect conforming changes necessary due to the withdrawal of SAS No. however. based on our audits and the report of other auditors.01) are present. in a separate paragraph or paragraphs. if such statements or data contain any departure from an accounting principle promulgated by bodies designated by Council to establish such principles that has a material effect on the statements or data taken as a whole. its approximate effects. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the ﬁnancial statements are free of material misstatement. as well as evaluating the overall ﬁnancial statement presentation. An audit also includes assessing the accounting principles used and signiﬁcant estimates made by management.
AU §508. 79.
[Paragraph renumbered by the issuance of Statement on Auditing Standards No. October 2000. June 2009." (section 9420.57).16 The auditor's standard report implies that the auditor is satisﬁed that the comparability of ﬁnancial statements between periods has not been materially affected by changes in accounting principles and that such principles have been consistently applied between or among periods because either (a) no change in accounting principles has occurred. Accounting Changes and Error Corrections. If. The auditor's concurrence with a change is implicit unless he or she takes exception to the change in expressing his or her opinion as to fair presentation of the ﬁnancial statements in conformity with generally accepted accounting principles. December 1995. In these cases. October 2000.] . [Paragraph renumbered by the issuance of Statement on Auditing Standards No. if the accounting change is accounted for by retroactive restatement of the ﬁnancial statements
12 With respect to the method of accounting for the effect of a change in accounting principle.23).12 When there is a change in accounting principles. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No.33 and related footnotes have been deleted and all subsequent paragraphs and footnotes renumbered by the issuance of Statement on Auditing Standards No. 79.] 13 An exception to this requirement occurs when a change in accounting principle that does not require a cumulative effect adjustment is made at the beginning of the earliest year presented and reported on. titled "Impact on the Auditor's Report of FIFO to LIFO Change in Comparative Financial Statements. the Company changed its method of computing depreciation in 20X2. Footnote revised. 93. 13 However.
. 79. there has been a change in accounting principles or in the method of their application that has a material effect on the comparability of the company's ﬁnancial statements.16
.16–. or (b) there has been a change in accounting principles or in the method of their application. the auditor should not refer to consistency in the report. Consistency of Application of Generally Accepted Accounting Principles. 79. 79. [Footnote renumbered by the issuance of Statement on Auditing Standards No. December 1995. see Financial Accounting Standards Board Accounting Standards Codiﬁcation 250. 93.18 The addition of this explanatory paragraph in the auditor's report is required in reports on ﬁnancial statements of subsequent years as long as the year of the change is presented and reported on.] . however. the auditor should refer to the change in an explanatory paragraph of the report. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No. 1996. to reﬂect conforming changes necessary due to the issuance of FASB ASC. but the effect of the change on the comparability of the ﬁnancial statements is not material. effective for reports issued or reissued on or after February 29.16–.600
Former paragraphs . That exception is addressed in the auditing interpretation of section 420. [Footnote renumbered by the issuance of Statement on Auditing Standards No. there are also other matters that the auditor should consider (see paragraphs . Such explanatory paragraph (following the opinion paragraph) should identify the nature of the change and refer the reader to the note in the ﬁnancial statements that discusses the change in detail. December 1995.17 Following is an example of an appropriate explanatory paragraph:
As discussed in Note X to the ﬁnancial statements.50–. December 1995.
December 1995. in subsequent years.19 In any report on ﬁnancial statements. and he or she has concluded not to express an adverse opinion (paragraphs .]
Departures From Unqualiﬁed Opinions
Qualiﬁed Opinions
. that the ﬁnancial statements contain a departure from generally accepted accounting principles. There is a lack of sufﬁcient appropriate audit evidence or there are restrictions on the scope of the audit that have led the auditor to conclude that he or she cannot express an unqualiﬁed opinion and he or she has concluded not to disclaim an opinion (paragraphs . the ﬁnancial statements present fairly. 79.34).35–. That the entity has had signiﬁcant transactions with related parties. by the issuance of Statement on Auditing Standards No.]
.57). and cash ﬂows in conformity with generally accepted accounting principles.Reports on Audited Financial Statements
affected. effective for reports issued or reissued on or after February 29.
[Paragraph renumbered by the issuance of Statement on Auditing Standards No.21
.20 Certain circumstances may require a qualiﬁed opinion. the additional paragraph is required only in the year of the change since. except for the effects of the matter to which the qualiﬁcation relates. 79. the effect of which is material.
b. in all material respects. 79. [Paragraph renumbered by the issuance of Statement on Auditing Standards No.21 When the auditor expresses a qualiﬁed opinion. The auditor believes. they may be added solely at the auditor's discretion. all periods presented will be comparable. Accounting matters. to reﬂect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 1996. the auditor may emphasize a matter regarding the ﬁnancial statements. affecting the comparability of the ﬁnancial statements with those of the preceding period. December 1995. other than those involving a change or changes in accounting principles. Revised. Such an opinion is expressed when— a. results of operations.
[Paragraph renumbered and amended.22–. The auditor should also
AU §508. 105.] . Unusually important subsequent events. Such explanatory information should be presented in a separate paragraph of the auditor's report. ﬁnancial position. Emphasis paragraphs are never required. he or she should disclose all of the substantive reasons in one or more separate explanatory paragraph(s) preceding the opinion paragraph of the report. Examples of matters the auditor may wish to emphasize are—
That the entity is a component of a larger business enterprise. on the basis of his or her audit. March 2006. A qualiﬁed opinion states that. Phrases such as "with the foregoing [following] explanation" should not be used in the opinion paragraph if an emphasis paragraph is included in the auditor's report.
[Paragraph renumbered by the issuance of Statement on Auditing Standards No. if the auditor is able to satisfy himself or herself as to inventories or accounts receivable by applying alternative procedures. and the report need not include a reference to the omission of the procedures or the use of alternative procedures. when read in conjunction with Note 1 is likely to be misunderstood and should not be used. 105. [Paragraph renumbered by the issuance of Statement on
14 Circumstances such as the timing of the work may make it impossible for the auditor to accomplish these procedures. December 1995. that section 331.602
include. October 2000. December 1995. In this case. Phrases such as subject to and with the foregoing explanation are not clear or forceful enough and should not be used. in the opinion paragraph. there is no signiﬁcant limitation on the scope of the work.]
. In such instances. some physical counts of the inventory and apply appropriate tests of intervening transactions. Restrictions on the application of these or other audit procedures to important elements of the ﬁnancial statements require the auditor to decide whether he or she has examined sufﬁcient appropriate audit evidence to permit him or her to express an unqualiﬁed or qualiﬁed opinion. When restrictions that signiﬁcantly limit the scope of the audit are imposed by the client. may require the auditor to qualify his or her opinion or to disclaim an opinion. the inability to obtain sufﬁcient appropriate audit evidence. ordinarily the auditor should disclaim an opinion on the ﬁnancial statements." [Footnote renumbered by the issuance of Statement on Auditing Standards No. this signiﬁcance is likely to be greater than if only a limited number of items is involved. It is important to understand.22 The auditor can determine that he or she is able to express an unqualiﬁed opinion only if the audit has been conducted in accordance with generally accepted auditing standards and if he or she has therefore been able to apply all the procedures he considers necessary in the circumstances.] . 79.23 The auditor's decision to qualify his or her opinion or disclaim an opinion because of a scope limitation depends on his or her assessment of the importance of the omitted procedure(s) to his or her ability to form an opinion on the ﬁnancial statements being audited. whether imposed by the client or by circumstances. to reﬂect conforming changes necessary due to the issuance of Statement on Auditing Standards No. This assessment will be affected by the nature and magnitude of the potential effects of the matters in question and by their signiﬁcance to the ﬁnancial statements.14 Another common scope restriction involves accounting for long-term investments when the auditor has not been able to obtain audited ﬁnancial statements of an investee.22
.] . December 1995. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. or observe. 79. December 1995. wording such as fairly presented. Revised. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. March 2006. the reasons for the auditor's qualiﬁcation of opinion or disclaimer of opinion should be described in the report. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No. A qualiﬁed opinion should include the word except or exception in a phrase such as except for or with the exception of. 79. however.]
AU §508. states that "it will always be necessary for the auditor to make.24 Common restrictions on the scope of the audit include those applying to the observation of physical inventories and the conﬁrmation of accounts receivable by direct communication with debtors. 93. If the potential effects relate to many ﬁnancial statement items. Restrictions on the scope of the audit. in all material respects. such as the timing of his or her work. Inventories. or whether he or she should disclaim an opinion. Since accompanying notes are part of the ﬁnancial statements. or an inadequacy in the accounting records. the appropriate qualifying language and a reference to the explanatory paragraph. 79.
105. In our opinion.Reports on Audited Financial Statements
Auditing Standards No. December 1995.] . is unacceptable. in all material respects. 105. on a test basis. December 1995. therefore. except for the effects of such adjustments. except for the abovementioned limitation on the scope of our audit . which is included in net income for the years then ended as described in Note X to the ﬁnancial statements. to reﬂect conforming changes necessary due to the issuance of Statement on Auditing Standards No. It is not appropriate for the scope of the audit to be explained in a note to the ﬁnancial statements. We were unable to obtain audited ﬁnancial statements supporting the Company's investment in a foreign afﬁliate stated at $_______and $_______at December 31. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. An example of a qualiﬁed opinion related to a scope limitation concerning an investment in a foreign afﬁliate (assuming the effects of the limitation are such that the auditor has concluded that a disclaimer of opinion is not appropriate) follows: Independent Auditor's Report
[Same ﬁrst paragraph as the standard report] Except as discussed in the following paragraph. as well as evaluating the overall ﬁnancial statement presentation." bases the exception on the restriction itself. We believe that our audits provide a reasonable basis for our opinion. the wording in the opinion paragraph should indicate that the qualiﬁcation pertains to the possible effects on the ﬁnancial statements and not to the scope limitation itself. nor were we able to satisfy ourselves as to the carrying value of the investment in the foreign afﬁliate or the equity in its earnings by other auditing procedures.25 When a qualiﬁed opinion results from a limitation on the scope of the audit or an insufﬁciency of audit evidence. . . rather than on the possible effects on the ﬁnancial statements and. Revised. 79. Revised.
AU §508. 20X2 and 20X1. if any.26
. respectively. evidence supporting the amounts and disclosures in the ﬁnancial statements. March 2006. or its equity in earnings of that afﬁliate of $_______ and $_______. since the description of the audit scope is the responsibility of the auditor and not that of the client. March 2006. the situation should be described in an explanatory paragraph preceding the opinion paragraph and referred to in both the scope and opinion paragraphs of the auditor's report. Wording such as "In our opinion. present fairly. An audit includes examining.26 When an auditor qualiﬁes his or her opinion because of a scope limitation. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the ﬁnancial statements are free of material misstatement.] . to reﬂect conforming changes necessary due to the issuance of Statement on Auditing Standards No. the ﬁnancial position of X Company as of December 31. the ﬁnancial statements referred to in the ﬁrst paragraph above. 79. An audit also includes assessing the accounting principles used and signiﬁcant estimates made by management. as might have been determined to be necessary had we been able to examine evidence regarding the foreign afﬁliate investment and earnings. 20X2 and 20X1. and the results of its operations and its cash ﬂows for the years then ended in conformity with accounting principles generally accepted in the United States of America. we conducted our audits in accordance with auditing standards generally accepted in the United States of America.
the auditor should qualify his or her opinion or disclaim an opinion because of a limitation on the scope of the audit. Revised. Rather. [Paragraph added. however. at which time conclusive audit evidence concerning its outcome would be expected to become available.] . [Paragraph renumbered by the issuance of Statement on Auditing Standards No.30 Conclusive audit evidence concerning the ultimate outcome of uncertainties cannot be expected to exist at the time of the audit because the outcome and related audit evidence are prospective. such disclosures may be identiﬁed as unaudited or as not covered by the auditor's report. Dating of the Independent Auditor's Report. December 1995.27 Other scope limitations. Labelling the note unaudited is not an acceptable alternative in these circumstances. December 2005. For example. to reﬂect conforming changes necessary due to the issuance of Statement on Auditing Standards No. the auditor's only options are to dual date the report or date the report as of the date of the subsequent event and extend the procedures for review of subsequent events to that date. In these circumstances.604
[Paragraph renumbered by the issuance of Statement on Auditing Standards No. 1996. 79. by Statement on Auditing Standards No. while the event or transaction giving rise to the disclosures in these circumstances should be audited. based on management's analysis of existing conditions. that section 530. An audit includes an assessment of whether the audit evidence is sufﬁcient to support management's analysis.
AU §508. operating results. an investor's share.] .] . March 2006. to reﬂect conforming changes necessary due to the issuance of FASB ASC. December 1995. 79. A matter involving an uncertainty is one that is expected to be resolved at a future date. but are not limited to. The auditor should be aware. effective for reports issued or reissued on or after February 29.27
. Absence of the existence of information related to the outcome of an uncertainty does not necessarily lead to a conclusion that the audit evidence supporting management's assertion is not sufﬁcient. the auditor should apply the procedures he or she deems necessary to the unaudited information. states that. 79. or determining that a reasonable estimate cannot be made and making the required disclosures. such as pro forma calculations or other similar disclosures. all in accordance with generally accepted accounting principles. Contingencies. material in amount. and matters related to estimates covered by FASB ASC 275. the pro forma disclosures of that event or transaction would not be. Risks and Uncertainties. Revised. to reﬂect conforming changes necessary due to the issuance of Statement on Auditing Standards No. Sometimes. notes to ﬁnancial statements may contain unaudited information. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. of an investee's earnings recognized on the equity method) is such that it should be subjected to auditing procedures in order for the auditor to form an opinion with respect to the ﬁnancial statements taken as a whole. If the unaudited information (for example. these disclosures are not necessary to fairly present the ﬁnancial position. if the auditor is aware of a material subsequent event that has occurred after the date of the auditor's report but before issuance of the report that should be disclosed.] . 105. If the auditor has not been able to apply the procedures he or she considers necessary. Therefore. Uncertainties include.28 If. 103. however. June 2009. management is responsible for estimating the effect of future events on the ﬁnancial statements. 79. or cash ﬂows on which the auditor is reporting. contingencies covered by FASB Accounting Standards Codiﬁcation (ASC) 450. the pro forma effects of a business combination or of a subsequent event may be labelled unaudited. December 1995. Revised.29 Uncertainties and scope limitations.
[Paragraph added. Revised. This ﬁnancial statement is the responsibility of the Company's management. An example of an unqualiﬁed opinion on a balance-sheet-only audit follows (the report assumes that the auditor has been able to satisfy himself or herself regarding the consistency of application of accounting principles): Independent Auditor's Report
We have audited the accompanying balance sheet of X Company as of December 31. March 2006. Paragraphs . 105. such engagements involve limited reporting objectives. the auditor concludes that sufﬁcient audit evidence supports management's assertions about the nature of a matter involving an uncertainty and its presentation or disclosure in the ﬁnancial statements. [Paragraph added. after considering the existing conditions and available evidence. 105. 1996. 79. rather. or should be. 1996.32 Scope limitations related to uncertainties should be differentiated from situations in which the auditor concludes that the ﬁnancial statements are materially misstated due to departures from generally accepted accounting principles related to uncertainties. effective for reports issued or reissued on or after February 29.] . by Statement on Auditing Standards No. Such departures may be caused by inadequate disclosure concerning the uncertainty. an unqualiﬁed opinion ordinarily is appropriate. effective for reports issued or reissued on or after February 29. A qualiﬁcation or disclaimer of opinion because of a scope limitation is appropriate if sufﬁcient audit evidence related to an uncertainty does or did exist but was not available to the auditor for reasons such as management's record retention policies or a restriction imposed by management. March 2006. the auditor should consider the need to express a qualiﬁed opinion or to disclaim an opinion because of a scope limitation. 79. 20XX.Reports on Audited Financial Statements
the auditor's judgment regarding the sufﬁciency of the audit evidence is based on the audit evidence that is. to reﬂect conforming changes necessary due to the issuance of Statement on Auditing Standards No. or the use of unreasonable accounting estimates. the use of inappropriate accounting principles. These engagements do not involve scope limitations if the auditor's access to information underlying the basic ﬁnancial statements is not limited and if the auditor applies all the procedures he considers necessary in the circumstances. December 1995.31 If the auditor is unable to obtain sufﬁcient audit evidence to support management's assertions about the nature of a matter involving an uncertainty and its presentation or disclosure in the ﬁnancial statements.49 provide guidance to the auditor when ﬁnancial statements contain departures from generally accepted accounting principles related to uncertainties. 79. effective for reports issued or reissued on or after February 29.34
. by Statement on Auditing Standards No. Those standards require that we plan
AU §508. available. If. 79. the auditor may express an opinion on the balance sheet only. Revised. In this case. he or she may be asked to report on the balance sheet and not on the statements of income.34 An auditor may be asked to report on the balance sheet only. retained earnings or cash ﬂows. by Statement on Auditing Standards No.] . [Paragraph added. For example.33 Limited reporting engagements. Our responsibility is to express an opinion on this ﬁnancial statement based on our audit. The auditor may be asked to report on one basic ﬁnancial statement and not on the others. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. 1996. We conducted our audit in accordance with auditing standards generally accepted in the United States of America.] . to reﬂect conforming changes necessary due to the issuance of Statement on Auditing Standards No.45–.] .
December 1995.60) opinion. 79. one factor to be considered is the dollar magnitude of such effects. on a test basis. he or she should disclose. deﬁnes practicable as ". An audit includes examining. all of the substantive reasons that have led him or her to conclude that there has been a departure from generally accepted accounting principles. the information should be presented in the report. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No." For example. evidence supporting the amounts and disclosures in the balance sheet. if the information can be obtained from the accounts and records without the auditor substantially increasing the effort that would normally be required to complete the audit. the concept of materiality does not depend entirely on relative size. in a separate explanatory paragraph(s) preceding the opinion paragraph of the report. However. We believe that our audit of the balance sheet provides a reasonable basis for our opinion. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. 79. the opinion paragraph of the report should include the appropriate qualifying language and a reference to the explanatory paragraph(s).58– . the information is reasonably obtainable from management's accounts and records and that providing the information in the report does not require the auditor to assume the position of a preparer of ﬁnancial information. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. An audit also includes assessing the accounting principles used and signiﬁcant estimates made by management.38 The explanatory paragraph(s) should also disclose the principal effects of the subject matter of the qualiﬁcation on ﬁnancial position.36 In deciding whether the effects of a departure from generally accepted accounting principles are sufﬁciently material to require either a qualiﬁed or adverse opinion.] .15 If the effects are not reasonably
15 Section 431. he or she should express a qualiﬁed (paragraphs . it involves qualitative as well as quantitative judgments.35
. The signiﬁcance of an item to a particular entity (for example. and the effect of the misstatement on the ﬁnancial statements taken as a whole are all factors to be considered in making a judgment regarding materiality. . the pervasiveness of the misstatement (such as whether it affects the amounts and presentation of numerous ﬁnancial statement items). December 1995.] . December 1995. In our opinion. and cash ﬂows. inventories to a manufacturing company). as well as evaluating the overall balance sheet presentation. 20XX.36–.37 When the auditor expresses a qualiﬁed opinion. [Paragraph renumbered by the issuance of Statement on Auditing Standards No.57) or an adverse (paragraphs . 79. 79.] . in all material respects. .606
and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. 79. results of operations. the balance sheet referred to above.35 When ﬁnancial statements are materially affected by a departure from generally accepted accounting principles and the auditor has audited the statements in accordance with generally accepted auditing standards. October 2000. December 1995. the ﬁnancial position of X Company as of December 31.
[Paragraph renumbered by the issuance of Statement on Auditing Standards No.]
AU §508. in conformity with accounting principles generally accepted in the United States of America. Adequacy of Disclosure in the Financial Statements. Furthermore. [Footnote renumbered by the issuance of Statement on Auditing Standards No. if practicable.]
Departure From a Generally Accepted Accounting Principle
. December 1995. The basis for such opinion should be stated in the report. 93. presents fairly.
respectively. the report should so state. present fairly. the ﬁnancial position of X Company as of December 31.16 unless its omission from the auditor's report is recognized as
16 See footnote 15. net income would be increased (decreased) by $_______ and $_______ and earnings per share would be increased (decreased) by $_______ and $_______. from property and debt in the accompanying balance sheets. the explanatory paragraph(s) may be shortened by referring to it. 79. in all material respects. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. If the ﬁnancial statements. In our opinion. respectively. December 1995. In our opinion. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No. and the results of its operations and its cash ﬂows for the years then ended in conformity with accounting principles generally accepted in the United States of America. it should be referred to in the ﬁnancial statements. 20X2 and 20X1.] . for the years then ended.Reports on Audited Financial Statements
determinable. including accompanying notes. 79. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. long-term debt by $_______ and $_______.40 If the pertinent facts are disclosed in a note to the ﬁnancial statements. a separate paragraph (preceding the opinion paragraph) of the auditor's report in the circumstances illustrated in paragraph . or in a prospectus. the auditor should express a qualiﬁed or adverse opinion because of the departure from those principles and should provide the information in the report. 79. should be capitalized in order to conform with accounting principles generally accepted in the United States of America. the Company has excluded certain lease obligations from property and debt in the accompanying balance sheets.] . the ﬁnancial statements referred to above. certain lease obligations that. Information essential for a fair presentation in conformity with generally accepted accounting principles should be set forth in the ﬁnancial statements (which include the related notes).41
.39 might read as follows:
As more fully described in Note X to the ﬁnancial statements. If these lease obligations were capitalized. proxy statement. October 2000.41 Inadequate disclosure. accounting principles generally accepted in the United States of America require that such obligations be included in the balance sheets. fail to disclose information that is required by generally accepted accounting principles.
[Paragraph renumbered by the issuance of Statement on Auditing Standards No. property would be increased by $_______ and $_______. in our opinion. and retained earnings by $_______ and $_______ as of December 31. December 1995. When such information is set forth elsewhere in a report to shareholders. December 1995. or other similar report. if practicable. December 1995. Additionally.]
AU §508. If such disclosures are made in a note to the ﬁnancial statements.39 An example of a report in which the opinion is qualiﬁed because of the use of an accounting principle at variance with generally accepted accounting principles follows (assuming the effects are such that the auditor has concluded that an adverse opinion is not appropriate): Independent Auditor's Report
[Same ﬁrst and second paragraphs as the standard report] The Company has excluded.
[Paragraph renumbered by the issuance of Statement on Auditing Standards No.] . except for the effects of not capitalizing certain lease obligations as discussed in the preceding paragraph. 93. 20X2 and 20X1. 79.
.43 If a company issues ﬁnancial statements that purport to present ﬁnancial position and results of operations but omits the related statement of cash ﬂows. Presentation of such statement summarizing the Company's operating. Our responsibility is to express an opinion on these ﬁnancial statements based on our audit.45 Departures from generally accepted accounting principles involving risks or uncertainties.
[Paragraph renumbered by the issuance of Statement on Auditing Standards No.] . present fairly. In our opinion.] . the ﬁnancial position of X Company as of December 31.42 Following is an example of a report qualiﬁed for inadequate disclosure (assuming that the auditor has concluded that it is not practicable to present the required information and the effects are such that the auditor has concluded an adverse opinion is not appropriate):
Independent Auditor's Report [Same ﬁrst and second paragraphs as the standard report] The Company's ﬁnancial statements do not disclose [describe the nature of the omitted information that it is not practicable to present in the auditor's report]. the auditor will normally conclude that the omission requires qualiﬁcation of his opinion. Accordingly. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. 20X2 and 20X1. and the results of its operations for the years then ended in conformity with accounting principles generally accepted in the United States of America. in these cases. In our opinion. disclosure of this information is required by accounting principles generally accepted in the United States of America. in all material respects. . 79. the auditor should ordinarily qualify the report in the following manner: Independent Auditor's Report
We have audited the accompanying balance sheets of X Company as of December 31.] . and ﬁnancing activities is required by accounting principles generally accepted in the United States of America. except for the omission of the information discussed in the preceding paragraph. December 1995. [Paragraph renumbered by the issuance of Statement on Auditing Standards No.42
.44 The auditor is not required to prepare a basic ﬁnancial statement (for example. [Same second paragraph as the standard report] The Company declined to present a statement of cash ﬂows for the years ended December 31. and the related statements of income and retained earnings for the years then ended. These ﬁnancial statements are the responsibility of the Company's management. 79. December 1995. 20X2 and 20X1. 79. and materiality considerations.
[Paragraph renumbered by the issuance of Statement on Auditing Standards No.
AU §508. In our opinion. December 1995. December 1995. a statement of cash ﬂows for one or more periods) and include it in the report if the company's management declines to present the statement.] . the ﬁnancial statements referred to above. investing. except that the omission of a statement of cash ﬂows results in an incomplete presentation as explained in the preceding paragraph. . 20X2 and 20X1.608
appropriate by a speciﬁc Statement on Auditing Standards. 79.
Revised.] .48 In preparing ﬁnancial statements. 79. effective for reports issued or reissued on or after February 29. by Statement on Auditing Standards No. including the historical experience of the entity. effective for reports issued or reissued on or after February 29. [Paragraph added. [Paragraph added. The auditor evaluates the materiality of reasonably possible losses that may be incurred upon the resolution of uncertainties both individually and in the aggregate.] . 1996. by Statement on Auditing Standards No.47 The auditor should consider materiality in evaluating the adequacy of disclosure of matters involving risks or uncertainties in the ﬁnancial statements in the context of the ﬁnancial statements taken as a whole.49)
[Paragraph added. he or she should express a qualiﬁed or an adverse opinion. to reﬂect conforming changes necessary due to the issuance of Statement on Auditing Standards No.] . in those or other situations. Revised. 79. Audit Risk and Materiality. 105. For example. effective for reports issued or reissued on or after February 29. [Paragraph added. The auditor's consideration of materiality is a matter of professional judgment and is inﬂuenced by his or her perception of the needs of a reasonable person who will rely on the ﬁnancial statements.50
. by Statement on Auditing Standards No.46–. the auditor is able to satisfy himself or herself regarding the reasonableness of management's estimate of the effects of future events by considering various types of audit evidence.46 If the auditor concludes that a matter involving a risk or an uncertainty is not adequately disclosed in the ﬁnancial statements in conformity with generally accepted accounting principles. effective for reports issued or reissued on or after February 29. 1996. 1996. The auditor performs the evaluation of reasonably possible losses without regard to his or her evaluation of the materiality of known and likely misstatements in the ﬁnancial statements. estimates ordinarily are made about the useful lives of depreciable assets. The auditor should evaluate a change in accounting principle to satisfy himself that (a) the newly adopted accounting principle is a generally accepted accounting principle. Paragraphs 10–11 of FASB ASC 310-10-35 and FASB ASC 460-10-25-6 describe situations in which the inability to make a reasonable estimate may raise questions about the appropriateness of the accounting principles used.] . 79. he or she should express a qualiﬁed or an adverse opinion. and section 342.Reports on Audited Financial Statements
Departures from generally accepted accounting principles involving risks or uncertainties generally fall into one of the following categories:
Inadequate disclosure (paragraphs . If. [Paragraph added. If the auditor concludes that management's estimate is unreasonable (see section 312. management estimates the outcome of certain types of future events. 79. 1996. the auditor concludes that the accounting principles used cause the ﬁnancial statements to be materially misstated.] . to reﬂect conforming changes necessary due to the issuance of FASB ASC.47) Inappropriate accounting principles (paragraph . the auditor should express a qualiﬁed or an adverse opinion. the collectibility of accounts receivable. by Statement on Auditing Standards No. by Statement on Auditing Standards No. (b) the method of accounting
AU §508.50 Accounting changes. June 2009. and the provision for product warranties. March 2006. 79. 1996. effective for reports issued or reissued on or after February 29. Materiality judgments involving risks or uncertainties are made in light of the surrounding circumstances.49 Usually. the realizable value of inventory items.48) Unreasonable accounting estimates (paragraph . Auditing Accounting Estimates) and that its effect is to cause the ﬁnancial statements to be materially misstated.
] . [Paragraph renumbered by the issuance of Statement on Auditing Standards No. the ﬁnancial position of X Company as of December 31. b. and (c) management's justiﬁcation for the change is reasonable. December 1995. 79. An example of a report qualiﬁed for this reason follows: Independent Auditor's Report
[Same ﬁrst and second paragraphs as the standard report] As disclosed in Note X to the ﬁnancial statements. the ﬁnancial statements referred to above. However. The entity can justify the use of an allowable alternative accounting principle on the basis that it is preferable. present fairly.51
. December 1995. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No. whereas it previously used the last-in. the Company adopted.]
AU §508. A separate paragraph that identiﬁes the change in accounting principle would be required if the substance of the disclosure did not fulﬁll the requirements outlined in these paragraphs. ﬁrst-out method. October 2000. in all material respects.610
for the effect of the change is in conformity with generally accepted accounting principles. (b) the method of accounting for the effect of the change is not in conformity with generally accepted accounting principles. because the middle paragraph included in the example presented contains all of the information required in an explanatory paragraph on consistency.18 of this section is not necessary in this instance. December 1995.51 If (a) a newly adopted accounting principle is not a generally accepted accounting principle. the auditor should add an explanatory paragraph to the report discussing the accounting change. the auditor should express an adverse opinion on the ﬁnancial statements. states that a change from an accounting principle that is not generally accepted to one that is generally accepted is a correction of an error and that such a change requires recognition in the auditor's report as to consistency. [Footnote renumbered by the issuance of Statement on Auditing Standards No. June 2009. in 20X2.] . ﬁrst-out method of accounting for its inventories. If management has not provided reasonable justiﬁcation for the change in accounting principle. 20X2 and 20X1. the auditor should express an exception to the change having been made without reasonable justiﬁcation.]
17 Section 420. 79. 93. the auditor should express a qualiﬁed opinion or. 79. in our opinion the Company has not provided reasonable justiﬁcation for making this change as required by those principles. If a change in accounting principle does not meet these conditions. to reﬂect conforming changes necessary due to the issuance of FASB ASC. ﬁrstout method is in conformity with accounting principles generally accepted in the United States of America. Consistency of Application of Generally Accepted Accounting Principles. or (c) management has not provided reasonable justiﬁcation for the change in accounting principle. except for the change in accounting principle discussed in the preceding paragraph. the auditor's report should so indicate. 79. and his opinion should be appropriately qualiﬁed as discussed in paragraphs . the ﬁrst-in. a reporting entity shall change an accounting principle only if either of the following apply: The change is required by a newly issued codiﬁcation update. December 1995. [Paragraph renumbered by the issuance of Statement on Auditing Standards No.16–. Therefore. and the results of its operations and its cash ﬂows for the years then ended in conformity with accounting principles generally accepted in the United States of America. if the effect of the change is sufﬁciently material. Revised. a separate explanatory paragraph (following the opinion paragraph) as required by paragraphs .52 According to FASB ASC 250-10-45-2.51–.17 In our opinion.52.
[Paragraph renumbered by the issuance of Statement on Auditing Standards No. Although use of the ﬁrst-in.
79. while expressing an exception for the year of change. 79. the independent auditor's opinion regarding the subsequent years' statements need not express an exception to use of the newly adopted principle. Such an opinion is expressed when. 79. In this situation.58 An adverse opinion states that the ﬁnancial statements do not present fairly the ﬁnancial position or the results of operations or cash ﬂows in conformity with generally accepted accounting principles. the auditor's exception relates to the accounting change and does not affect the status of a newly adopted principle as a generally accepted accounting principle.59 When the auditor expresses an adverse opinion. and
AU §508. December 1995. December 1995.54 If the ﬁnancial statements for the year of such change are presented and reported on with a subsequent year's ﬁnancial statements.] . 79.57 If management has not provided reasonable justiﬁcation for a change in accounting principles.] .59
. In addition. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. a subsequent year's ﬁnancial statements could improperly include a charge or credit that is material to those statements. This situation also requires that the auditor express a qualiﬁed or an adverse opinion. depending on the materiality of the departure in relation to the statements of the subsequent year.55 If an entity has adopted an accounting principle that is not a generally accepted accounting principle. in the auditor's judgment. the auditor's report should disclose his or her reservations with respect to the statements for the year of change. the auditor should consider the possible effects of that change when reporting on the entity's ﬁnancial statements for subsequent years. December 1995. December 1995. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. the independent auditor should express either a qualiﬁed opinion or an adverse opinion. 79. its continued use might have a material effect on the statements of a subsequent year on which the auditor is reporting. Accordingly.]
. the ﬁnancial statements taken as a whole are not presented fairly in conformity with generally accepted accounting principles. he or she should disclose in a separate explanatory paragraph(s) preceding the opinion paragraph of the report (a) all the substantive reasons for his or her adverse opinion. 79.] . [Paragraph renumbered by the issuance of Statement on Auditing Standards No. December 1995.] . [Paragraph renumbered by the issuance of Statement on Auditing Standards No.] . as previously indicated. However.57.53 Whenever an accounting change results in an auditor expressing a qualiﬁed or adverse opinion on the conformity of ﬁnancial statements with generally accepted accounting principles for the year of change. [Paragraph renumbered by the issuance of Statement on Auditing Standards No.56 If an entity accounts for the effect of a change prospectively when generally accepted accounting principles require restatement or the inclusion of the cumulative effect of the change in the year of change. December 1995. the auditor's opinion should express an exception to the change having been made without reasonable justiﬁcation.Reports on Audited Financial Statements
. as discussed in paragraphs .54–. the auditor should continue to express his or her exception with respect to the ﬁnancial statements for the year of change as long as they are presented and reported on.
. [Footnote renumbered by the issuance of Statement on Auditing Standards No. December 1995. the opinion paragraph should include a direct reference to a separate paragraph that discloses the basis for the adverse opinion. the Company carries its property. is carried at $_______ and $_______ in excess of an amount based on the cost to the Company. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No 93.] 19 When the auditor expresses an adverse opinion. December 1995.] . resulting in an increase in net income of $_______ and $_______. respectively. property.]
AU §508. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No. 79. the ﬁnancial statements referred to above do not present fairly. and deferred income taxes of $_______ and $_______ have not been recorded. 20X2 and 20X1. the Company does not provide for income taxes with respect to differences between ﬁnancial income and taxable income arising because of the use.11.19 [Paragraph renumbered by the issuance of Statement on Auditing Standards No. 79. Further. and that deferred income taxes be provided. respectively. because of the effects of the depreciation accounting referred to above and deferred income taxes of $_______ and $_______ have not been provided.]
18 See footnote 15.18 If the effects are not reasonably determinable. 79. For the years ended December 31. 20X2 and 20X1. 93. plant and equipment accounts at appraisal values. October 2000. and provides depreciation on the basis of such values. because of the effects of the matters discussed in the preceding paragraphs. Because of the departures from accounting principles generally accepted in the United States of America identiﬁed above. plant and equipment. Accounting principles generally accepted in the United States of America require that property.60 When an adverse opinion is expressed. as of December 31. (d). reduced by depreciation based on such amount. December 1995. resulting in an increase of $_______ and $_______ in retained earnings and in appraisal surplus of $_______ and $_______. and (e) of this section. if practicable.612
(b) the principal effects of the subject matter of the adverse opinion on ﬁnancial position.
[Paragraph renumbered by the issuance of Statement on Auditing Standards No. as shown as follows: Independent Auditor's Report
[Same ﬁrst and second paragraphs as the standard report] As discussed in Note X to the ﬁnancial statements. and cash ﬂows. for income tax purposes. October 2000. [Footnote renumbered by the issuance of Statement on Auditing Standards No. plant and equipment be stated at an amount not in excess of cost. he or she should also consider the need for an explanatory paragraph under the circumstances identiﬁed in paragraph . In our opinion. December 1995. the ﬁnancial position of X Company as of December 31. subsection (c). or the results of its operations or its cash ﬂows for the years then ended. respectively. the report should so state. in conformity with accounting principles generally accepted in the United States of America. cost of goods sold has been increased $_______ and $_______. 20X2 and 20X1. results of operations. 79. of the installment method of reporting gross proﬁt from certain types of sales. less accumulated depreciation. inventories have been increased $_______and $_______by inclusion in manufacturing overhead of depreciation in excess of that based on cost.
the auditor's report should give all of the substantive reasons for the disclaimer. 1996. [Footnote renumbered and amended. the last sentence of the ﬁrst paragraph is also deleted. that there are material departures from generally accepted accounting principles (see paragraphs .62 A disclaimer is appropriate when the auditor has not performed an audit sufﬁcient in scope to enable him or her to form an opinion on the ﬁnancial statements. but is requested to change the engagement to a review or a compilation of the statements.]
AU §508. he or she should look to the guidance in paragraphs 46–51 of Statement on Standards for Accounting and Review Services No.Reports on Audited Financial Statements
. retained earnings. to eliminate the reference to the auditor's responsibility to express an opinion.51]. effective for reports issued or reissued on or after February 29. The ﬁrst sentence now states that "we were engaged to audit" rather than "we have audited" since. 79. and cash ﬂows for the years then ended.57). and the related statements of income. If the auditor disclaims an opinion. 20X2 and 20X1. Footnote revised. An auditor may decline to express an opinion whenever he or she is unable to form or has not formed an opinion as to the fairness of presentation of the ﬁnancial statements in conformity with generally accepted accounting principles. paragraph .05 provides guidance to an accountant who is associated with the ﬁnancial statements of a public entity.46–. effective for reports issued or reissued on or after February 29. by the issuance of Statement on Auditing Standards No. to do so may tend to overshadow the disclaimer. because of the scope limitation. on the basis of his or her audit. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No. by the issuance of Statement on Auditing Standards No. When disclaiming an opinion because of a scope limitation. 79. The auditor should not identify the procedures that were performed nor include the paragraph describing the characteristics of an audit (that is.] .63
. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No.] 21 The wording in the ﬁrst paragraph of the auditor's standard report is changed in a disclaimer of opinion because of a scope limitation. because of the scope limitation.35–. the auditor should also disclose any other reservations he or she has regarding fair presentation in conformity with generally accepted accounting principles.] . Compilation and Review of Financial Statements (AR section 100 paragraphs . 1996. 93. 1. October 2000. to reﬂect conforming changes necessary due to the issuance of Statement on Standards for Accounting and Review Services No. the auditor was not able to perform an audit in accordance with generally accepted auditing standards. Association With Financial Statements. November 2002. He or she should state that the scope of the audit was not sufﬁcient to warrant the expression of an opinion.63 An example of a report disclaiming an opinion resulting from an inability to obtain sufﬁcient appropriate audit evidence because of the scope limitation follows: Independent Auditor's Report
We were engaged to audit the accompanying balance sheets of X Company as of December 31. the scope paragraph of the auditor's standard report). In addition. [Paragraph renumbered and amended. These ﬁnancial statements are the responsibility of the Company's management. December 1995. the auditor should state in a separate paragraph or paragraphs all of the substantive reasons for the disclaimer. In addition. [Paragraph renumbered and amended. but has not audited such statements. [Footnote renumbered by the issuance of Statement on Auditing Standards No.61 A disclaimer of opinion states that the auditor does not express an opinion on the ﬁnancial statements. Section 504.21
20 If an accountant is engaged to conduct an audit of the ﬁnancial statements of a nonpublic entity in accordance with generally accepted auditing standards.20 A disclaimer of opinion should not be expressed because the auditor believes. by the issuance of Statement on Auditing Standards No. 79. October 2000. effective for reports issued or reissued on or after February 29. 9. 79. 1996. 93.
the new ﬁrm may accept responsibility and express an opinion on the ﬁnancial statements for the prior period(s). since in issuing an updated report the continuing auditor considers information that he or she has become aware of during his or her audit of the current-period ﬁnancial statements (see paragraph .64
. Revised. the new ﬁrm should follow the guidance in paragraphs . evidence supporting the cost of property and equipment acquired prior to December 31.614
[Second paragraph of standard report should be omitted] The Company did not make a count of its physical inventory in 20X2 or 20X1. Since the Company did not take physical inventories and we were not able to apply other auditing procedures to satisfy ourselves as to inventory quantities and the cost of property and equipment. and we do not express. The Company's records do not permit the application of other auditing procedures to inventories or property and equipment. 79. the guidance in paragraphs . 93. Further. December 1995. December 1995. stated in the accompanying ﬁnancial statements at $_______ as of December 31. March 2006.68) and because an updated report is issued in conjunction with the auditor's report on the current-period ﬁnancial statements. Dating of the Independent Auditor's Report. December 1995. October 2000.
[Paragraph renumbered by the issuance of Statement on Auditing Standards No.70–. 20X1.65–.]
Reports on Comparative Financial Statements
. as well as for those of the current period. [Footnote renumbered by the issuance of Statement on Auditing Standards No. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. 105.]
AU §508. a continuing auditor22 should update23 the report on the individual ﬁnancial statements of the one or more prior periods presented on a comparative basis with those of
22 A continuing auditor is one who has audited the ﬁnancial statements of the current period and of one or more consecutive periods immediately prior to the current period. Reference in the fourth reporting standard to the ﬁnancial statements taken as a whole applies not only to the ﬁnancial statements of the current period but also to those of one or more prior periods that are presented on a comparative basis with those of the current period.64 Piecemeal opinions (expressions of opinion as to certain identiﬁed items in ﬁnancial statements) should not be expressed when the auditor has disclaimed an opinion or has expressed an adverse opinion on the ﬁnancial statements taken as a whole because piecemeal opinions tend to overshadow or contradict a disclaimer of opinion or an adverse opinion.69 and may indicate in its report or signature that a merger took place and may name the ﬁrm of independent auditors that was merged with it.65 The fourth standard of reporting requires that the auditor either express an opinion regarding the ﬁnancial statements taken as a whole or an assertion to the effect that an opinion cannot be expressed. an opinion on these ﬁnancial statements.]
.06–. [Footnote renumbered by the issuance of Statement on Auditing Standards No. 79. and at $________ as of December 31. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No. October 2000. 20X1. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No.] 23 An updated report on prior-period ﬁnancial statements should be distinguished from a reissuance of a previous report (see section 530.74 should be followed. in the auditor's report. to reﬂect conforming changes necessary due to the issuance of Statement on Auditing Standards No. December 1995. If one ﬁrm of independent auditors merges with another ﬁrm and the new ﬁrm becomes the auditor of a former client of one of the former ﬁrms.08). the scope of our work was not sufﬁcient to enable us to express. 20X2. paragraphs . Therefore. is no longer available. 79. 93. In such circumstances. If the new ﬁrm decides not to express an opinion on the prior-period ﬁnancial statements. 79.
In most cases. to reﬂect conforming changes necessary due to the issuance of FASB Statement No.67
. the auditor should consider whether the information included for the prior period(s) contains sufﬁcient detail to constitute a fair presentation in conformity with generally accepted accounting principles. while issuing a different report on the other ﬁnancial statements presented. and FASB ASC 205. should be capitalized in order to conform with accounting principles
24 A continuing auditor need not report on the prior-period ﬁnancial statements if only summarized comparative information of the prior period(s) is presented. to reﬂect conforming changes necessary due to the issuance of FASB ASC. in our opinion. Dating of the Independent Auditor's Report.24 Ordinarily. In some circumstances. [Paragraph renumbered by the issuance of Statement on Auditing Standards No.67 Since the auditor's report on comparative ﬁnancial statements applies to the individual ﬁnancial statements presented. April 2002. effective September 2002.] . by Statement on Auditing Standards No. [Footnote renumbered by the issuance of Statement on Auditing Standards No. 98. or the auditor would need to modify his or her report. the auditor should consider the effects of any such circumstances or events coming to his or her attention.
Standard Report on the Prior-Year Financial Statements and a Qualiﬁed Opinion on the Current-Year Financial Statements
[Same ﬁrst and second paragraphs as the standard report] The Company has excluded. the auditor should be alert for circumstances or events that affect the prior-period ﬁnancial statements presented (see paragraph .01. (See section 431. where applicable) with different reports on one or more ﬁnancial statements presented. certain lease obligations that were entered into in 20X2 which. the auditor's report on comparative ﬁnancial statements should not be dated earlier than the date on which the auditor has obtained sufﬁcient appropriate audit evidence on which to support the opinion for the most recent audit. not-for-proﬁt organizations frequently present certain information for the prior period(s) in total rather than by net asset class. this will necessitate including additional columns or separate detail by fund or net asset class.]
AU §508. to reﬂect conforming changes necessary due to the issuance of Statement on Auditing Standards No.) [Paragraph renumbered by the issuance of Statement on Auditing Standards No. Revised. December 1995. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No. 93.]
Different Reports on Comparative Financial Statements Presented
. 79. December 2005. As amended. an auditor may express a qualiﬁed or adverse opinion. disclaim an opinion. Revised.66 During the audit of the current-period ﬁnancial statements.Reports on Audited Financial Statements
the current period. from property and debt in the accompanying 20X2 balance sheet. December 1995. 117. December 1995. June 2009. Following are examples of reports on comparative ﬁnancial statements (excluding the standard introductory and scope paragraphs. 103. Revised. 79.68) or the adequacy of informative disclosures concerning those statements. In those circumstances. paragraph . For example. Adequacy of Disclosure in Financial Statements.) In updating his or her report on the prior-period ﬁnancial statements. October 2000. entities such as state and local governmental units frequently present total-all-funds information for the prior period(s) rather than information by individual funds because of space limitations or to avoid cumbersome or confusing formats. Presentation of Financial Statements. 79. the client may request the auditor to express an opinion on the prior period(s) as well as the current period. or include an explanatory paragraph with respect to one or more ﬁnancial statements for one or more periods. (See section 530. Also.
Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the ﬁnancial statements are free of material misstatement. enter into the determination of net income and cash ﬂows for the year ended December 31. on a test basis. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No. the former footnote 29 has been deleted and subsequent footnotes renumbered by the issuance of Statement on Auditing Standards No. 79. 79.67
. and cash ﬂows for the year ended December 31. long-term debt by $_______. the scope of our work was not sufﬁcient to enable us to express. 20X2. and the results of its operations and its cash ﬂows for the years then ended in conformity with accounting principles generally accepted in the United States of America. for a discussion of consistency. the balance sheets of ABC Company as of December 31. 20X0. respectively. October 2000. present fairly. and Cash Flows
[Same ﬁrst paragraph as the standard report] Except as explained in the following paragraph. Inventory amounts as of December 31. except for the effects on the 20X2 ﬁnancial statements of not capitalizing certain lease obligations as described in the preceding paragraph.]
AU §508. for the year then ended. the ﬁnancial position of ABC Company as of December 31. 20X1.
Standard Report on the Current-Year Financial Statements With a Disclaimer of Opinion on the Prior-Year Statements of Income. the ﬁnancial statements referred to in the preceding present fairly. 20X2. and retained earnings by $_______as of December 31. and we were unable to satisfy ourselves regarding inventory quantities by means of other auditing procedures. the ﬁnancial position of ABC Company as of December 31. as well as evaluating the overall ﬁnancial statement presentation. 20X1. If these lease obligations were capitalized. and the results of its operations and its cash ﬂows for the year ended December 31. retained earnings. Retained Earnings. In our opinion. We did not observe the taking of the physical inventory as of December 31. we conducted our audits in accordance with auditing standards generally accepted in the United States of America. property would be increased by $_______. We believe that our audits provide a reasonable basis for our opinion. 20X2 and 20X1. since that date was prior to our appointment as auditors for the Company. [Footnote renumbered by the issuance of Statement on Auditing Standards No. In our opinion. December 1995. and net income and earnings per share would be increased (decreased) by $_______ and $_______. evidence supporting the amounts and disclosures in the ﬁnancial statements. 20X0. Consistency of Application of Generally Accepted Accounting Principles. in all material respects. in all material respects. and we do not express. an opinion on the results of operations and cash ﬂows for the year ended December 31. in conformity with accounting principles generally accepted in the United States of America. See section 420.25 Because of the matter discussed in the preceding paragraph.616
generally accepted in the United States of America. December 1995. An audit also includes assessing the accounting principles used and signiﬁcant estimates made by management. and the related statements of income. 20X2. 93.
25 It is assumed that the independent auditor has been able to satisfy himself or herself as to the consistency of application of generally accepted accounting principles. 20X2 and 20X1. 20X2 and 20X1. An audit includes examining.
December 1995.Reports on Audited Financial Statements
[Paragraph renumbered by the issuance of Statement on Auditing Standards No. is different from that expressed in our previous report. he or she should consider such matters when updating his or her report on the ﬁnancial statements of the prior period. and the results of its operations and its cash ﬂows for the years
26 See footnote 17. the opinion is different from the opinion previously expressed on the ﬁnancial statements of a prior period. if an auditor has previously qualiﬁed his or her opinion or expressed an adverse opinion on ﬁnancial statements of a prior period because of a departure from generally accepted accounting principles. as presented herein. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No. and cash ﬂows in conformity with accounting principles generally accepted in the United States of America because of two departures from such principles: (1) the Company carried its property. and (2) the Company did not provide for deferred income taxes with respect to differences between income for ﬁnancial reporting purposes and taxable income. December 1995. December 1995. results of operations.] . For example. 79. the auditor should disclose all the substantive reasons for the different opinion in a separate explanatory paragraph(s) preceding the opinion paragraph of his or her report.[fn 29] The explanatory paragraph(s) should disclose (a) the date of the auditor's previous report. the auditor's updated report on the ﬁnancial statements of the prior period should indicate that the statements have been restated and should express an unqualiﬁed opinion with respect to the restated ﬁnancial statements. the Company has changed its method of accounting for these items and restated its 20X1 ﬁnancial statements to conform with accounting principles generally accepted in the United States of America. Accordingly.69 If. in an updated report. we expressed an opinion that the 20X1 ﬁnancial statements did not fairly present ﬁnancial position.]
AU §508. and (d) that the auditor's updated opinion on the ﬁnancial statements of the prior period is different from his or her previous opinion on those statements. during the current audit. The following is an example of an explanatory paragraph that may be appropriate when an auditor issues an updated report on the ﬁnancial statements of a prior period that contains an opinion different from the opinion previously expressed: Independent Auditor's Report
[Same ﬁrst and second paragraphs as the standard report] In our report dated March 1. our present opinion on the 20X1 ﬁnancial statements. 20X2 and 20X1.26 In our opinion. and the prior-period ﬁnancial statements are restated in the current period to conform with generally accepted accounting principles. 79. [Footnote renumbered by the issuance of Statement on Auditing Standards No. an auditor becomes aware of circumstances or events that affect the ﬁnancial statements of a prior period. and provided for depreciation on the basis of such values.69
. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. 93. 20X2. (b) the type of opinion previously expressed. the ﬁnancial statements referred to above.68 If. and equipment at appraisal values. 79. October 2000. present fairly. in all material respects. As described in Note X. (c) the circumstances or events that caused the auditor to express a different opinion. plant.]
Opinion on Prior-Period Financial Statements Different From the Opinion Previously Expressed
. the ﬁnancial position of X Company as of December 31.
or require disclosure in. 1998. 79. the predecessor auditor may wish to consider the matters described in section 543. Management Representations. appendix C (paragraph . effective for reports reissued on or after June 30.] .]
Report of Predecessor Auditor
. October 2000. and (b) whether any events have occurred subsequent to the balance-sheet date of the latest prior-period ﬁnancial statements reported on by the predecessor auditor that would require adjustment to or disclosure in those ﬁnancial statements.27 [Paragraph renumbered by the issuance of Statement on Auditing Standards No. the ﬁnancial statements reported on by the predecessor auditor. in the successor's opinion.10–. [Footnote renumbered by the issuance of Statement on Auditing Standards No. by Statement on Auditing Standards No. the predecessor auditor should not refer in his or her reissued report to the report or work of the successor auditor. 79. effective for reports reissued on or after June 30. when those ﬁnancial statements are to be presented on a comparative basis with audited ﬁnancial statements of a subsequent period. 79.]
Predecessor Auditor’s Report Reissued
.71. (b) compare the prior-period ﬁnancial statements that he or she reported on with the ﬁnancial statements to be presented for comparative purposes. 85. 1998. December 1995. Part of Audit Performed by Other Independent Auditors.12. The representation letter from management of the former client should state (a) whether any information has come to management's attention that would cause them to believe that any of the previous representations should be modiﬁed." [Footnote added. Consequently. As amended. 79.]
AU §508. and (c) obtain representation letters from management of the former client and from the successor auditor.70
. a predecessor auditor should (a) read the ﬁnancial statements of the current period. by Statement on Auditing Standards No. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. However.72 A predecessor auditor who has agreed to reissue his or her report may become aware of events or transactions occurring subsequent to the date of his
27 It is recognized that there may be reasons why a predecessor auditor's report may not be reissued and this section does not address the various situations that could arise. October 2000. December 1995. paragraphs . Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No. might have a material effect on. a predecessor auditor should consider whether his or her previous report on those statements is still appropriate. December 1995.18).70 A predecessor auditor ordinarily would be in a position to reissue his or her report on the ﬁnancial statements of a prior period at the request of a former client if he or she is able to make satisfactory arrangements with the former client to perform this service and if he or she performs the procedures described in paragraph .28 The representation letter from the successor auditor should state whether the successor's audit revealed any matters that. 85.71 Before reissuing (or consenting to the reuse of) a report previously issued on the ﬁnancial statements of a prior period.618
then ended in conformity with accounting principles generally accepted in the United States of America. Also. December 1995.] 28 See section 333. "Illustrative Updating Management Representation Letter. Footnote renumbered by the issuance of Statement on Auditing Standards No. 93. Either the current form or manner of presentation of the ﬁnancial statements of the prior period or one or more subsequent events might make a predecessor auditor's previous report inappropriate.
[Paragraph renumbered by the issuance of Statement on Auditing Standards No. 93.
October 2000. [Footnote added. The auditor should then decide. In such circumstances. or events after that date. the successor auditor should indicate in the introductory paragraph of his or her report (a) that the ﬁnancial statements of the prior period were audited by another auditor. 20X2. 20X1. (c) the type of report issued by the predecessor auditor. the substantive reasons therefore.]
AU §508. If the predecessor auditor revises the report or if the ﬁnancial statements are restated. or merged with.) [Paragraph renumbered by the issuance of Statement on Auditing Standards No. whether to revise the report. Dating of the Independent Auditor's Report. that of the successor auditor.69 and . paragraph .74 If the ﬁnancial statements of a prior period have been audited by a predecessor auditor whose report is not presented. Our responsibility is to express an opinion on these ﬁnancial statements based on our audit. 1996.30 An example of a successor auditor's report when the predecessor auditor's report is not presented is shown as follows: Independent Auditor's Report
We have audited the balance sheet of ABC Company as of December 31. December 1995.74
. reviewing the working papers of the successor auditor as they relate to the matters affecting the prior-period ﬁnancial statements). These ﬁnancial statements are the responsibility of the Company's management. on the basis of the audit evidence obtained.73 of this section. 93. the successor auditor may name the predecessor auditor if the predecessor auditor's practice was acquired by. transactions. and cash ﬂows for the year then ended. a successor auditor's report issued or reissued after the effective date hereof should not make reference to the predecessor's previously required explanatory paragraph.73 A predecessor auditor's knowledge of the current affairs of his former client is obviously limited in the absence of a continuing relationship. (See section 530. December 1995. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No. the predecessor auditor should make inquiries and perform other procedures that he or she considers necessary (for example. 105. retained earnings. 93. when reissuing the report on prior-period ﬁnancial statements. March 2006. 79. 20X2. effective for reports issued or reissued on or after February 29. [Paragraph renumbered by the issuance of Statement on Auditing Standards No. he or she should follow the guidance in paragraphs .]
Predecessor Auditor’s Report Not Presented
. [Footnote renumbered by the issuance of Statement on Auditing Standards No. If a predecessor auditor concludes that the report should be revised. were audited by other auditors whose report dated March 31. 79. the successor auditor might indicate in the response that certain matters have had a material effect on the prior-period ﬁnancial statements reported on by the predecessor auditor). however. and the related statements of income. to reﬂect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 79.Reports on Audited Financial Statements
or her previous report on the ﬁnancial statements of a prior period that may affect his or her previous report (for example. a predecessor auditor should use the date of his or her previous report to avoid any implication that he or she has examined any records.
29 The successor auditor should not name the predecessor auditor in his or her report. The ﬁnancial statements of ABC Company as of December 31. 79. and (d) if the report was other than a standard report. 85. by Statement on Auditing Standards No. Revised. November 1997. expressed an unqualiﬁed opinion on those statements.] . October 2000. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No. December 1995.05. 85. Footnote renumbered by the issuance of Statement on Auditing Standards No. Consequently.68–. he or she should dual-date the report. November 1997. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No.] 30 If the predecessor's report was issued before the effective date of this section and contained an uncertainties explanatory paragraph.29 (b) the date of his or her report.
by Statement on Auditing Standards No. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No. effective for reports issued or reissued on or after February 29.]
. Footnote subsequently renumbered by the issuance of Statement on Auditing Standards No. Earlier application of the provisions of this section is permissible.75 This section is effective for reports issued or reissued on or after February 29. 79. the 20X2 ﬁnancial statements referred to above. he or she may also include the following paragraph in his report:
We also audited the adjustments described in Note X that were applied to restate the 20X1 ﬁnancial statements. 1996. Following is an illustration of the wording that may be included in the successor auditor's report:
. 20X2. effective for reports issued or reissued on or after February 29. 1996. the introductory paragraph should indicate that a predecessor auditor reported on the ﬁnancial statements of the prior period before restatement. if the successor auditor is engaged to audit and applies sufﬁcient procedures to satisfy himself or herself as to the appropriateness of the restatement adjustments. by the issuance of Statement on Auditing Standards No.
If the ﬁnancial statements have been restated. October 2000. the successor auditor should describe the nature of and reasons for the explanatory paragraph added to the predecessor's report or the opinion qualiﬁcation. 93. by the issuance of Statement on Auditing Standards No. the paragraph may include an explanation of the change in reporting standards. in all material respects. effective for reports issued after December 31. 64. effective for reports issued or reissued on or after February 29. . 1996. were audited by other auditors whose report dated March 1. . even if the uncertainty has not been resolved. on those statements included an explanatory paragraph that described the change in the Company's method of computing depreciation discussed in Note X to the ﬁnancial statements.75
. 20X2.]
AU §508. by the issuance of Statement on Auditing Standards No.
If the predecessor auditor's report was other than a standard report. In addition. Paragraph renumbered and amended. present fairly. 1996. 1990. such adjustments are appropriate and have been properly applied.76 An auditor who previously included an uncertainties explanatory paragraph in a report should not repeat that paragraph and is not required to include an emphasis paragraph related to the uncertainty in a reissuance of that report or in a report on subsequent periods' ﬁnancial statements.[31] [Paragraph renumbered and amended.]
[31] [Footnote renumbered and deleted by the issuance of Statement on Auditing Standards No. December 1995.] . [Paragraph renumbered and amended. If the auditor decides to include an emphasis paragraph related to the uncertainty. 79. 79.
[As amended.620
[Same second paragraph as the standard report] In our opinion. the ﬁnancial position of ABC Company as of December 31. November 1997. 85. In our opinion. and the results of its operations and its cash ﬂows for the year then ended in conformity with accounting principles generally accepted in the United States of America. 79.
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