Modified Report Examples AU-C 705
Modified Report Examples AU-C 705
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Illustration 7An Auditor's Report in Which the Auditor Is Expressing an Unmodified Opinion in the Prior Year and a Modified Opinion
(Qualified Opinion) in the Current Year
Illustration 8An Auditor's Report in Which the Auditor Is Expressing
an Unmodified Opinion in the Current Year and a Disclaimer of Opinion on the Prior-Year Statements of Income, Changes in Stockholders'
Equity, and Cash Flows
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[Appropriate Addressee]
Report on the Financial Statements1
We have audited the accompanying financial statements of ABC Company,
which comprise the balance sheets as of December 31, 20X1 and 20X0, and the
related statements of income, changes in stockholders' equity, and cash flows
for the years then ended, and the related notes to the financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted
in the United States of America; this includes the design, implementation, and
maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether
due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the financial statements. The procedures selected
depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements
in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
entity's internal control.2 Accordingly, we express no such opinion. An audit
also includes evaluating the appropriateness of accounting policies used and
the reasonableness of significant accounting estimates made by management,
as well as evaluating the overall presentation of the financial statements.
Scope paragraph:
What we did
1
The subtitle "Report on the Financial Statements" is unnecessary in circumstances when the
second subtitle, "Report on Other Legal and Regulatory Requirements," is not applicable.
2
In circumstances when the auditor also has responsibility to express an opinion on the effectiveness of internal control in conjunction with the audit of the financial statements, this sentence
would be worded as follows: "In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to
design audit procedures that are appropriate in the circumstances." In addition, the next sentence,
"Accordingly, we express no such opinion." would not be included.
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We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.
Basis for Qualified Opinion
The Company has stated inventories at cost in the accompanying balance
sheets. Accounting principles generally accepted in the United States of America require inventories to be stated at the lower of cost or market. If the Company stated inventories at the lower of cost or market, a write down of $XXX
and $XXX would have been required as of December 31, 20X1 and 20X0, respectively. Accordingly, cost of sales would have been increased by $XXX and
$XXX, and net income, income taxes, and stockholders' equity would have been
reduced by $XXX, $XXX, and $XXX, and $XXX, $XXX, and $XXX, as of and for
the years ended December 31, 20X1 and 20X0, respectively.
Qualified Opinion
In our opinion, except for the effects of the matter described in the Basis
for Qualified Opinion paragraph, the financial statements referred to above
present fairly, in all material respects, the financial position of ABC Company
as of December 31, 20X1 and 20X0, and the results of its operations and its
cash flows for the years then ended in accordance with accounting principles
generally accepted in the United States of America.
Report on Other Legal and Regulatory Requirements
[Form and content of this section of the auditor's report will vary depending on
the nature of the auditor's other reporting responsibilities.]
[Auditor's signature]
Recall that this is Audit Firm
[Auditor's city and state] Signature
[Date of the auditor's report]
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[Appropriate Addressee]
Report on the Consolidated Financial Statements1
We have audited the accompanying consolidated financial statements of ABC
Company and its subsidiaries, which comprise the consolidated balance sheet
as of December 31, 20X1, and the related consolidated statements of income,
changes in stockholders' equity, and cash flows for the year then ended, and the
related notes to the financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these
consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing
standards generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of
the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing
1
The subtitle "Report on the Consolidated Financial Statements" is unnecessary in circumstances when the second subtitle, "Report on Other Legal and Regulatory Requirements," is not applicable.
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Scope
paragraph:
What we
did
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2
In circumstances when the auditor also has responsibility to express an opinion on the effectiveness of internal control in conjunction with the audit of the consolidated financial statements,
this sentence would be worded as follows: "In making those risk assessments, the auditor considers
internal control relevant to the entity's preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate in the circumstances." In addition,
the next sentence, "Accordingly, we express no such opinion." would not be included.
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[Appropriate Addressee]
Report on the Financial Statements1
We have audited the accompanying financial statements of ABC Company,
which comprise the balance sheet as of December 31, 20X1, and the related
statements of income, changes in stockholders' equity, and cash flows for the
year then ended, and the related notes to the financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted
in the United States of America; this includes the design, implementation, and
maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether
due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the financial statements. The procedures selected
depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements
in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
entity's internal control.2 Accordingly, we express no such opinion. An audit
1
The subtitle "Report on the Financial Statements" is unnecessary in circumstances when the
second subtitle, "Report on Other Legal and Regulatory Requirements," is not applicable.
2
In circumstances when the auditor also has responsibility to express an opinion on the effectiveness of internal control in conjunction with the audit of the financial statements, this sentence
would be worded as follows: "In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to
design audit procedures that are appropriate in the circumstances." In addition, the next sentence,
"Accordingly, we express no such opinion." would not be included.
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Scope
paragraph:
What we did
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[Appropriate Addressee]
Report on the Financial Statements1
We were engaged to audit the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders' equity, and cash flows for
the year then ended, and the related notes to the financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted
in the United States of America; this includes the design, implementation, and
maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether
due to fraud or error.
Auditors Responsibility
Scope
basis for
disclaimer
31,
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correcting the misstatements. We were unable to confirm or verify by alternative means accounts receivable included in the balance sheet at a total amount
of $XXX at December 31, 20X1. As a result of these matters, we were unable
to determine whether any adjustments might have been found necessary in
respect of recorded or unrecorded inventories and accounts receivable, and the
elements making up the statements of income, changes in stockholders' equity,
and cash flows.
Disclaimer of Opinion
Because of the significance of the matters described in the Basis for Disclaimer
of Opinion paragraph, we have not been able to obtain sufficient appropriate
audit evidence to provide a basis for an audit opinion. Accordingly, we do not
express an opinion on these financial statements.
Report on Other Legal and Regulatory Requirements
[Form and content of this section of the auditor's report will vary depending on
the nature of the auditor's other reporting responsibilities.]
[Auditor's signature]
[Auditor's city and state]
[Date of the auditor's report]
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