 Hello and welcome to the session in which we will try to complete the integrated audit lessons and in this lesson we're going to look at the four reasons why we would modify internal control over financial reporting, modify the report. Now integrated audit is when the auditor audit the financial statements and audit the internal control over financial reporting at the same time and issue a report about both the financial statements also about internal control over financial reporting in the prior session we looked at the steps and we issued the report plan the engagement using top-down approach test and evaluate the design test and evaluate the operating effectiveness then we looked at the type of the different type of internal control deficiencies then we look at the issuer report non-issuer report and we looked at a clean opinion in this session we're going to look at reports where it's not a clean or we need to modify the report for one reason or the others and I summarize this into four reasons adverse opinion and under adverse opinion I have a sub reason called management report is not complete or not properly presented now some CPA review courses and some courses they have this as a separate session I believe they are connected when you have an adverse opinion and we say and we assume that management did not report the material weakness so I'm just going to combine them together you might have a scope issue we should all feel familiar with the scope it means you could not do the work referencing a component auditor someone else is working on the engagement and to provide additional information now if you know anything about far hat every time I have a list I'm going to go over this list step by step before we proceed any further I have a public announcement about my company farhat lectures dot com far hat accounting lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses my CPA material is aligned with your CPA review course such as becker roger wiley gleam miles my accounting courses are aligned with your accounting courses broken down by chapter and topics my resources consist of lectures multiple choice questions true false questions as well as exercises go ahead start your free trial today no obligation no credit card required starting with adverse opinion adverse opinion it's basically a bad opinion when do we give a bad opinion when we have one material weakness one material weakness good enough in that report we are going to define the material weakness we are going to reference the description in the management report so we're going to reference that the description of it is in the management report or state that the management report did not identify the matter or did not present the matter properly and this is where I what this is what I wanted to say is this management report is not complete kind of related to adverse opinion because it it would arise from that so this is how I looked at it okay so also we have to determine the effect on the audit of the entity's financial statements simply put now we have an adverse opinion about internal control over financial reporting how is that going to influence the opinion about the financial statements themselves remember we are looking at two reports one is internal control over financial reporting and one is financial statement if we have a bad opinion here adverse how is that going to affect the financial statement well we might state whether the opinion on the financial statement was affected by adding an other paragraph an other matter paragraph we can do that or include in the paragraph that identified the material weakness or in the material weakness paragraph we can explain if there's any effect on the financial statements we could also have a scope limitation and at this point we should be familiar with the scope limitation is simply put we had some sort of a restriction we cannot perform the work we cannot collect sufficient appropriate evidence for one reason or the other what will we do under those circumstances we can withdraw from the engagement therefore not comfortable or just also we can disclaim an opinion stating the reasons for the disclaimer we need to consider also the effect on the audit on the financial statements under those circumstances now this is what an opinion a disclaimer would look like we were engaged audit Adams company internal control based on Koso because of the significance of the matter described in the basis for the disclaimer of opinion so we'll have it we'll have a paragraph disclaimer of opinion on internal control over financial reporting we have not been able to obtain sufficient appropriate audit evidence to provide basis for the audit opinion accordingly we don't express we are disclaiming an opinion on the effectiveness of Adams company internal control over financial reporting now this is basically PCA OB the ICPA will have a similar language but the point is you cannot collect enough evidence now if you found any weaknesses before you get to this point you would list any material weakness if any is found obviously without saying good informed management and those in charge with governance about the scope limitation and writing a third a third situation when you reference a component auditor now just like a financial statement yes you could use a third party to help with the internal control over financial reporting like another auditor maybe another party but you have to assess their competency and objectivity of that third party personnel and the firm overall it's very similar to the financial statement audit involvement however when it comes to mentioning or not mentioning it's the principal auditor's judgment whether you want to mention or not and bear in mind whether you mention or not is not related to the component auditor for the financial statement so the decision not related to referencing the component auditor of the financial statements what I'm trying to say is this for the financial statements you might also have a component auditor and you might mention them for the internal control over financial reporting you may not you may not mention them or you may mention them on the internal control over financial reporting and not mention them for the financial statement it is a judgment call provide additional information well when do we have to do that the classic case is when management report goes far or inconsistent for example when management says something under report remember management will have to assure report about their own internal control but if the management goes a little bit beyond what they're supposed to do and the classic question that comes on the exam is cost benefit statement for example they would have a report and they would say well we did not fix this internal control issue because the cost outweigh the benefit therefore we did not take care of this internal control issue now as an auditor we might have to add a paragraph saying that we want to disclaim like we don't want to say we agree so we might add another paragraph matter to disclaim an opinion on the other information in the management report because that's kind of basically another opinion by management and if somebody reading the report we don't want them to think that we agree with that statement and always it's better to ask management to change those you know inconsistent or out of the line in quote statements what should you do now integrated audit is an important topic on the CPA exam go to far hat lectures look at MCQs I have MCQs that were previously released by the AI CPA about this topic specifically go ahead look at the questions look at the answers wrap it up it's a lot of information here we have seven or eight recording about integrated audit trying to explain it step by step at this point you should know what integrated audit immediately auditing the financial statement is showing an opinion on auditing the internal control over financial reporting and is showing an opinion about both at the same time good luck study hard you just need three to five hours invested in this topic and you will get it done I'm always here for you