 Hello and welcome to the session in which we would look at forming an opinion when it comes to an integrated audit. An integrated audit is when you audit the financial statements of a company and issue an opinion and at the same time audit the internal control over financial reporting and issue an opinion about those control. In the prior session, we went through steps on how to get to the opinion which is plan the engagement, use a top-down approach, test the design, test the operating effectiveness of the design of the internal control over financial reporting, then form an opinion. Then we looked at the different type of internal control deficiencies and who do we communicate those control deficiencies to. At this point, we are ready to communicate the deficiencies. So we know what the deficiencies are, we're ready, I'm sorry, not the deficiencies, we are ready to communicate the end product, the report. I'm going to break those reports into two types. We're going to have non-issuer report and communication and issuer report. So I'm going to say, well, this is how you do it for public companies, this is how you do it for private issuer. I always say issuer is public and non-issuer is private for simplicity. Before we proceed any further, I have a public announcement about my company farhatlectures.com. Farhat 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. So let's go back and review what we did for non-issuer. For non-issuer, if you find control deficiencies, significant deficiencies or material deficiencies, you have to communicate those in writing to management. And we're going to see today how we do that. We're going to see the actual report. Also you have to communicate significant deficiency in material deficiency or deficiencies to people who are charged with governance, also in writing, which is we're going to see the report today. And to communicate this by the release date for the significant in material and within 60 days for the control deficiencies. So we are dealing with two reports here. We have to communicate internally the management and those in charge with governance, which is the internal report. And we have to issue a report on internal control to outsiders because we are also issuing a report to the outsiders. Now for the report, for the outsider, we could have a separate report or a combined report. Remember, we're issuing to opinion. We could have one report about the financial statement audit and one report about the internal control. Or we could have one report and that report will have our opinion on the financial statement and will have our opinion on the internal control. Now if we issue two report, then we make sure in this report we say we also audited the internal control over financial reporting. And in the internal control over financial reporting, we mentioned that we audited the financial statements of this company. So basically we cross-reference the report. Now it's not needed when you have one report because everything is in that report. Now what we're going to do, we're going to actually look at actual reports. Look at the reports and see what it actually looks like. And what I like about reports is this. As they summarize everything, the auditors did and issue an opinion. So these reports, it's going to summarize everything that we learned up to this point in an integrated audit. We're going to do this for non-issuers and we're going to do this for issuers, starting with non-issuers. Starting with the report that we prepare to management and both of directors of Adam Company. This is for non-issuers. In connection with our audit of Adam Company, the company, we have the date and for the year then ended. And our audit of the internal control over financial reporting. We audited the financial statement and we audited internal control over financial reporting. We are required to advise you of the following matters. We're talking to management and board of directors, internal people. The following related matters to internal control over financial reporting identified during our integrated audit. Before we do that, we're going to tell you our responsibility as auditor. We are only obtaining reasonable assurance. No absolute assurance. The integrated audit is not designed to detect deficiencies that are individually or in combination less than a material weakness. If we find them, that's fine. What is a deficiency in internal control? We don't assume management or board of directors know what deficiency in internal control is. We just define it to them. Exists when the design or operation of the control notice design or operation because remember we tested the design and we tested the operation does not allow management or employees under normal circumstances to perform their function. A material weakness. Again, we define a material weakness is a deficiency. Remember, material weakness is the most serious one or a combination of deficiencies. There is a reasonable possibility that the material misstatement of the entities will not be the material misstatement of to the entities. Financial statement will not be prevented or deducted on a timely basis. And if we find any, we found the following deficiencies. We describe them and provide the end and give their potential effect. We also talk about significant deficiencies and we talked about those deficiencies in the prior session. We spent time how to how to come up with those conclusion. A significant deficiency is a deficiency that's less severe than a material one. And if we found any, we'll tell you what they are and their potential effect on the financial statement. Of course, we do that as well. Then since this is for management, we have to limit. The communication is intended solely for the information and use of management, which is or individual charge with governance. This report should not be used by anyone else. Then you have the auditor signature, state and the report. So simply put, this is communicating information to management about what? About the integrated audit. What we found in terms of material weakness, significant deficiencies. Now we have to communicate to the outsider. We have to assure report about the internal control over financial reporting. And this is a separate report. So this is a separate report. Means there is one report for the financial statement and one report. So this is one report for the internal control and one report for the financial statements. So here's what we do. Here's our opinion on the internal control over financial reporting. Again, we have audited Adam company, according to Koso and our opinion, the company maintain the effective internal control. So again, we're giving an unqualified or good opinion. So notice what happened here. We have also audited in accordance with all the auditing standard generally accepted in the US, the financial statements of Adam company. And we list them, we list the date, we list the opinion, but notice, this is the what I called cross reference. So this is telling you, we also audited the financial statements. So just reminding you that this is an integrated audit. Now we talk our opinion. Again, we talk about our opinion. One opinion, our opinion is about the internal control over financial reporting because our opinion about the financial statement was listed in the report of the financial statements. Again, we talk about how we conducted the audit, according to gas. We were independent. We have to, we have to say this. We follow ethical requirements. And we believe our audit obtained sufficient and appropriate evidence to form our basis. So this is the basis for our opinion. Also, we need to tell you about management responsibility. And we should know this. The management is responsible for designing, implementing and maintaining effective internal control. Then we talk our response, talk about our responsibility as auditor. Our responsibility is to provide an opinion. Our objective is to maintain reasonable assurance about what provide reasonable assurance about whether effective internal control was maintained. That's it. That's provide an opinion. Now, reasonable assurance is a high level of assurance, but it's not guaranteed. Okay. So just bear, keep that in mind that it's not guaranteed. Also, we have to tell you what did we do in performing the internal control of our financial reporting? We prefer we exercise professional judgment, professional skepticism. We have been an understanding of the control. We test the control. That's design and it's operating effectiveness. So it's basically summarizing everything that we learned about in integrated audit. And then we don't take any chances. We define what internal control is basically in this paragraph. And you could read it basically, what is an internal control? What's the purpose of internal control? This is again for external users and very important. We have an inherent limitation paragraph. What is this? It tells you, look, this is what internal control do. One, two, three, help you prepare financial statements that are, that are reasonably accurate, following up, so on and so forth. However, don't read too much into this because internal, not, not don't read too much into it. You have to understand that internal control has inherent limitation. Okay. So just bear in mind that although it's working now, it may not be working in the future. Although we think it's effective, we could have also made a mistake. That's always a possibility. So don't read too much into it. There's always inherent, inherent limitation when it comes to internal control. Also, we have this last paragraph. If need be report on other legal and regulatory requirement, if needed, then the signature date and the city and state of the auditor. So this report is a single report, is a single report about internal control over financial reporting. This is a separate report. Now we could also say the same thing, but also what we do is we have a combined report. What is a combined report? It means we're going to have one report and this report will have our opinion on the financial statements and will have our opinion on the internal control. So notice what, how it reads report on the financial statement and internal control. And we'll always, we have to say it's independent auditors report and all the reports for the outsiders. Notice our opinions. It's a plural about financial statement and internal control over financial reporting. Again, now here we're talking first about the financial statements. You know, we audited the financial statements, we list them, the date, and we just talk about they are fairly, if they're fairly presented or fairly presented, we, we give our opinion. We have also audited the financial statement of our internal control. And in our opinion, the company maintain an effective internal control. So notice we are issuing two opinions in the same report. This is a combined report. Then we talk about our basis of the opinion. Just like when we talked about in the prior session, we talked about our basis when it comes to the financial statements as well as internal control over financial reporting. We are independent. We follow ethical standards and we obtain sufficient and appropriate evidence. Then we talk about management responsibility about the financial statements about internal control over financial reporting. Cause this is a combined report. Again, we should know this by heart. Management is responsible for the financial statements, for the preparation, for the financial statements. Management is also responsible for the assessment of, about the effectiveness of internal control. They maintain and they take care of that. So we have to mention the responsibilities. Then we talked about the auditory responsibility here. We're going to have a lot of information because we're talking about our responsibilities about financial statements and about internal control over financial reporting. Just, we talked about management responsibility when it comes to financial statements as well as internal control about financial responsibilities. Again, our objective is basically to assure an opinion, whether the controls are working and the financial statements are fairly presented. We are only providing reasonable assurance and we define what reasonable assurance is. We go a little bit step further and we differentiate between errors and fraud. We have to let you know that errors, it's easier to catch errors because no one tried to hide them. It happens. They're not aware of them. On the contrary, fraud, it might involve collusion. It might involve forgery, intentional admission, misrepresentation of override of control. So what we're saying is just, just want to let you know that fraud is harder to catch and here are the, here are the reasons why. Okay. Also, we thought we give a little bit more information in performing our audit of the financial statements as well as the internal control in accordance with gas. We did the following. Again, exercise professional judgment, maintain professional skepticism, and just what we do in an audit, obtaining understanding of internal control, obtaining understanding, test the design and the operating effectiveness, evaluate appropriate accounting policies. This is where the financial statements conclude, whether there are conditions or event in the aggregate race substantial doubt about Adam's company as a, as a company ability to continue as a going concern for a reasonable amount of time. So it's basically what we did in an audit, typical audit language. Also, we tell, we tell the users we are required to communicate with those charged with governance regarding any other matters, the plan, the scope and timing of the audit, as well as significant finding and certain internal control. Remember, we talked about significant finding in the first report, we did show you the report, how we communicate those finding. And at the end, again, we will define internal control and talk about inherent limitation. If there's any other legal and regulatory requirement. So what I just showed you is a single report, a combined report for an integrated audit. What's it? That's pretty straightforward, easy to follow. And we gave clean opinion. Now, sometime we might have to give an adverse opinion over internal control, over financial reporting. When do we do so? When there's a material weakness? And I'm talking about one material weakness. There's one material weakness. We're out. We're not giving a clean opinion. The company has not maintained an effective internal control. So we audited the financial statements. I'm sorry. We audited the company's internal control over financial reporting, according to Koso, and the company did not maintain an effective internal control. Okay. And here we also audited the financial statement and there's any opinion. Now, now of the material weakness, affected the financial statement, we'll discuss this. So here we'll include the nature of the opinion. Now, we consider the material weakness described below, which you're going to see in a moment, the basis for our adverse opinion. So there's a material weakness or weaknesses. One is good enough to give you an adverse opinion. Then we define what a material weakness is. It's a deficiency. There's a high probability it will not detect the reasonable pass. It doesn't have to be high reasonable possibility. And we list the material weakness. And if you don't know what material weakness is, go under the prior session. I define material weakness, significant deficiencies, control deficiencies. Then we conclude that our audit in accordance, we conduct our audit in accordance with gas. Again, we talked a little bit about our responsibility and we are independent. We follow ethical, the ethical guidelines and we obtain sufficient and appropriate evidence for our basis. Now, can we have a modified report? Yes, we can other than adverse opinion. We'll talk about those in a separate session. So I just showed a clean report and an adverse report. Sometime you might have to modify the report for other reasons. We'll have a separate session for that. I just want to keep it clean. The next thing I'm going to do, I'm going to look at the issuers report. Again, for the issuer, I will have a clean opinion and maybe an adverse opinion. Then we'll talk about the various other modification. What should you do now? Go to Farhat Lectures and do what? Work multiple choice. Look at additional resources that's going to help you prepare for the CPA exam and understanding an integrated audit. Integrated audit is important. It's a topic that's tested. Good luck. Study hard.