 Hello and welcome to the session. This is Professor Farhad and the session will look at parts of standard unmodified audit opinion report for specifically non-public companies. Every time we are done on public companies it means we are dealing with the AI CPA. This topic is typically covered in an auditing and attestation course and obviously on the CPA auditing exam. As always I would like to remind you to connect with me on LinkedIn if you haven't done so. YouTube is where you would need to subscribe. I have 1600 plus accounting, auditing, tax and finance lectures. If you like my lectures please like them, share them, put them in playlists. If they benefit you it means they might benefit other people so share the wealth and please connect with me on Instagram. On my website you'll have additional resources, additional lectures, additional PowerPoint slides about auditing and if you're studying for your audit exam 500 plus CPA questions I strongly suggest you check out my website for additional resources if you are serious about passing the exam. So what I'm going to do with the audit report I'm going to break it down into eight components which is those are the eight components of the audit reports anyhow. We're going to go through it step by step then I will you know and I would reveal the audit report. The first part is the title. The report title should include the word independent so that's the first that's the first part. Why the word independent because remember the auditor is passing an opinion so for the opinion to be relevant for the opinion to convey credibility you have to be independent from the client so it has to say independent auditor's report so that's the first part. The second part who is the audit report addressed to usually it's the stockholders and the board of directors not management again to convey independence because if you are reporting to management and auditing management your independence might be might be jeopardized so that's why we we address the report to the board of directors or to the stockholders basically the stockholders and elect the board of directors and in the situation to general ring company. The third component which is this used to be the last component in the old report so this is the new report goes the auditor's opinion so notice let's at the beginning of the report basically okay it used to be at the at the end of the report well the AI CPA thought that it's since the opinion is important you want to put it first rather than last so this is this is the auditor's conclusion what the auditor thinks about the report so let's take a look at this and see what do they say in their opinion okay we have audited the financial statements of ring company which compromise the comprise the balance sheet as of December 31st 2019 and 2018 first they tell you which financial which financial statements they're auditing and the related statement of income changes of equity cash flow for the year ended as well and notice it's comparative now here comes the opinion and our opinion and our opinion but before we go to the opinion notice that they explicitly said we audited audited means we did not issue a compilation we did not we did not conduct a review we audited because audit has a higher assurance level than compilations in the review okay now in our opinion this is important this is where the auditor comes and talks about what did they find in their opinion the financial statements present fairly what does it mean present fairly it means they follow the guidelines that that we used whatever it's us gab or IFRS they present fairly in all material respect the financial position of the corporation as of December 31st and as a result its operation of cash flow for the year ended in accordance with except generally accepted accounting principle of the united states so they're using the us us gap us gap so this is the basically this is the most important this is the most important why because when you look when we when we think of the audit report we think of the opinion that's what we think of so that's why the opinion is extremely important okay now remember this opinion is not absolute this it's a reasonable it's based on a reasonable basis okay so they have to tell you which framework they use they use us gap now how did they come up with that opinion basis for the opinion so what did they do to come up with that opinions that's in the fourth paragraph so this is the fourth paragraph in the fourth paragraph they talk about the basis of the opinion we conducted our audit in accordance with what did they use auditing standard generally accepted in the us basically what we called gas g a a s g a a s gas so that's what they followed obviously gas our responsibility with those standards are further described in the auditor responsibility so they're gonna tell us what they're gonna talk a little bit more about what was the responsibilities what did they do we are independent again they mentioned this word independent repeatedly that's that's important of the company and we have fulfilled other ethical responsibilities in according with the relevant ethical requirement related to our audit so we follow ethical standard we believe that the audit evidence we have obtained is sufficient and appropriate those are keywords to provide a basis for our opinion so what is sufficient and appropriate well we will learn about this when we look at the evidence but we're saying here that we have enough evidence to issue our opinion so the basis of our opinion is we follow gas that those are the techniques we collected enough evidence sufficient and appropriate not enough sufficient and appropriate to provide a basis and we are independent from the company so this is how we came up with our opinion the fifth the fifth one is the fifth part of it is management responsibility and this is important we want to know what is the management responsibility okay we're auditing the financial statements we told you our basis but what's management responsibility so this is important okay management is responsible for the preparation and fair presentation of the financial statements in according with gap so management prepare the financial statements also management responsible for the design implementation and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free of material misstatement whether due to error or fraud so basically what we're saying is and this is important that you get tested a lot about this concept who's responsible for the financial statements management is responsible for the financial statements all we're doing is we're issuing an opinion okay so in preparing the financial statements management is required to evaluate whether conditions or event is considered an aggregate that reception substantial doubt about the company's ability to continue as a going concern also management will have to assess if there's any going concern issue are we going to be in business in the foreseeable future the management will have to decide that now auditor can't pass a judgment on that but that's the management assessment that's the management assessment the going concern assessment so it's very important that the financial statements are the management responsibility then in number six we're going to look at the auditor's responsibility now this is important so what is the auditor responsibility we know that management basically responsible for for preparing the financial statements so what is the auditor responsibility in all of this the first thing we have to say is what did we do what's our auditor responsibility our objective is to maintain reasonable reasonable means not absolute assurance whether the financial statements as a whole are free from material nervous material not all the statement whether those statements are due to fraud or errors and to assure an auditor's report that include our opinion so reasonable assurance we're using reasonable assurance to assure an opinion what is reasonable assurance is a high level of assurance but not absolute we can be 100 sure therefore it's not guaranteed that an audit conducted in according with gas will always deduct material misstatement so what they're saying here is look it's reasonable assurance we followed gap but we cannot guarantee there are no errors so the risk of not detecting a material misstatement resulting from fraud is higher than the one resulting from errors and what they're telling us here is if there is a fraud issue the fraud will be higher to detect because the fraud may involve collusion forgery intentional emission misrepresentation or the override of internal control so they're just warning us that if there's any fraud it will be harder for us to catch the fraud because the error if somebody made an error they don't try to cover it okay but the fraud you know part of it is try to cover the error okay material statement are considered material if individually or an aggregate they could reasonably be expected to influence the economic decision of the users made on the basis of these financial statements now what is materiality we'll talk about materiality later on so within this section we have this is the first paragraph the second paragraph they again they they specifically spell out how they conducted the audit so again we're still we're still in paragraph 6 but it's basically broken down and I'm going to break it down into three categories so we looked at the first one talking about reasonable assurance and opinion now basically we're going to look at the scope and performing an audit in according with gas what did we do we use professional judgment and exercise professional skepticism we were on the lookout we're all we had a questioning mind we did not let things slip through we identify and assess the risk of material in the statement of the financial statements whether it's it's due to error or fraud and design and perform audit procedures responsive to those risks such procedure include examining on a test basis we didn't look at everything evidence regarding the amount and disclosure of the financial statement here the auditor is basically spelling out exactly what they did we also obtain an understanding of the internal control relevant to the audit in order to in order to design audit procedure that are appropriate in the circumstances so we obtain the understanding so we can audit and not for the purpose so notice here we they explicitly said not for the purpose of issuing expressing an opinion on the effectiveness so we collected this information about the internal control not not to express an opinion but to make sure we can design audit procedures to test those control but we're not expressing an opinion okay we're in order to audit procedure that are appropriate in the circumstances to be able to learn about the company but not to express an opinion that's important we also evaluate we also evaluate the appropriateness of accounting policies used and reasonable of significance accounting estimate made by judgment management remember management makes those judgment selecting the accounting policies principles making significant estimate but we can evaluate those okay and also we evaluated the overall presentation of the consolidated financial statement okay conclude whether in our judgment there are conditions or event considered in the aggregate that very substantial doubt about the general rank ability to continue as a going concern within one year we also did this uh this going concern judgment we also looked at remember management look management uh management raises substantive management look at the going concern assumption and the auditor also evaluated that going concern assumption as well and the third paragraph within the auditor responsibility they tell us that they are required to communicate with those charged with the governance regarding among other matters the planned scope and timing of the audit significant audit finding and the internal control related matters identified during an audit so they're telling us also that they do communicate with the board of directors about certain issues about planned and scope and timing of the audit significant finding so on and so forth so they tell you this the seventh part of the audit report is the signature and address of the audit firm the signature Anderson and Zinder PC CPA and in what city they are located so they tell us where are they located in the name of the firm rather than the name of the individual rather than the name of the individual because technically the firm is responsible not the individual that conducted the audit that conducted the audit in the last part is the date this is the eighth part and the date is February 15th 2020 the audit report date that date the auditor has obtained sufficient and appropriate evidence now remember the financial statements are as of December 31st so it took them a month and a half all of January and half of February to issue those financial state to issue the report and it's the date is important why because what we're saying is we are responsible up to until February until February the 15th so we were looking for material unrecorded transaction that occur up to February the 15th that's what they're saying here so that's important so those are the eight parts of an unmodified audit opinion so it's very important that you are familiar with the audit report with the format of the audit report because on the CPA exam they do ask you what goes where and this is a new audit report the old one they used to have the opinion this opinion here the last the last so this is I broke that into two powerpoint slides because it's a long report in the next session what we would look at is condition for standard unmodified audit opinion so when when can we issue this unqualified standard unmodified audit opinion as always I would like to remind you if you like my lectures please like them go ahead and click on the like button it 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