Audit Report Modifications
Karissa Johnson
ACC410 Auditing
Instructor: Brenda Forde
November 18, 2013
Audit Report Modifications Audit report modifications are applied when the auditors come across a scope limitations, a deviation from generally accepted accounting principles, a problem with the application of methods, or deficient financial statement disclosures. At any time when the auditor conveys an opinion that is not qualified, a clear description of all the applicable reasons should be included in the report and unless impracticable, a quantification of the possible effects on the financial statements. 1. In auditing the long-term investments account, an auditor is unable to obtain audited financial statements for an investee located in a foreign country. The auditor concludes that sufficient appropriate audit evidence regarding this investment cannot be obtained. F. Either a disclaimer of opinion or an "except for" qualified opinion. L. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph, and modify the scope and opinion paragraphs. This is a scope limitation since the auditor is unable to obtain audited financial statements for an investee, so therefore it requires either a qualified opinion or a repudiation of opinion liable on the assessment of the importance of the scope limitation. 2. Due to recurring operating losses and working capital deficiencies, an auditor has substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time. However, the financial statement disclosures concerning these matters are adequate. B. An unqualified opinion. I. Describe the circumstances in an explanatory paragraph following the opinion paragraph without modifying the three standard paragraphs. Considerable doubt about an entity's capability to continue as a going concern needs either an unqualified opinion with an explanatory paragraph, or a disclaimer. When an unqualified opinion is voiced, the proper modification of the report is an explanatory paragraph that should follow the opinion paragraph. 3. A principal auditor decides to take responsibility for the work of another CPA who audited a wholly owned subsidiary of the entity and issued an unqualified opinion. The total assets and revenues of the subsidiary represent 17 percent and 18 percent, respectively, for the total assets and revenues of the entity being audited. B. An unqualified opinion. O. Describe the circumstances within the opinion paragraph without adding an explanatory paragraph. A standard unqualified opinion is suitable because the principal auditor decided to take accountability for the work of another CPA. 4. An entity issues financial statements that present financial position and results of operations but omits the related statement of cash flows. Management discloses in the notes to the financial statements that it does not believe that statement of cash flows to be a useful financial statement. A. An "except for" qualified opinion. J. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph, and modify the opinion paragraph. Since the entity distributed financial statements that present financial positions and results of operations, but excluded the related statement of cash flows, the auditor would provide a qualified
