welcome back we're now going to try a new area
and this is reports on comparative financials
in essence most of us are used to seeing this its last years and this year's
so for the most part that's easy but what happens when last year's opinion
is a different opinion than this year's opinion last year was a
modified this year's is an unmodified
or last year was a review in this year's an audit
or last year was anointed in this year is already or last year was audited by
somebody else and this year we're auditing there
those are the little issues how do you handle OES
because they are sore so frequently occurring in the real world
that we have to know how to address them and that's what this portion is about so
let's take a look
let's start out by highlighting reports on comparative financial statements
and would you go down to number two reporting
with different opinions last year's opinion this year's opinion are two
different ones
notice here we're gonna happen unmodified prior year with the current
year
qualified okay let's just look at this notice again
so far management's responsibility for the financials
notice here again I would say management is responsible for the preparation of
the financials
in accordance with accounting principles generally accepted in the United States
this includes designing implementing
and maintaining there's mister damn management responsible mister damn
relevant to the preparation other financial statements
that are free of material misstatement due to fraud or
error then we have the auditor's responsibility paragraph okay so
pretty much the same thing there but go to the next page
here's where there's a difference and the difference is going to apply it as
we believe that the audit evidence we have obtained a sufficient to obtain
or to provide a basis for our qualified opinion
that's because it's this year qualified the basis for the qualified opinion is
given
and then here's where the big differences
in our opinion and underscore except for the effects on the
X one financial statements just underscore that
%uh not capitalizing certain obligations as described in the basis for qualified
opinion para
the financial statements referred to above present fairly
sewing underscore present fairly so notice its except for
and specifically the one year that it applies to
all right now let's go down to take another example
on modified current year with a disclaimer
on the prior-year statements %uh income changes in stockholders equity
and cash flows so I modify current year
with disclaimer on prior year statements
because again we didn't know the beginning inventory which obviously has
that cost a good soul kinda by
so again you have your management responsibility you have your
auditor's responsibility but watch out this one changes just a little bit
our responsibility is to express an opinion on these financial based on our
audit
underscore except as explained in the basis for a disclaimer of opinion
I cuz you're gonna say hey there's a will there's a little bit of an
exception wanted the periods
in the comparatives were not expressing an opinion I let's go to the next page
this next paragraph down we believe
that the audit evidence we have obtained is sufficient and appropriate to obtain
or to provide a basis for our opinion on the balance sheet as a
X a December 31st x2 x1
and the income statement and the income and changes
equity and cash flows for only the one-year notice it's not both years
so you might wanna put down X that just for reference a
put down to I'll x1 and put a big
X through it so you know that that was omitted right not that year
now underscore
basis for disclaimer of opinion 2000 x1 operations and cash flows
and then underscore this is well we did not observe
the taking at the physical inventory at December 31st
x0 that said the rest and we don't have to worry about
now notice here the disclaimer opinion
because I love and I'm an underscore that
the significance of the matter described in the disclaimer of opinion paragraph
and underscore that
and that happens to be what we just saw about you might wanna arrow it up
we were not able to obtain sufficient appropriate audit evidence to provide a
basis
for an audit opinion on the results of operations cash flows for the year ended
x1 accordingly
and underscore this we do not express an opinion on the results
operations and cash flows for the year then ended
December 31st x1 I
out at the margin this is like a Scott limitation put that down
which is a gas problem which ultimately means it's a disclaimer of opinion
when you didn't audit like a stop limit which is a gas problem
which is a disclaimer of opinion I want you made that note lets go to the top of
the next page
where we have the passkey
and note on the second
you can see it even says the auditor is in essence facing
Scott limitation alright here's a second problem that we could not come up with
income parents updating changing the prior opinion but I like that
we have a little demonic that will hopefully help you
one that I've been using with candidates for all ghetto 10-15 years now
and it's worked quite well we like to tell people
only dorks change their mind so only dorks change in opinion from the past
dorks d 0 RCS let's take a look and see what that's all about
in the bubbles you have D I'll
RCS and what you have to put in is you have to put the date
up the audit up the auditors previous report
which was last year the opinion that was previously issued
the reason for the
prior opinion what was the problem the changes that have occurred
and a statement that the opinion is different
so this is updated changed opinions
I and why did you put that down in the notes over there on the margin updated
slash
changed opinion an example that might be that in the previous period they were
not in conformity with gap
and now they succumb to the pressure of you better get it right
so they went back to last year's and they put in the necessary additional
disclosures
or unnecessary additional journal entries or whatever it was
so another bullet point you might want to put down his when now
they are in conformity with gap an underscore the word now
when now they are in conformity with gap the example of this
at the bottom again the bubbles dorks d I'll
are CS and you will underscore the word
for snowball its in our report
underscored aidid March 1 x1 there's the D-day
we expressed and opinion
underscore the world opinion that those financials did not present
fairly the financial position results of operations cash flows on ABC
in accordance with accounting principles generally accepted in the United States
because underscore the word because there's your reasons
here's your reasons up to departures from the principles blah blah blah blah
blah blah blah blah
okay now it out a little further as described in Note
X the company has changed underscore the company has changed
there's your changes made in its method accounting for these items related to
those financials
so now they are in conformity with accounting principles generally accepted
in the United States of America
accordingly and underscore our
present opinion here's the statement is different
and underscores different there's your statement that your updating
your opinion
writer next page prior period financials
are audited by a previous order predecessor order
but I like that and then highlight a report
up the predecessor auditor presented underscore the word presented
I now out in the March I want you to put a bracket around one
through for put a bracket around 1 through 4
and out at the margin put prior and then in parentheses
all CPA should prior
all CPA should is what the alt CPA who's no longer involved should do
when their audited financials will be editor hours
for comparative purposes 1 and what I like this
read the statements for the current period see if there's anything that
jumps out that says wow
when that happened I should look at mine to compare the statement audited
with the current period statements 3
obtain a letter of representation from the successor auditor
and by the way underscore successor auditor
you want to have the successor auditor tell you that they are not aware of
anything
you missed and the number for inquirer
all and obtain a letter of representation from management ass
management are you aware
have anything that I might have missed so only after all of those four steps
what the all auditor allow the presentation of their report
in comparison to the new year with the new water now
number five highlight date the report as appropriate if the
alt auditor's report is unrevised highlight that
use the original date any reissue
its revised highlight dual
dating so do all dating so
in Roman numeral for here we had prior period financial audited by the
predecessor auditor
reported the predecessor auditor presented and underscore the word
presented
you then put brackets around the four items the prior all the auditor should
do these
and how they would aid right now letter B
the report the predecessor auditor is not
reissue not presented so underscore
not reissued a few highlighted that can go to the second line
and highlight the successor auditor should express an opinion on the current
period financial statements
only and indicate in an other
matters paragraph underscore other matters paragraph as well
now put a bracket around 1 through 4
and out the margin put current
new CPA should current
new CPA should
k what should they do well
but I like one through four again in the other matters paragraph that the
financial statements the prior period were audited by a predecessor auditor
the predecessor auditor should not be named remember unless
the practice up the predecessor was acquired
by or merged with that the successor the type opinion expressed by
his predecessor auditor and if the opinion was modified
the reason for any modification the nature and any
emphasis of matter or other matters paragraph including the predecessor
auditor's report
and the date the predecessors waters
report
I will what happens in Roman numeral five if the
prior period financial were not audited
and again let's underscore after you highlighted that
not audited well what happens if the prior
highlight prior period statements review or compiled
now those terms are terms we're going to discuss much more
in detail in auditing till well go down to the third line and highlight the
auditor should include
and other matters paragraph I
and what you gonna do let's highlight one through four as we read them
the service whether it's reviewer compilation performed in the prior
period
the day the prior period report called a reviewer compilation
a description of any material modifications described in that report
and a statement that the service was less
in scope than audit and does not provide the basis for expressing an opinion on
the financial
statements so although should be highlighted
and by the way I would also emphasizing underscore
less in scope than audit and then don't same kinda thought process
letter be prior statements were not audited nor were they were viewed or
compile
go down to the second line over to the right
and highlight including other matters paragraph once again list underscore
that as well
to indicate that the auditor did not audit reviewer compile the prior
statements
and that the order assumes no responsibility for them
and underscored no responsibility
alright on the next slide or page I should say
you can see that we have again opinion
writing form summary audit opinions comparatively
different opinions comparative with updated opinions and you can see we have
all the items this is kinda nice summer you can see mister damn
reports crime you can see the dorks over there on the far right
all these are just a brief summary of how you would address
all those items that we just looked at over the last fifteen pages ourselves so
it's a nice summary
that you can utilize in reviewing your notes before you're ready to sit
and pass the auditing section exam I once you concluded
looking that over you're ready to try some more multiple choice questions
good
all right in this question it says under which in the following circumstances:
what a disclaimer that opinion not
be appropriate now notice the hole up the question
the call it the question in this particular item
was which one is not so several love these are
several love these
are going to be disclaimers which one is not
appropriate notice order
unable to determine that a disclaimer but look at me
management does not provide reasonable justification for a change
in accounting principles that said ap problem that would be a qualified
or adverse disclaimer would never be the one see
client refuses audit problem and again the client unwilling to sign the
manageress
that's an audit problem so again those would all be
possible disclaimers be is the
when reporting on
angelos and auditor ordinarily should change the previously issued opinion
on the prior year's financials if any answers a
at the prior year's financials are restated to conform with generally
accepted accounting principles
so again you would change your opinion and obviously that's fine because they
made a change
that now fixes what use
comparative financial statements included in the prior-year statements
that were audited by the predecessor auditor whose report is
not presented if the predecessor
report was on modified in other words it was fine
the successor should where do we report this
in other matters paragraph right not an emphasis on matters but in an
other matters so letter C indicate in an other matters paragraph that the
predecessor auditor
expressed in unmodified opinion on the prior-year financials
notice you don't need to obtain a a red letter from the predecessor auditor
that's it
their report is presented what they have to do that's where a lot of people miss
that one
so the correct answer is