Question

Prepare a 250 word count summary of the professions (auditors) professional standards and the formation of an audit opinion.

Answer 1

Answer

Professional standards

The AICPA is a non-profit organization that sets professional requirements for CPAs. It conducts research and publishes material on many subjects relating to auditing, management, accounting and taxes.

The purpose of the statements on Standards for Attestation Engagements is to provide a framework for the development of standards for attestation engagements. Detailed standards have been developed for specific types of attestation services, such as reports on prospective financial information in forecasts and projections.

International Standards on Auditing (ISA) are professional standards issued by International Federation of Accountant (IFAC) through the International Auditing and Assurance Standard Board (IAASB) who issued several types of pronouncement variety of attestation functions and audits. As a result of efforts made by the U.S. Auditing Standards Board to converge U.S. GAAS with international standards, GAAS and ISA are the same in most areas.

Formation of an audit opinion

The principal matters which auditors consider in forming an opinion may be summarized in three questions.

➢Have they completed all procedures necessary to meet auditing standards and to obtain all the information and explanations necessary for their audit?

➢Have the financial statements been prepared in accordance with applicable accounting requirements?

➢Do the financial statements, as prepared by the directors present fairly, (or give a true and fair view)?

Qualified opinion- The auditor concludes that misstatements are material, but not pervasive, to the financial statements.- The auditor cannot obtain sufficient appropriate audit evidence on which to base the opinion but concludes that the possible effects of undetected misstatements, if any, could be material but not pervasive.- A qualified opinion must be expressed in the auditor’s report in both of the cases referred to above.

Adverse opinions- An adverse opinion is expressed when the auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements are both material and pervasive to the financial statements.

Disclaimer of opinion- An opinion must be disclaimed when the auditor cannot obtain sufficient appropriate audit evidence on which to base the opinion and concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive

Summary-The following table summaries the different types of modified opinion that can arise

Nature of circumstances	Material but not pervasive	Material and pervasive
Financial statements are materially misstated.	QUALIFIED OPINION	ADVERSE OPINION
Auditor unable to obtain sufficient appropriate audit evidence.	QUALIFIED OPINION	DISCLAIMER OPINION