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Explain why auditors’ reports are important to users of financial statements and why it is desirable to have standard wording. : Auditor's reports are important to users of financial statements because they inform users of the auditor's opinion as to whether or not the statements are fairly stated or whether no conclusion can be made with regard to the fairness of their presentation. Users especially look for any deviation from the wording of the standard unqualified report and the reasons and i
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Comparability refers to items such as changes in estimates, presentation, and events rather than changes in accounting principles. For example, a change in the estimated life of a depreciable asset will affect the comparability of the statements. In that case, no explanatory paragraph for lack of consistency is needed, but the information may require disclosure in the statements.
are extremely material, in which case a disclaimer or adverse opinion would be used. An adverse opinion states that the auditor believes the overall financial statements are so materially misstated or misleading that they do not present fairly in accordance with GAAP the financial position, results of operations, or cash flows. A disclaimer of opinion states that the auditor has been unable to satisfy him or herself as to whether or not the overall financial statements are fairly presented because of a significant limitation of the scope of the audit, or a non-independent relationship under the Code of Professional Conduct between the auditor and the client.
Disclaimer Material physical inventories not observed and the inventory cannot be verified through other procedures. Lack of independence by the auditor. Adverse A highly material departure from GAAP. Qualified Inability to confirm the existence of an asset which is material but not extremely material in value.
standards and report the findings of the audit in the auditor's report.
Sales Accounts Payable Retained Earnings Accounts Receivable Inventory Repairs & Maintenance Sales & Collection Acquisition & Payment Capital Acquisition & Repayment Sales & Collection Inventory & Warehousing Acquisition & Payment
Fixed asset repair is recorded on the wrong date. Repair is capitalized as a fixed asset instead of an expense. Timing Classification
Relevance Trace inventory items located in the warehouse to their inclusion in the inventory subsidiary records Independence of provider Confirmation of a bank balance Effectiveness of client's internal controls Use of duplicate sales invoices for a large well-run company Auditor's direct knowledge Physical examination of inventory by the auditor Qualifications of provider Letter from an attorney dealing with the client's affairs Degree of objectivity (^) Count of cash on hand by auditor Timeliness Observe inventory on the last day of the fiscal year
determining the fair presentation of the financial statements. : Analytical procedures are useful for indicating account balances that may be distorted by unusual or significant transactions and that should be intensively investigated. They are also useful in reviewing accounts or transactions for reasonableness to corroborate tentative conclusions reached on the basis of other evidence.