Becker Professional Education

Auditing Course Updates—June 2019

The purpose of this document is to provide you with a list of items that have been updated in the June
2019 Auditing textbook version (V 3.4).

Becker students who have an Auditing version 3.3 textbook may purchase the new version 3.4 textbook
for a nominal cost. Please see the Becker website for more details.

Table of Contents

Updates 2
Replacement Textbook Pages 3
V 3.4 A1 Module 4 pp. 21–27 4
V 3.4 A1 Module 5 pp. 35–38 11
V 3.4 A1 Module 6 pp. 45–49 15
V 3.4 A1 Module 8 pp. 62–63; 71 20
V 3.4 A2 Module 7 pp. 49–51 23
V 3.4 A3 Module 6 pp. 49–52 26
V 3.4 A3 Module 9 p. 89 30
V 3.4 A5 Module 2 p. 25 31
V 3.4 A5 Module 7 pp. 74–75 32
V 3.4 A6 Module 1 p. 6 34
V 3.4 A6 Module 5 pp. 46–47 35
V 3.4 A6 Module 6 pp. 60–62 37

1
 Becker Professional Education
Auditing Course Updates—June 2019

Updates

Below are minor updates to the Auditing version 3.4 textbook.

Unit
Location Update
(and Module)
Added a bullet under 6.2:
A2 M1 p. A2–11 • Evaluate the engagement team's determination,
communication, and documentation of critical audit
matters.
Added a sentence under 2.2.6:
A2 M5 p. A2–38 In addition, an auditor may reference the specialist if it
helps the users understand a critical audit matter.
Added a bullet under 2.3:
A6 M4 p. A6–34 • The entity's ability to continue as a going concern (and,
if applicable, management's plans to mitigate the going
concern issue)
A6 M5 pp. A6–41, 42, 43 Deleted references to going concern issues.

Under 2.3.1, modified the second-to-last bullet to read:

A6 M6 p. 54 • The entity's ability to continue as a going concern (and,
if applicable, management's plans to mitigate the going
concern issue).

2
 Becker Professional Education
Auditing Course Updates—June 2019

Replacement Textbook Pages

Below are details on the replacement textbook pages included in the remainder of this document.

V 3.4 Location V 3.3 Location Description of Update

A1 Module 4 A1 Module 4 Addition of critical audit matters (CAMs) to issuer audit
pp. 21–27 pp. 21–25 reports, per PCAOB Release No. 2017-001.
A1 Module 5 A1 Module 5 Addition of critical audit matters (CAMs) to issuer audit
pp. 35–38 pp. 33–36 reports, per PCAOB Release No. 2017-001.
A1 Module 6 A1 Module 6 Addition of critical audit matters (CAMs) to issuer audit
pp. 45–49 pp. 43–47 reports, per PCAOB Release No. 2017-001.
A1 Module 8 A1 Module 8 Addition of critical audit matters (CAMs) to issuer audit
pp. 62–63; 71 pp. 60–61; 69 reports, per PCAOB Release No. 2017-001.
A2 Module 7 A2 Module 7 Addition of details on Audit Data Analytics (ADAs).
pp. 49–51 p. 49
A3 Module 6 A3 Module 6 Addition of details on Audit Data Analytics (ADAs).
pp. 49–52 pp. 49–51
A3 Module 9 A3 Module 9 Addition of details on Audit Data Analytics (ADAs).
p. 89 p. 87
A5 Module 2 A5 Module 2 Addition of critical audit matters (CAMs) to issuer audit
p. 25 p. 25 reports, per PCAOB Release No. 2017-001.
A5 Module 7 A5 Module 7 Addition of details on GAGAS performance audits,
pp. 74–75 pp. 74–75 including 2018 Revision of Yellow Book.
A6 Module 1 A6 Module 1 Updates related to SSARS 24.
p. 6 p. 6
A6 Module 5 A6 Module 5 Updates related to SSARS 24.
pp. 46–47 pp. 44–45
A6 Module 6 A6 Module 6 Updates related to SSARS 24.
pp. 60–62 pp. 58–60

3
AUD 1 4 Unmodified (Unqualified) Opinion

2 Unqualified Audit Opinion (Issuers)

The auditor of an issuer should express an unqualified opinion when the auditor concludes that
the financial statements are presented fairly, in all material respects, in accordance with the
applicable financial reporting framework (e.g., generally accepted accounting principles). The
report should be in writing.

2.1 Contents of the Audit Report

The basic elements of the unqualified audit opinion are the following:

Unqualified Opinion: Issuer

Title The report must include the title, "Report of Independent Registered Public
Accounting Firm."

Addressee The report must be addressed to the shareholders and the board of directors. It
generally is not addressed to management.

Opinion The first section of the auditor's report must include the section title, "Opinion on the
Section Financial Statements," and the following elements.
yyThe name of the company whose financial statements were audited.
yyA statement identifying each financial statement and any related schedule that has
been audited.
yyThe date of, or period covered by, each financial statement and related schedule
identified in the report.
yyA statement indicating that the financial statements were audited.
yyAn opinion that the financial statements present fairly, in all material respects,
the financial position of the company as of the balance sheet date and the results
of its operations and its cash flows for the period then ended in conformity with
the applicable financial reporting framework. The opinion should also include an
identification of the applicable financial reporting framework (e.g., GAAP).

© Becker Professional Education Corporation. All rights reserved. Module 4 A1–21

4 Unmodified (Unqualified) Opinion AUD 1

Basis for The Basis for Opinion section contains the following:
Opinion
Section
yyA statement that the financial statements are the responsibility of the company's
management.
yyA statement that the auditor's responsibility is to express an opinion on the financial
statements based on the audit.
yyA statement that the auditor is a public accounting firm registered with the PCAOB
(United States) and is required to be independent with respect to the company
in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the SEC and the PCAOB.
yyA statement that the audit was conducted in accordance with the standards of
the PCAOB.
yyA statement that PCAOB standards require that the auditor plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud.
yyA statement that the audit included:
——performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures
that respond to those risks;
——examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements;
——evaluating the accounting principles used and significant estimates made by
management; and
——evaluating the overall presentation of the financial statements.
yyA statement that the auditor believes the audit provides a reasonable basis for the
auditor's opinion.

Critical Audit The auditor's report must include the section entitled "Critical Audit Matters" and should
Matters include discussion of any critical audit matters (CAMs) arising from the current period's audit
of the financial statements, or state that the auditor determined that there were no CAMs.

Signature, The audit report must include:

Tenure, yyThe signature of the audit firm.
Location
yyA statement containing the year the auditor began serving consecutively as the
company's auditor.
yyThe city and state (or country) from which the report was issued.
Report Date The date of the audit report must be included in the report.
yyThe report should be dated on or after the date on which appropriate audit
evidence, sufficient to support the opinion, has been obtained. Sufficient appropriate
audit evidence includes evidence that:
——audit documentation has been reviewed;
——financial statements have been prepared; and
——management has taken responsibility for the financial statements.
yyThe report date shows the final date of the auditor's responsibility.
yyFor comparative statements, the date appropriate for the most recent audit should
be used.

A1–22 Module 4 © Becker Professional Education Unmodified (Unqualified)

Corporation. All Opinion
rights reserved.
AUD 1 4 Unmodified (Unqualified) Opinion

2.1.1 Sample Report: Unqualified Opinion (Issuer)

Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors of X Company:
Opinion on the Financial Statements
We have audited the accompanying balance sheets of X Company (the "Company") as of
December 31, 20X2 and 20X1, the related statements of income, comprehensive income,
stockholders equity, and cash flows for each of the years then ended, and the related notes
and schedules (collectively referred to as the "financial statements"). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 20X2 and 20X1, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles generally accepted
in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the Company's financial statements based on
our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement
of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period
audit of the financial statements that were communicated or required to be communicated
to the audit committee and that: (1) relate to accounts or disclosures that are material to
the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our
opinion on the financial statements, taken as a whole, and we are not, by communicating
the critical audit matters below, providing separate opinions on the critical audit matters or
on the accounts or disclosures to which they relate.
[Include critical audit matters]
[Signature]
We have served as the Company's auditor since [year].
[City and state or country]
[Date]

© Becker Professional Education Corporation. All rights reserved. Module 4 A1–23

4 Unmodified (Unqualified) Opinion AUD 1

2.1.2 Critical Audit Matters (CAMs): Definition and Identification

The auditor's report must include any critical audit matters (CAMs) arising from the current
period's audit of the financial statements, or state that the auditor determined that there were
no CAMs. It is expected that, in most audits, the auditor would identify at least one CAM.
A critical audit matter is defined as a matter that was communicated or required to be
communicated to the audit committee and that:
1. relates to accounts or disclosures that are material to the financial statements; and
2. involved especially challenging, subjective, or complex auditor judgment.
When determining whether a matter involved especially challenging, subjective, or complex
auditor judgment, the auditor takes into account certain factors, including the auditor's
assessment of the risks of material misstatement, areas of significant judgment or estimation by
management, nature and timing of unusual transactions, the degree of subjectivity in applying
audit procedures, and the extent of specialized skill or knowledge regarding a matter.

2.1.3 Reporting Language if CAMs Are Identified

The following language, including the section title "Critical Audit Matters," should precede critical
audit matters communicated in the auditor's report:

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period
audit of the financial statements that were communicated or required to be communicated
to the audit committee and that: (1) relate to accounts or disclosures that are material to
the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our
opinion on the financial statements, taken as a whole, and we are not, by communicating
the critical audit matters below, providing separate opinions on the critical audit matters or
on the accounts or disclosures to which they relate.
[Include critical audit matters]

For each CAM identified, the audit report should include:

  identification of the CAM;
  description of the principal considerations that led the auditor to determine that the matter
was a CAM;
  description of how the CAM was addressed in the audit; and
  reference to the relevant financial statement accounts or disclosures .

Pass Key

For each CAM, make sure you Identify it on a PAD of paper.

A1–24 Module 4 © Becker Professional Education Unmodified (Unqualified)

Corporation. All Opinion
rights reserved.
AUD 1 4 Unmodified (Unqualified) Opinion

2.1.4 Reporting Language if No CAMs Are Identified

In situations in which the auditor determines that there are no critical audit matters, the auditor
should include the following language, including the section title "Critical Audit Matters," in the
auditor's report:

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial
statements that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective, or complex judgments.
We determined that there are no critical audit matters.

2.1.5 Other Reporting Requirements for CAMs

  Language that could be viewed as disclaiming, qualifying, restricting, or minimizing the
auditor's responsibility for the critical audit matters or the auditor's opinion on the financial
statements is not appropriate and may not be used.
  When describing critical audit matters in the auditor's report, the auditor is not expected to
provide information about the company that has not been made publicly available by the
company unless such information is necessary to describe the principal considerations that
led the auditor to determine that a matter is a critical audit matter or how the matter was
addressed in the audit.
  When the current period's financial statements are presented on a comparative basis with
those of one or more prior periods, the auditor may communicate critical audit matters
relating to a prior period. This may be appropriate, for example, when (1) the prior period's
financial statements are made public for the first time, such as in an initial public offering,
or (2) issuing an auditor's report on the prior period's financial statements because the
previously issued auditor's report could no longer be relied upon.
  Communication of critical audit matters is not required for audits of (1) brokers and dealers
reporting under Exchange Act Rule 17a-5; (2) investment companies registered under the
Investment Company Act of 1940 ("Investment Company Act"), other than companies that
have elected to be regulated as business development companies; (3) employee stock
purchase, savings, and similar plans; and (4) emerging growth companies.

2.1.6 Documentation of CAMs

For each matter arising from the audit of the financial statements that:
1. Was communicated or required to be communicated to the audit committee; and
2. Relates to accounts or disclosures that are material to the financial statements,
the auditor must document whether the matter was determined to be a CAM and the basis for
such determination.

© Becker Professional Education Corporation. All rights reserved. Module 4 A1–25

4 Unmodified (Unqualified) Opinion AUD 1

2.1.7 Management Reports on Internal Control Over Financial Reporting

(Issuer Only)
When management is required to report on the company's internal control over financial
reporting but such report is not required to be audited, and the auditor has not been engaged
to perform an audit of management's assessment of the effectiveness of internal control over
financial reporting, the auditor must include statements in the auditor's report in the Basis for
Opinion section that:
  The company is not required to have, nor was the auditor engaged to perform, an audit of
its internal control over financial reporting;
  As part of the audit, the auditor is required to obtain an understanding of internal
control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the company's internal control over financial reporting; and
  The auditor expresses no such opinion.
Note: Most issuers are required to have an integrated audit, which means that an additional
opinion is rendered on the operating effectiveness of internal control. The auditor's report for
the integrated audit of an issuer is described in A5.

Pass Key

When the examiners require CPA candidates to respond to questions concerning the
unqualified audit opinion (issuer), you must remember:

PCAOB Auditing Standards Basis for Opinion section

GAAP (U.S. or other applicable Opinion on the Financial
financial reporting framework) Statements section

3 Required Auditor Reporting of Certain Audit Participants

3.1 Filing of Form AP

The auditor of an issuer must file Form AP with the PCAOB for each audit report issued. This
form includes information about the audit, such as:
  Name of the firm.
  Name of the issuer whose financial statements are audited.
  Date of the audit report.
  The end date of the most recent period's financial statements identified in the audit report.
  The name of the engagement partner on the most recent period's audit and his/her current
and prior ID number(s).

A1–26 Module 4 © Becker Professional Education Unmodified (Unqualified)

Corporation. All Opinion
rights reserved.
AUD 1 4 Unmodified (Unqualified) Opinion

  The city and state (or city and country) of the office of the firm issuing the audit report.
  Whether the audit report is dual-dated.
  Whether other accounting firms participated in the audit.
  Whether the firm divided responsibility for the audit.
  Signature of partner or authorized officer.
Form AP must be filed by the 35th day after the audit report is first filed in a document with the
SEC or within 10 days if the audit report is included in a registration statement.

3.2 Optional Inclusions

Although not required, the auditor of an issuer may elect to include in the auditor's report
information regarding the engagement partner and/or other accounting firms participating in
the audit.
If the auditor decides to provide information about the engagement partner, other accounting
firms participating in the audit, or both, the auditor must disclose the following:
  The engagement partner's full name; and/or
  For other accounting firms participating in the audit, a statement that the auditor is responsible
for the audits or audit procedures performed by the other public accounting firms and has
supervised or performed procedures to assume responsibility for their work in accordance
with PCAOB standards. In addition, the auditor should include information regarding the
percentage of total audit hours the other audit firm participated in the audit.

Question 1 CPA-02764

When financial statements contain a departure from U.S. GAAP because, due to unusual
circumstances, the statements would otherwise be misleading, the auditor should express
an opinion that is:
a. Unmodified.
b. Qualified.
c. Adverse.
d. Qualified or adverse, depending on pervasiveness.

© Becker Professional Education Corporation. All rights reserved. Module 4 A1–27

AUD 1 5 Modified Opinions Due to Financial Statement Issues

3 Issuer Reports

3.1 Form and Content of Auditor's Report (Issuer)

When the auditor expresses a qualified or adverse opinion due to material misstatement of
the financial statements, the auditor's report will include an additional paragraph immediately
following the opinion paragraph and the opinion paragraph will be modified. The auditor is not
required to report critical audit matters in the auditor's report when the auditor expresses an
adverse opinion.

3.1.1 Qualified Opinion

Qualified Opinion Due to Material Misstatement

of Financial Statements: Issuer
Opinion Section The section title and first sentence are the same as the standard issuer audit report.
The second sentence is modified to include the appropriate qualifying language
(i.e., except for or with the exception of) and a reference to the paragraph that
discloses all of the qualified opinion.
Additional A paragraph should be placed immediately following the opinion paragraph. There
Paragraph(s) is no heading for this paragraph. This paragraph should include:
yyAll of the substantive reasons that lead the auditor to conclude that there has
been a departure from generally accepted accounting principles.
yyDisclosure of the principal effects of the subject matter of the qualification on
financial position, results of operations, and cash flows, if practicable.
——If the effects are not reasonably determinable, the report should so state.
——If such disclosures are made in a note to the financial statements, the
explanatory paragraph(s) may be shortened by referring to it.
Basis for Opinion Same as standard issuer audit report.
Section
Critical Audit Same as standard issuer audit report.
Matters

© Becker Professional Education Corporation. All rights reserved. Module 5 A1–35 M

5 Modified Opinions Due to Financial Statement Issues AUD 1

3.1.2 Sample Report: Qualified Opinion Due to a Material Misstatement

of the Financial Statements (Issuer)

Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors of X Company:
Opinion on the Financial Statements
We have audited the accompanying balance sheets of X Company (the "Company") as of
December 31, 20X2 and 20X1, the related statements of income, comprehensive income,
stockholders equity, and cash flows for each of the years then ended, and the related
notes and schedules (collectively referred to as the "financial statements"). In our opinion,
except for the effects of not capitalizing certain lease obligations as discussed in the following
paragraph, the financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of December 31, 20X2 and 20X1, and the results
of its operations and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
The Company has excluded, from property and debt in the accompanying balance sheets,
certain lease obligations that, in our opinion, should be capitalized in order to conform
with accounting principles generally accepted in the United States of America. If these
lease obligations were capitalized, property would be increased by $_______ and $_______,
long-term debt by $_______ and $_______, and retained earnings by $_______ and $_______
as of December 31, 20X2 and 20X1, respectively. Additionally, net income would be
increased (decreased) by $_______ and $_______ and earnings per share would be increased
(decreased) by $_______ and $_______, respectively, for the years then ended.
Basis for Opinion
[Basis for Opinion section same as standard issuer audit report]
Critical Audit Matters
[Critical Audit Matters section same as standard issuer audit report]
[Signature]
We have served as the Company's auditor since [year].
[City and state or country]
[Date]

A1–36 Module 5 Modified Opinions

© Becker Professional Education Due to Financial
Corporation. Statement
All rights reserved.Issues
AUD 1 5 Modified Opinions Due to Financial Statement Issues

3.1.3 Adverse Opinion

Adverse Opinion Due to Material Misstatement

of Financial Statements: Issuer
Opinion Section When the auditor expresses an adverse opinion, the opinion section should
state that, in the auditor's opinion, because of the effects of matters discussed
in the following paragraph(s), the financial statements do not present fairly, in
conformity with accounting principles generally accepted in the United States
of America, the financial statements.
Additional Paragraph(s) A paragraph should be placed immediately following the opinion paragraph.
There is no heading for this paragraph. This paragraph should include:
yyAll of the substantive reasons that lead the auditor to conclude that there
has been a departure from generally accepted accounting principles.
yyDisclosure of the principal effects of the subject matter of the adverse opinion
on financial position, results of operations, and cash flows, if practicable.
—If
— the effects are not reasonably determinable, the report should so state.
——If such disclosures are made in a note to the financial statements, the
explanatory paragraph(s) may be shortened by referring to it.

Basis for Opinion Section Same as standard issuer audit report.

Critical Audit Matters Critical Audit Matters section omitted.

3.1.4 Sample Report: Adverse Opinion Due to a Material Misstatement

of the Financial Statements (Issuer)

Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors of X Company:
Opinion on the Financial Statements
We have audited the accompanying balance sheets of X Company (the "Company") as of
December 31, 20X2 and 20X1, the related statements of income, comprehensive income,
stockholders' equity, and cash flows for each of the years then ended, and the related
notes and schedules (collectively referred to as the "financial statements"). In our opinion,
because of the effects of the matters discussed in the following paragraphs, the financial
statements do not present fairly, in conformity with accounting principles generally accepted
in the United States of America, the financial position of the Company as of December 31,
20X2 and 20X1, or the results of its operations or its cash flows for the years then ended.
As discussed in Note X to the financial statements, the Company carries its property, plant,
and equipment accounts at appraisal values, and provides depreciation on the basis of
such values. Further, the Company does not provide for income taxes with respect to
differences between financial income and taxable income arising because of the use, for
income tax purposes, of the installment method of reporting gross profit from certain types
of sales. Accounting principles generally accepted in the United States of America require
that property, plant, and equipment be stated at an amount not in excess of cost, reduced
by depreciation based on such amount, and that deferred income taxes be provided.

(continued)

© Becker Professional Education Corporation. All rights reserved. Module 5 A1–37 M

5 Modified Opinions Due to Financial Statement Issues AUD 1

(continued)

Because of the departures from accounting principles generally accepted in the United
States of America identified above, as of December 31, 20X2 and 20X1, inventories
have been increased $_______ and $_______ by inclusion in manufacturing overhead
of depreciation in excess of that based on cost; property, plant, and equipment, less
accumulated depreciation, is carried at $_______ and $_______ in excess of an amount based
on the cost to the Company; and deferred income taxes of $_______ and $_______ have not
been recorded; resulting in an increase of $_______ and $_______ in retained earnings and in
appraisal surplus of $_______ and $_______, respectively. For the years ended December 31,
20X2 and 20X1, cost of goods sold has been increased $_______ and $_______, respectively,
because of the effects of the depreciation accounting referred to above and deferred
income taxes of $_______ and $_______ have not been provided, resulting in an increase in
net income of $_______ and $_______, respectively.
Basis for Opinion
[Basis for Opinion section same as standard issuer audit report]
[Signature]
We have served as the Company's auditor since [year].
[City and state or country]
[Date]

Question 1 CPA-02469

Which of the following phrases would an auditor of a nonissuer most likely include in the
auditor's report when expressing a qualified opinion due to inadequate disclosure?
a. Subject to the departure from generally accepted accounting principles, as
described above.
b. With the foregoing explanation of these omitted disclosures.
c. Except for the omission of the information described in the basis for qualified
opinion paragraph.
d. Do not present fairly.

A1–38 Module 5 Modified Opinions

© Becker Professional Education Due to Financial
Corporation. Statement
All rights reserved.Issues
AUD 1 6 Modified Opinions Due to Audit Issues

(continued)

Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on
conducting the audit in accordance with auditing standards generally accepted in the
United States of America. Because of the matters described in the Basis for Disclaimer
of Opinion paragraph, however, we were not able to obtain sufficient appropriate audit
evidence to provide a basis for an audit opinion.
Basis for Disclaimer of Opinion
We were not engaged as auditors of the Company until after December 31, 20X1, and,
therefore, did not observe the counting of physical inventories at the beginning or end of
the year. We were unable to satisfy ourselves by other auditing procedures concerning
the inventory held at December 31, 20X1, which is stated in the balance sheet at $XXX. In
addition, the introduction of a new computerized accounts receivable system in September
20X1 resulted in numerous misstatements in accounts receivable. As of the date of our
audit report, management was still in the process of rectifying the system deficiencies
and correcting the misstatements. We were unable to confirm or verify by alternative
means accounts receivable included in the balance sheet at a total amount of $XXX at
December 31, 20X1. As a result of these matters, we were unable to determine whether
any adjustments might have been found necessary in respect of recorded or unrecorded
inventories and accounts receivable, and the elements making up the statements of
income, changes in stockholder's equity, and cash flows.
Disclaimer of Opinion
Because of the significance of the matters described in the Basis for Disclaimer of Opinion
paragraph, we have not been able to obtain sufficient appropriate audit evidence to
provide a basis for an audit opinion. Accordingly, we do not express an opinion on these
financial statements.
[Auditor’s signature]
[Auditor’s city and state]
[Date of the auditor’s report]

3 Issuer Reports

3.1 Form and Content of the Auditor's Report (Issuer)

When the auditor expresses a qualified opinion or disclaimer of opinion, a paragraph
immediately following the opinion paragraph is added and the opinion paragraph is modified.
A qualified opinion and disclaimer of opinion will include modified language in the Basis for
Opinion section. The auditor is not required to report critical audit matters in the auditor's
report when the auditor expresses a disclaimer of opinion.

© Becker Professional Education Corporation. All rights reserved. Module 6 A1–45

6 Modified Opinions Due to Audit Issues AUD 1

3.1.1 Qualified Opinion

Qualified Opinion Due to Audit Issues: Issuer

Opinion The section title and first sentence is the same as the standard issuer audit report.
Section The second sentence is modified to include the appropriate qualifying language (i.e., except
for or with the exception of) and a reference to the paragraph that describes the departure
from the unqualified opinion.

Additional A paragraph should be placed immediately following the opinion paragraph. There is no
Paragraph heading for this paragraph.
This paragraph should describe the reasons for the inability to obtain sufficient
appropriate audit evidence.
Basis for Same as standard issuer audit report, except that the second paragraph in this section
Opinion should refer to the paragraph that describes the departure from the unqualified opinion.
Section
Critical Audit Same as standard issuer audit report.
Matters

3.1.2 Sample Report: Qualified Opinion Due to a Scope Limitation (Issuer)

Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors of X Company:
Opinion on the Financial Statements
We have audited the accompanying balance sheets of X Company (the "Company") as of
December 31, 20X2 and 20X1, the related statements of income, comprehensive income,
stockholders' equity, and cash flows for each of the years then ended, and the related notes and
schedules (collectively referred to as the "financial statements"). In our opinion, except for the
effects of the adjustments, if any, as might have been determined to be necessary had we been
able to examine evidence regarding the foreign affiliate investment and earnings, as described
below, the financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 20X2 and 20X1, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles generally accepted in the
United States of America.
We were unable to obtain audited financial statements supporting the Company's investment
in a foreign affiliate stated at $_______ and $_______ at December 31, 20X2 and 20X1, respectively,
or its equity in earnings of that affiliate of $_______ and $_______, which is included in net income
for the years then ended as described in Note X to the financial statements; nor were we able to
satisfy ourselves as to the carrying value of the investment in the foreign affiliate or the equity in
its earnings by other auditing procedures.
Basis for Opinion
[Same as standard issuer report, except for the statement below]
Except as discussed above, we conducted our audits in accordance with the standards of the
PCAOB. [Remainder paragraph the same as standard issuer report.]
Critical Audit Matters
[Critical Audit Matters section same as standard issuer audit report]
[Signature]
We have served as the Company's auditor since [year].
[City and state or country]
[Date]

A1–46 Module 6 Modified

© Becker Professional Education Opinions
Corporation. All Due
rightsto Audit Issues
reserved.
AUD 1 6 Modified Opinions Due to Audit Issues

3.1.3 Disclaimer of Opinion

Disclaimer of Opinion Due to Audit Issues: Issuer

Disclaimer of Modifications to this section include:
Opinion Section yySection title of "Disclaimer of Opinion on the Financial Statements."
yyUse of the words "were engaged to audit" instead of "have audited."
yyReference to the paragraph describing the reasons for disclaimer.
yyA statement that the auditor was not able to obtain sufficient appropriate audit
evidence to provide a basis for an audit opinion.
yyA disclaimer of opinion ("do not express an opinion") is given on the financial
statements as a whole.

Additional An explanatory paragraph should be placed immediately following the opinion

Paragraph paragraph. This paragraph should include:
yyAll of the substantive reasons for the disclaimer.
yyDisclosure of any reservations regarding fair presentation in conformity with GAAP.
Basis for Modification to the Basis of Opinion paragraph includes:
Disclaimer of yySection title of "Basis for Disclaimer of Opinion."
Opinion Paragraph
yyElimination of the sentence, "Our responsibility is to express an opinion on the
Company's financial statements based on our audits."
yyElimination of entire second paragraph in this section, which begins with "We
conducted our audits in accordance ... ."

Critical Audit Critical Audit Matters section omitted.

Matters

3.1.4 Sample Report: Disclaimer of Opinion Due to Inability

to Obtain Sufficient Appropriate Audit Evidence (Issuer)

Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors of X Company:
Disclaimer of Opinion on the Financial Statements
We were engaged to audit the accompanying balance sheets of X Company (the "Company")
as of December 31, 20X2 and 20X1, and the related statements of income, comprehensive
income, stockholders' equity, and cash flows, and the related notes and schedules
(collectively referred to as the "financial statements"). As described in the following
paragraph, because the Company did not take physical inventories and we were not able to
apply other auditing procedures to satisfy ourselves as to inventory quantities and the cost
of property and equipment, we were not able to obtain sufficient appropriate audit evidence to
provide a basis for an audit opinion on the financial statements, and we do not express an
opinion on these financial statements.

(continued)

© Becker Professional Education Corporation. All rights reserved. Module 6 A1–47

6 Modified Opinions Due to Audit Issues AUD 1

(continued)

The Company did not make a count of its physical inventory in 20X2 or 20X1, stated in the
accompanying financial statements at $_______ as of December 31, 20X2, and at $________
as of December 31, 20X1. Further, evidence supporting the cost of property and equipment
acquired prior to December 31, 20X1, is no longer available. The Company's records do
not permit the application of other auditing procedures to inventories or property and
equipment.
Basis for Disclaimer of Opinion
These financial statements are the responsibility of the Company's management. We are
a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
[Second paragraph within this section of standard issuer audit report should be omitted]
[Signature]
We have served as the Company's auditor since [year].
[City and state or country]
[Date]

3.1.5 Sample Report: Disclaimer of Opinion Due to Lack of Independence (Issuer)

An accountant who is "associated with" financial statements but is not independent should
disclaim an opinion.

We are not independent with respect to XYZ Company, and the accompanying balance sheet
as of December 31, 20XX, and the related statements of income, retained earnings, and
cash flows for the year then ended were not audited by us and, accordingly, we do not
express an opinion on them.

Pass Key

A commonly tested area is the concept of uncertainty. The chart below will assist you in
mastering this area.

Uncertainty
No material misstatement Material misstatement Insufficient evidence
and sufficient evidence related to the uncertainty (scope limitation)
Unmodified Qualified or adverse Qualified or disclaimer

A1–48 Module 6 Modified

© Becker Professional Education Opinions
Corporation. All Due
rightsto Audit Issues
reserved.
AUD 1 6 Modified Opinions Due to Audit Issues

Auditor's Report Summary (Nonissuer)

Management Auditor Basis for
Type of Intro Responsibility Responsibility Opinion Opinion
Opinion Paragraph Paragraph Paragraph Paragraph Paragraph

Misstatement
Immaterial Unmodified Standard Standard Standard No Present fairly

Material Name type

but not Qualified Standard Standard of modified Yes Except for
pervasive opinion

Name type
Material and Do not
Adverse Standard Standard of modified Yes
pervasive present fairly
opinion

Scope Limitation
Immaterial Unmodified Standard Standard Standard No Present fairly

Material Name type

but not Qualified Standard Standard of modified Yes Except for
pervasive opinion

Material and Engaged to Not able to

Disclaimer Standard Yes Disclaimer
pervasive audit obtain...

Auditor's Report Summary (Issuer)

Type of Additional Basis for Opinion Critical Audit
Opinion Opinion Section Paragraph Section Matters

Misstatement
Immaterial Unqualified Standard No Standard Standard

Material but not

Qualified Except for Yes Standard Standard
pervasive

Do not present
Material and pervasive Adverse Yes Standard Omit
fairly

Scope Limitation
Immaterial Unqualified Standard No Standard Standard

Material but not Except as

Qualified Except for Yes Standard
pervasive discussed above

Engaged to audit Omit certain

Material and pervasive Disclaimer Yes Omit
and Disclaimer sentences

Lack of Independence
Disclaimer None None Disclaimer Omit

© Becker Professional Education Corporation. All rights reserved. Module 6 A1–49

8 Reporting With Different Opinions and Other Auditors AUD 1

1.1.3 Sample Report: Unqualified Prior Year Financial Statements

With Current Year Qualified (Issuer)

Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors of X Company:
Opinion on the Financial Statements
We have audited the accompanying balance sheets of X Company (the "Company") as of
December 31, 20X2 and 20X1, the related statements of income, comprehensive income,
stockholders' equity, and cash flows for each of the years then ended, and the related notes
and schedules (collectively referred to as the "financial statements"). In our opinion, except
for the effects on the 20X2 financial statements of not capitalizing certain lease obligations
as described in the following paragraph, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 20X2 and 20X1,
and the results of its operations and its cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
The Company has excluded, from property and debt in the accompanying 20X2 balance
sheet, certain lease obligations that were entered into in 20X2 which, in our opinion,
should be capitalized in order to conform with accounting principles generally accepted in
the United States of America. If these lease obligations were capitalized, property would
be increased by $_______, long‑term debt by $_______, and retained earnings by $_______
as of December 31, 20X2, and net income and earnings per share would be increased
(decreased) by $_______ and $_______, respectively, for the year then ended.
Basis for Opinion
[Basis for Opinion paragraph same as standard issuer audit report]
Critical Audit Matters
[Critical Audit Matters section same as standard issuer audit report]
[Signature]
We have served as the Company's auditor since [year].
[City and state or country]
[Date]

1.1.4 Sample Report: Unqualified Current Year With Disclaimer

on Prior Year Statements of Income, Changes in Stockholders' Equity,
and Cash Flows (Issuer)

Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors of X Company:
Opinion on the Financial Statements
We have audited the accompanying balance sheets of X Company (the "Company") as
of December 31, 20X2 and 20X1, and the related statements of income, comprehensive
income, stockholders' equity, and cash flows for the year ended December 31, 20X2, and
the related notes and schedules (collectively referred to as the "financial statements").

(continued)

A1–62 Module 8 Reporting With

© Becker Professional Different
Education Opinions
Corporation. All and
rightsOther Auditors
reserved.
AUD 1 8 Reporting With Different Opinions and Other Auditors

(continued)

In our opinion, the balance sheets of the Company as of December 31, 20X2 and 20X1,
and the related statements of income, retained earnings, and cash flows for the year
ended December 31, 20X2, present fairly, in all material respects, the financial position of
the Company as of December 31, 20X2 and 20X1, and the results of its operations and its
cash flows for the year ended December 31, 20X2, in conformity with accounting principles
generally accepted in the United States of America. Because of the matter discussed in
the following paragraph, we were not able to obtain sufficient appropriate audit evidence to
provide a basis for an audit opinion on the results of operations and cash flows, and we
do not express an opinion on the results of operations and cash flows for the year ended
December 31, 20X1.
We did not observe the taking of the physical inventory as of December 31, 20X0, since
that date was prior to our appointment as auditors for the Company, and we were unable
to satisfy ourselves regarding inventory quantities by means of other auditing procedures.
Inventory amounts as of December 31, 20X0, enter into the determination of net income and
cash flows for the year ended December 31, 20X1.
Basis for Opinion
[Same first paragraph under Basis for Opinion as standard issuer audit report]
Except as explained above, we conducted our audits in accordance with the standards of
the PCAOB. [Remainder of paragraph same as standard issuer audit report]
Critical Audit Matters
[Critical Audit Matters section same as standard issuer audit report]
[Signature]
We have served as the Company's auditor since [year].
[City and state or country]
[Date]

Pass Key

When the prior year's financial statements were not audited and the current year's
financial statements are being audited, the auditor is in essence facing a scope limitation.
The beginning balances may not be ascertainable and therefore a disclaimer of opinion on
the statements of income, retained earnings, and cash flows may be required.

1.2 Updating (Changing) Prior Opinions

If, during the current examination, the auditor becomes aware of evidence that affects the
prior statements and the opinion that was expressed, the auditor should update the opinion in
the current year's report. For example, a previous report that was qualified due to a departure
from the financial reporting framework would no longer be appropriate in the event of
the restatement of the prior year's financial statements.

© Becker Professional Education Corporation. All rights reserved. Module 8 A1–63 Re

AUD 1 8 Reporting With Different Opinions and Other Auditors

2.3.5 Sample Report: Referencing the Audit of a Component Auditor (Issuer)

Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors of X Company:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of X Company (the
"Company") and subsidiaries as of December 31, 20X2 and 20X1, the related statements of
income, comprehensive income, stockholders' equity, and cash flows for each of the years
then ended, and the related notes and schedules (collectively referred to as the "financial
statements"). In our opinion, based on our audit and the report of the other auditors, the
consolidated financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 20X2 and 20X1, and the results of its operations and
its cash flows for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
We did not audit the financial statements of B Company, a wholly owned subsidiary, which
statements reflect total assets and revenues constituting 20 percent and 22 percent,
respectively, of the related consolidated totals. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for B Company, is based solely on the report of the other auditors.
Basis for Opinion
[Same as standard issuer report, except for the statement below]
We believe that our audit and the report of the other auditors provide a reasonable basis
for our opinion.
Critical Audit Matters
[Critical Audit Matters section same as standard issuer audit report]
[Signature]
We have served as the Company's auditor since [year].
[City and state or country]
[Date]

Question 3 CPA-02544

The group auditor decides not to refer to the component auditor who audited a subsidiary
of the group auditor's client. In this situation, the group auditor most likely would:
a. Add an emphasis-of-matter paragraph to the auditor's report indicating that the
subsidiary's financial statements are not material to the consolidated financial
statements.
b. Document in the engagement letter that the group auditor assumes no
responsibility for the component auditor's work and opinion.
c. Obtain written permission from the component auditor to omit the reference in
the group auditor's report.
d. Determine the type of work to be performed by the group auditor on the financial
information of the component.

© Becker Professional Education Corporation. All rights reserved. Module 8 A1–71 Re

AUD 2 7 Risk Assessment: Part 1

3.3 Risk Assessment Discussion

The members of the audit team, including the auditor with final responsibility for the audit,
other key members of the audit team, and specialists (as necessary), should discuss the
susceptibility of the financial statements to material misstatement.
If the audit involves multiple locations, then there can be multiple discussions. Important
matters should be communicated to all engagement members not present for the discussion(s).
This discussion:
  Can be held concurrently with the fraud risk discussion.
  Should include areas of significant audit risk, the company's selection and application
of accounting principles, including disclosure requirements, areas involving unusual
accounting procedures, important control systems, and materiality levels.
  Allows more experienced team members to share their insights with less experienced staff.
  Should emphasize the need to exercise professional skepticism, and to be alert for and
rigorously investigate any potential misstatements, whether due to error or fraud.
  Should continue throughout the audit, including when conditions change.

3.4 Audit Data Analytics (ADAs)

An auditor may choose to use audit data analytics (ADAs) when performing risk assessment
procedures. ADAs involve analyzing patterns, identifying anomalies, and extracting other useful
information in data underlying or related to the subject matter of an audit through analysis,
modeling, and visualization. ADAs may also be used in other areas of the audit, such as testing
controls, performing substantive procedures, and performing concluding procedures.

3.4.1 Steps for ADAs

Generally, five steps are performed when using ADAs to help with the assessment of the risk of
material misstatement:
1. Plan the ADA. This includes determining the objective of the ADA, the data population to
be analyzed, selecting the ADA that best meets these objectives, and selecting the tools,
graphics, and tables that will be used.
2. Access and prepare the data for purposes of the ADA.
3. Consider the relevance and reliability of the data used.
4. Perform the ADA.
5 Evaluate the results and conclude whether the purpose and specific objectives of
performing the ADA have been achieved. If the purpose and objectives have not been
achieved, the auditor should redesign and reperform the ADA or select a different
procedure that will meet the intended objective.

© Becker Professional Education Corporation. All rights reserved. Module 7 A2–49

7 Risk Assessment: Part 1 AUD 2

3.4.2 Notable Items

The application of ADAs may result in the identification of notable items. Notable items include
items that may identify a previously unidentified risk, modify or support the assessment of
risks of material misstatement, or provide the auditor with information to better plan audit
procedures. In situations in which there are a large number of notable items, the auditor may
decide to group the data for items that have common characteristics. For each group, the
auditor should determine which data include:
  Items that do not identify new or higher risks of material misstatements (also known
as false positives).
  Items requiring further consideration because they may represent new or higher risks of
material misstatements.
Based on the evaluation of results, the auditor should determine the level of risk of material
misstatement and plan audit procedures that appropriately respond to the assessed risk.

Illustration 1 Audit Data Analytics

An auditor is auditing a company that sells commercial copiers for the period of Year 4.
During the planning stage, the auditor decides to perform an ADA technique on the number
of sold copiers (analyzed at the product level) to evaluate any significant changes in the sales
mix of commercial copiers that might identify new or higher risks of material misstatement
for revenue. Based on discussion with management and on the prior year audit, the auditor
is aware that there was a fire in February Year 3 in the building where Type C copiers are
manufactured, which resulted in a significant decrease of Type C copiers available for sale
for that year. In addition, Type D copiers were introduced in March Year 2 and the company
introduced Copier E, which is very popular with consumers, in January Year 4.
Number of Copiers Sold by Year
30
Amount in Thousands

25 Y4
Y2
20 Y1 Y2 Y3 Y1 Y4
Y1 Y2
15 Y3 Y4 Y3 Y4
Y2
10
5 Y4 Y3
0
Type A Type B Type C Type D Type E

Year 1 Year 2 Year 3 Year 4

The ADA output (chart) confirmed the following activity that the auditor anticipated:
  The number of copiers sold for Type B and Type D appears to be comparable to prior years.
  The number of Type C copiers sold in Year 4 is comparable to the number sold in Year
1 and Year 2. (Year 3 is lower as a result of the decreased number of Type C copiers
available for sale in that year.)
  Copier Type E started selling in Year 4 and appears to be a top seller.
The ADA output also showed a significant decline in Type A copiers that were sold in Year 4
compared with prior years. This leads to a higher risk that the inventory may be overvalued.
The auditor plans to respond to this higher risk by obtaining more persuasive evidence
regarding the valuation of the inventory.
Note: The auditor may decide to perform additional ADAs related to sales, such as creating a
line chart that shows sales by year, by month, etc.

A2–50 Module 7 Risk

© Becker Professional Education Corporation. Assessment:
All rights reserved.Part 1
AUD 2 7 Risk Assessment: Part 1

3.5 Other Procedures

The auditor should also consider:
  Reviewing external information (e.g., trade journals and analysts' reports).
  The results of the fraud risk assessment.
  Information obtained during the client acceptance or continuance process.
  Information obtained on other engagements performed for the entity.
  Prior period evidence, to the extent that it is still relevant.

3.6 Risk Assessment Procedures and Audit Evidence

Risk assessment procedures sometimes provide audit evidence about transactions, balances,
disclosures, or controls, even if they were not designed to provide such evidence.
The auditor may also choose to perform substantive procedures or tests of controls
concurrently with risk assessment procedures, if it is efficient to do so.

3.7 Ongoing Assessment

Obtaining an understanding of the entity and its environment is a process that continues and
evolves throughout the audit, and the auditor's assessment of risk may change as additional
audit evidence is obtained. For example, the initial risk assessment may presume effective
operation of controls, but:
1. tests of controls may indicate that controls are not operating effectively; or
2. the auditor may detect more or less frequent misstatements than would have been
expected given the initial risk assessment.
In such situations, the auditor should revise the assessment and modify planned audit procedures.

Question 1 CPA-02426

The primary objective of procedures performed to obtain an understanding of the entity

and its environment is to provide an auditor with:
a. Knowledge necessary for risk assessment and audit planning.
b. Audit evidence to use in assessing inherent risk.
c. A basis for issuing an opinion on the financial statements.
d. An evaluation of the consistency of application of management's policies.

Question 2 CPA-02799

The objective of performing analytical procedures in planning an audit is to identify the

existence of:
a. Unusual transactions and events.
b. Acts of noncompliance with laws and regulations that went undetected because of
internal control weaknesses.
c. Related party transactions.
d. Recorded transactions that were not properly authorized.

© Becker Professional Education Corporation. All rights reserved. Module 7 A2–51

AUD 3 6 Procedures to Obtain Evidence

The following chart summarizes the use of analytical procedures:

Phase Requirement Purpose

Planning Required To assist the auditor in understanding the entity and
its environment.
Used during risk assessment to alert the auditor to problem
areas requiring attention. This serves a vital planning function.
Substantive Not required As a substantive test to obtain audit evidence about specific
procedures management assertions related to account balances
or transactions.
The evidence is circumstantial and generally additional
corroborating evidence (such as documentation) must
be obtained.
Final review Required To assist the auditor in the final review of the overall
reasonableness of account balances.

2.2 Substantive Analytical Procedures

In certain situations, analytical procedures are a more effective and efficient means of gathering
evidence than tests of details, and in those cases, analytical procedures may be used as
substantive tests.

2.2.1 Designing and Performing Substantive Analytical Procedures

When designing and performing analytical procedures as substantive procedures, the auditor
should do the following:
1. Determine the analytical procedures that are suitable for testing the assertion(s), taking into
account the assessed risks of material misstatement and tests of details.
If using audit data analytics (ADAs), the auditor should select an ADA procedure that best fits
the intended purpose and objectives of the procedure as well as determine the techniques,
tools, graphics, and tables that may be used.
2. Evaluate the reliability of the data from which the auditor's expectation is to be developed.
The following factors are relevant when determining whether the data is reliable:
yy The source and comparability of the information
yy The nature and relevance of the information
yy Controls over the preparation of the information
3. Develop an expectation of recorded amounts or ratios and evaluate whether the
expectation is sufficiently precise to identify material misstatement. Expectations may be
developed based on:
yy financial information for comparable prior periods;
yy anticipated results from budgets and forecasts;
yy relationships among data within the current period;
yy industry norms; and
yy relationships of financial data with nonfinancial information.
Ratios are discussed in more detail in the next module.

© Becker Professional Education Corporation. All rights reserved. Module 6 A3–49

6 Procedures to Obtain Evidence AUD 3

4. Perform the analytical procedures and compare the results of the analytical procedures with
the expectations.
5. Investigate any significant differences by:
yy inquiring of management and obtaining appropriate evidence relevant to
management's responses; and
yy performing other audit procedures as necessary.

2.2.2 Efficiency and Effectiveness of Analytical Procedures

The efficiency and effectiveness of analytical procedures in detecting potential misstatements
depends, among other things, on the following four factors.

1. Nature of the Assertion Being Tested

Analytical procedures are most effective and efficient for assertions in which potential
misstatements are not apparent from an examination of the detailed evidence or when
such detail is unavailable.

2. Plausibility and Predictability of the Data Relationship

In order to use analytical procedures as a substantive test, the auditor must have a clear
understanding of the relationships among data. It is possible that data may appear to be
related when in fact they are not, and failure to properly understand such situations may
lead to erroneous conclusions.
In order to provide an appropriate level of assurance, analytical procedures should be
based on predictable relationships. More predictable relationships are provided by data
generated in a stable, rather than dynamic, environment; involve income statements,
rather than just balance sheet accounts; and involve transactions that are less subject to
management discretion.

3. Availability and Reliability of Data Used to Develop the Expectation

Data used by the auditor to develop expectations should be both readily available and
reliable. Reliability of data is enhanced if it is obtained from external rather than internal
sources, obtained from independent internal sources (i.e., unrelated to those who are
responsible for the amount being audited), generated under effective internal controls,
audited previously, and obtained from a variety of sources.

4. Precision of the Expectation

More precise expectations are more effective in detecting misstatements. An expectation is
more precise when it is developed at a sufficiently detailed level, and when there is effective
identification and consideration of factors that significantly influence the relationship.

A3–50 Module 6 Procedures

© Becker Professional Education Corporation. to Obtain
All rights Evidence
reserved.
AUD 3 6 Procedures to Obtain Evidence

5. Methods Used to Develop the Auditor's Expectation

Below are some examples of methods that the auditor may use to develop the auditor's
expectation:

Method Description Best Used When: Level of Assurance

Trend analysis Compare financial Amount/relationship is Trend analysis is often
statement item or account fairly predictable and used with other audit
balance for the current operations are stable. procedures, as trend
period with prior periods. analysis results in a
relatively imprecise
auditor's expectation
that provides only a low
level of assurance.

Ratio analysis Ratios are calculated Analyzing data at a Ratio analysis is often
based on known disaggregated level used with other audit
relationships among (e.g., by segment, procedures, as ratio
accounts or nonfinancial product, location). analysis results in a
information and relatively imprecise
compared with the same auditor's expectation
ratio for prior periods or that provides only a
with comparable entities. low level of assurance.

Nonstatistical Uses predictive model Creating expectation May provide a very

predictive to estimate financial based on simple high level of precision
modeling statement amount. variables. and may be used as the
principal substantive
procedure.

Regression Advanced statistical Creating expectation May provide a very

analysis technique that often uses based on several high level of precision
data from prior period(s) to independent variables. and may be used as the
develop a model to predict principal substantive
future periods. procedure.

Regression analysis has several advantages over the other methods discussed in this chart
because it:
——Provides an explicit, mathematically objective, and precise method for forming an expectation.
——Allows inclusion of a large number of independent variables.
——Provides direct and quantitative measures of the precision of the expectation.

2.2.3 Documentation Requirements

When an analytical procedure is used as the principal substantive test of a significant financial
statement assertion, the auditor is required to document:
  The auditor's expectation.
  Factors considered in the development of the expectation.
  The results of the comparison of the expectation to recorded amounts.
  Additional audit procedures performed in response to significant unexplained differences.
  The results of such additional procedures.

© Becker Professional Education Corporation. All rights reserved. Module 6 A3–51

6 Procedures to Obtain Evidence AUD 3

2.2.4 Limitations of Analytical Procedures

Analytical review comparisons are based on expected plausible relationships among data.
Differences do not necessarily indicate errors or fraud, but simply indicate the need for further
investigation. Changes in an account, changes in accounting principle, and inherent differences
between industry norms and the client all contribute to fluctuations in expected amounts.

2.2.5 Analytical Procedures Used as an Overall Review

Analytical procedures are required during the overall review stage of an audit. Generally, a
manager or partner who has a comprehensive knowledge of the client's business and industry
reads the financial statements and disclosures and performs this review.
The purpose of applying analytical procedures during the overall review stage of an audit is to
evaluate the overall financial statement presentation, to assess the conclusions reached, and to
assist in forming an opinion on whether the financial statements as a whole are free of material
misstatement. The auditor should determine whether adequate evidence has been gathered
in response to unusual or unexpected balances identified during the audit. The auditor may
also discover additional unusual or unexpected balances, transactions, events, or relationships,
including fraud risks, during this overall review, and should consider whether additional audit
procedures are warranted.
The nature and extent of the analytical procedures performed during the overall review may be
similar to the analytical procedures performed as risk assessment procedures, including the use of
audit data analytics. In addition, the auditor may consider updating ratios and data analytics used
as risk assessment procedures to include the most recent financial statement numbers, especially
if management has made significant adjustments to the financial statements. The auditor should
perform analytical procedures relating to revenue through the end of the reporting period.

2.3 Directional Testing: Existence and Completeness

Directional testing refers to testing either forward or backward.
1. Tracing forward from source documents to journal entries provides evidence of completeness.
2. Vouching backward from journal entries to source documents provides evidence of existence.

VOUCH
Testing for existence
Testing for support

ouch

Financial statements
Trial balance
General ledger
Subsidiary ledger
Books of original entry
Source documents
Execution of event
Transaction approved

race
TRACE
Testing for completeness
Testing for coverage

A3–52 Module 6 Procedures

© Becker Professional Education Corporation. to Obtain
All rights Evidence
reserved.

A3_vouch trace_p51
AUD 3 9 Sampling: Part 2

7. Form Conclusions About the Balances (or Transactions) Tested

yy In deciding whether to accept the client's book value, the auditor determines whether
the recorded book value falls within the acceptable range (i.e., the point estimate +/−
the allowance for sampling risk). If so, the book value is fairly stated.
yy The auditor's treatment of items selected for sampling that cannot be located (e.g., are
"lost") will depend on their effect on the auditor's evaluation of the sample.
—If
— considering the missing items to be misstated would not alter the auditor's
evaluation of the sample results, it is not necessary to examine the items.
—If
— considering the missing items to be misstated would lead to the conclusion that
the balance or class contains a material misstatement, the auditor should consider
alternative procedures.
yy If the sample is representative of the population, the auditor generally will make a
correct decision regarding whether the account balance is fairly stated.
yy If the sample is not representative of the population, the auditor will make an
incorrect decision, either accepting a materially misstated balance, or rejecting a
fairly stated balance.
8. Document the Sampling Procedure
Remember that as with all audit procedures, the auditor must document each step in audit
sampling, starting with planning and including the rationale for the auditor's parameters,
the performance of procedures, the observed results, and the evaluation and interpretation
of those results.

9. Additional Considerations When Using Audit Data Analytics (ADAs)

When an auditor uses an ADA technique when performing tests of details, the auditor
should select an ADA technique that best fits the intended purpose and objectives of the
procedure as well as select the techniques, tools, graphics, and tables that will be used to
evaluate the results.
After performing the ADA procedure, the auditor should group the data for items that have
common characteristics (when appropriate). For each group, the auditor should determine
which data:
yy Do not contain misstatements (also known as false positives)
yy Contain possible misstatements that are clearly inconsequential (in aggregate)
yy Contain possible misstatements that are not clearly inconsequential (in aggregate)
For groups that contain possible misstatements that are not clearly inconsequential (in
aggregate), the auditor should perform further analysis to determine whether these items
represent actual misstatements.

© Becker Professional Education Corporation. All rights reserved. Module 9 A3–89

AUD 5 2 Communication and Reporting in an Integrated Audit

(continued)
We conducted our audits in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud,
and whether effective internal control over financial reporting was maintained in all
material respects.
Our audits of the financial statements included performing procedures to assess the risks
of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial
statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
[Include critical audit matters]
[Signature]
We have served as the Company's auditor since [year].
[City and state or country]
[Date]

4.2 Report Date

The report should be dated no earlier than the date on which sufficient appropriate evidence
has been obtained.
The date of the report on internal control should coincide with the date of the audit report on
the financial statements.

© Becker Professional Education Corporation. All rights reserved. Module 2 A5–25 Comm
7 Government Audits AUD 5

2 Purposes and Types of Government Audits

2.1 Financial Audits

2.1.1 GAAP Basis Financial Statements
Financial statement audits performed according to Government Auditing Standards (the Yellow
Book) incorporate GAAS and determine whether the financial statements present fairly the
financial position, results of operations, and, where applicable, cash flows in accordance with
generally accepted accounting principles.

2.1.2 Financial Statements in Conformity With Special Purpose Frameworks

Engagements can also include audits of financial statements prepared in conformity with a
special purpose framework or other comprehensive basis of accounting (OCBOA). Government
regulators generally specify the OCBOA to be used in relation to financial assistance provided to
organizations. Government audit standards can be used in connection with audits of nonissuers
for audits otherwise conducted using AICPA standards, and audits of issuers otherwise
conducted using PCAOB standards.

2.2 Attestation Engagements

Attestation engagements performed in conformity with Government Auditing Standards (the
Yellow Book) incorporate the AICPA's standards for examinations, reviews, and agreed-
upon procedures by reference and include expanded requirements. Subjects of attestation
agreements could include:
1. Compliance with specified laws, regulations, rules, contracts, or grants.
2. Effectiveness of internal control over compliance with specified requirements
(e.g., bidding etc.).
3. Presentation of management's discussion and analysis (MD&A).
4. Reliability of performance measures.

2.3 Performance Audits

Performance audits provide objective analysis, findings, and conclusions to assist management
and those charged with governance and oversight to, among other things, improve program
performance and operations, reduce costs, facilitate decision making by parties with
responsibility to oversee or initiate corrective action, and contribute to public accountability.
Performance audits under GAGAS include a range of engagements governed by specific
standards and can have varying objectives. Some objectives may overlap with each other
and with the objectives of attestation engagements. Because of this, some engagements can
be satisfied by following the standards applicable to either an attestation engagement or
performance audit.

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AUD 5 7 Government Audits

Key categories of performance audit objectives include:

1. Effectiveness, Economy, and Efficiency

Audit objectives that focus on program effectiveness and results to evaluate whether
programs are meeting their goals and objectives, and which address the costs and
resources used to execute program initiatives. Examples include:
yy Achievement of legislative, regulatory, or organizational goals.
yy Evaluation of cost benefit or cost effectiveness.
yy Validity or reliability of performance measures.

2. Internal Control
Audit objectives that relate to evaluating internal control over effective and efficient
operations, reliable reporting, or compliance with laws and regulations. Examples include:
yy Organizational missions, goals, and objectives are achieved efficiently and effectively.
yy Resources are used in compliance with laws, rules, and regulations.
yy Security over computerized systems is effective.
yy Disaster plans for computerized systems are adequate.

3. Compliance
Audit objectives that relate to evaluating compliance with criteria established by provisions
of laws, regulations, contracts, and grant agreements, or other requirements that could
affect the acquisition, protection, use, and disposition of resources and the quantity,
quality, timeliness, and cost of services provided in connection with programs. Compliance
requirements can be either financial or nonfinancial. Examples include:
yy Compliance criteria established by laws, regulations, contract, etc., have been met.
yy Appropriate target population has been served.

4. Prospective Analysis
Audit objectives to evaluate events that may occur in the future or to suggest actions an
entity may take in response to future needs.
yy Provide analysis or conclusions about information that is based on assumptions about
events that may occur in the future, along with possible actions that the entity may take
in response to the future events.
In the 2018 Revision of Yellow Book, the GAO added guidance that auditors should consider
whether internal controls are significant to the audit objectives and, if so, should determine
which of the five COSO components are significant. Similar to a financial statement audit, the
auditors would then assess the design and implementation of internal controls and potentially
test the operating effectiveness of internal controls. Any deficiencies should be assessed and
used in the evaluation of identified findings.

2.4 Determine if Supplementary Audit Requirements Exist

The entity may have audit requirements that go beyond GAAS and GAGAS. The auditor must
make that determination.
A common example of supplementary audit requirements is the Single Audit requirements
related to federal financial assistance (covered later).

© Becker Professional Education Corporation. All rights reserved. Module 7 A5–75

1 SSARS Engagements AUD 6

3.2 Establish an Understanding With the Client

All SSARS engagements require a written agreement with management, and, when appropriate,
those charged with governance, regarding the terms of the engagement.

3.3 Compilations or Reviews Conducted in Accordance With SSARS

and Another Set of Standards
When the accountant performs a compilation or review in accordance with SSARS and another
set of standards, the accountant's compilation or review report should identify the other set of
compilation or review standards, as well as its origin in the compilation or review report.

3.4 Other Frameworks

Financial statements may be prepared in accordance with a financial reporting framework other
than GAAP or IFRS. For example, financial statements may be prepared in accordance with a
special purpose framework or a framework generally accepted in another country.

3.4.1 Special Purpose Framework

Financial statements prepared in accordance with a special purpose framework are not
considered appropriate in form unless the financial statements include:
1. a description of the special purpose framework, including a summary of significant
accounting policies and a description of the material differences from GAAP; and
2. disclosures similar to those required by GAAP if the financial statements contain items that
are similar to those included in financial statements prepared in accordance with GAAP.

3.4.2 Financial Reporting Framework Generally Accepted in Another Country

When performing a compilation or review on financial statements prepared in accordance with
a financial reporting framework generally accepted in another country, the accountant should
obtain an understanding of such framework and follow the appropriate reporting requirements
depending on the distribution of the report:
  Distribution Outside the United States
If the accountant is issuing an accountant's compilation or review report on financial
statements and the financial statements are intended for use only outside the United States,
the accountant should use either of the following:
yy A report in accordance with SSARS that includes a statement that refers to the note of
the financial statements that describes the basis of presentation, including identification
of the country of origin of the accounting principles.
yy A report in accordance with another set of compilation or review standards.
  Distribution in the United States
If the financial statements will be used in the United States, the accountant should report in
accordance with SSARS, including the requirements related to financial statements prepared
in accordance with a special purpose framework.

3.5 Financial Statements or Financial Information

The financial reporting framework determines what constitutes a complete set of financial
statements. An accountant may be engaged to prepare, compile, or review a complete set of
financial statements or an individual financial statement. Financial statements may be for an
annual period, or for a shorter or longer period.

A6–6 Module 1 © Becker Professional Education Corporation. AllSSARS Engagements

rights reserved.
5 Review Reports AUD 6

1.6.1 Report Modification

When the accountant believes that modification of the report is appropriate, a separate
paragraph disclosing the departure should be added to the end of the report.
  The paragraph should appear after the accountant's conclusion paragraph under the
heading, "Known Departures From the [identify the applicable financial reporting framework]."
This paragraph should include the effects of the departure on the financial statements,
if known.
  The accountant's conclusion paragraph of the report would refer to the additional
paragraph as follows:

Based on our review, except for the issue noted in the Known Departure From Accounting
Principles Generally Accepted in the United States of America paragraph, we are not aware
of any material modifications that should be made … .

  Optional—Depending on the accountant's assessment of the possible dollar magnitude of

the departure, the pervasiveness and overall impact of the misstatements, and whether
disclosures have been made of the effect of the departures, the accountant may also add
another additional separate paragraph discussing the limitations of the financial statements.

1.6.2 Report Modification Not Adequate

If the accountant believes that disclosure in the report would not be adequate to indicate the
deficiencies in the financial statements, he or she should withdraw from the engagement and
provide no further services.

Pass Key

The accountant should not modify the standard report to include a statement
that the financial statements are not in accordance with the applicable financial
reporting framework.
An opinion, even qualified or adverse, requires an audit. When an accountant performing a
compilation or review becomes aware of a GAAP departure, the report would be modified
or the accountant would withdraw. An opinion would not be expressed.

1.7 Consideration of an Entity's Ability to Continue as a Going Concern

The auditor should perform review procedures related to going concern if the applicable
financial reporting framework includes requirements for management to evaluate the entity's
ability to continue as a going concern or if the accountant becomes aware of conditions
that raise substantial doubt about the entity's ability to continue as a going concern. This
includes determining whether the going concern basis of accounting is appropriate, reviewing
management's evaluation of going concern, inquiring about management's plan to mitigate
those matters, and determining the adequacy of those disclosures.

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AUD 6 5 Review Reports

If after considering conditions or events that raise substantial doubt about the entity's ability to
continue as a going concern and management's plans, the accountant concludes that:
  Going concern is alleviated—the accountant may, but is not required to, include an
emphasis-of-matter paragraph.
  Going concern remains—the accountant should include an emphasis-of-matter paragraph
that includes the terms "substantial doubt" and "going concern."
If the accountant determines that the entity's disclosures are inadequate, the accountant should
treat the missing disclosures as a departure from the applicable financial reporting framework
that exists and follow the appropriate guidance.

Pass Key

An accountant may decide to restrict the use of a compilation or review report to certain
specified parties (e.g., when the subject matter of the report is based on criteria other than
GAAP or a special purpose framework). Because the accountant cannot control distribution
of his or her report after issuance, the report itself should clearly state that it is intended to
be used only by the identified parties.

2 Reporting on Comparative Financial Statements

When comparative financial statements are presented, the accountant's report should refer to
each period for which financial statements are presented.

2.1 Updating the Report

When reporting on all periods presented, a continuing accountant should update the report on
one or more prior periods presented on a comparative basis with those of the current period.
When issuing an updated report, the continuing accountant should consider information that
the accountant has become aware of during the engagement for the current period financial
statements.
If, during the current engagement, circumstances or events come to the accountant's attention
that may affect the prior period financial statements presented, the accountant should consider
the effects on the accountant's report.

2.2 Period(s) in Question

2.2.1 All Periods Compiled or Reviewed
When the periods presented in comparative financial statements are either all compiled or all
reviewed, a continuing accountant should update the report on the prior period and issue it as
part of the current report.

2.2.2 Current Period Reviewed and Prior Period Compiled

When the continuing accountant performs a higher level of service in the current period, the
report on the prior period(s) should be updated and issued as the last paragraph of the current
period's report.

© Becker Professional Education Corporation. All rights reserved. Module 5 A6–47

6 Interim Reviews AUD 6

2.8.4 Sample Report: Review of Interim Financial Statements (Issuer)

Report of the Independent Registered Public Accounting Firm

To the shareholders and the board of directors of X Company:

Results of Review of Interim [Financial Information or Statements]

We have reviewed the accompanying [describe the interim financial statements reviewed]
of X Company (the "Company") and consolidated subsidiaries as of September 30, 20X1,
and for the three-month and nine-month periods then ended, and the related notes
and schedules (collectively referred to as the "interim financial statements"). Based on
our review, we are not aware of any material modifications that should be made to the
accompanying interim financial statements for them to be in conformity with accounting
principles generally accepted in the United States of America.
Basis for Review Results
These interim financial statements are the responsibility of the Company's management.
We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our review in accordance with the standards of the PCAOB. A review
of interim financial information consists principally of applying analytical procedures
and making inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the standards of
the PCAOB, the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
[Signature]
[City and state or country]
[Date]

2.8.5 Departures From the Applicable Financial Reporting Framework

The auditor should modify the report if, during the review, the auditor becomes aware of
a departure from the applicable framework, such as inadequate disclosure or changes in
accounting principle that are not in conformity with the framework. The modification should
include a description of the departure and, if determinable, the effects of the departure. If there
is inadequate disclosure in the interim information, auditors should also modify the report to
include the necessary information, if practicable.
The report is modified by adding a basis for modification paragraph (immediately following the
conclusion), and by modifying the conclusion to read:
Based on our review, with the exception of the matter described in the following paragraph(s),
we are not aware of any material modifications … .
If the auditor believes that modification of the review report is not sufficient to address the
deficiencies, the auditor should withdraw from the engagement.

2.8.6 Going Concern

  For nonissuers: The auditor should include an emphasis-of-matter paragraph when:
1. a going concern emphasis-of-matter paragraph was included in the prior year's
auditor's report and the conditions that give rise to the substantial doubt still exist and
management's plans do not alleviate them; or

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AUD 6 6 Interim Reviews

2. a going concern emphasis-of-matter paragraph was not included in the prior year's
auditor report and management has included a statement that substantial doubt exits
in its financial statements.
  For issuers: As long as disclosure about going concern is adequate, the auditor is not
required to include an explanatory paragraph.
  For both nonissuers and issuers: If the auditor determines that the disclosure related to
substantial doubt about the entity's ability to continue as a going concern is inadequate,
resulting in a departure from the applicable financial reporting framework, the auditor
should modify the report.

3 Other Uses of Interim Financial Information

3.1 Interim Financial Information Accompanying

Audited Financial Statements
Normally, there is no need to refer to the review in the audit report because interim financial
information is not a required part of the financial statements. However, modifications to the
audit report are necessary in the following circumstances:
  When interim financial information included in a note to the financial statements is not
marked unaudited, the auditor would disclaim an opinion on the interim financial information.
  When interim financial information accompanies the audited financial statements, the
auditor should include an other-matter paragraph in the auditor's report when all of the
following conditions exist:
yy The interim financial information that has been reviewed is included in a document
containing audited financial statements.
yy The interim financial information accompanying the audited financial statements
does not appear to be presented in accordance with the applicable financial
reporting framework.
yy The auditor's separate review report that refers to the departure from the applicable
financial reporting framework is not presented with the interim financial information.
  For issuers, when quarterly information required by the SEC has not been reviewed, an
explanatory paragraph with an appropriate title should be added to the auditor's report,
indicating that the auditor was unable to review such information.
  For issuers, when quarterly information required by the SEC is omitted, an explanatory
paragraph with an appropriate title should be added to the auditor's report, indicating that
the company has not presented such information.

3.2 Interim Financial Information Presented in a Registration Statement

The Securities Act of 1933 imposes certain responsibilities on an auditor who prepares a report
that is used in connection with a registration statement.
If an auditor's review report on interim financial information is presented (or incorporated
by reference) in a registration statement, a prospectus that includes a statement about the
independent auditor's involvement should clarify that the report is not considered to be a report
or part of the registration statement within this context.

© Becker Professional Education Corporation. All rights reserved. Module 6 A6–61

6 Interim Reviews AUD 6

4 Summary of Engagements

Preparation Compilation Review Audit

Engagement Engagement Engagement Engagement
SSARS SSARS SSARS SAS PCAOB SAS/PCAOB
Level of None None Limited Reasonable
Assurance
Entities Nonissuers only Nonissuers only Nonissuers Nonissuers: Issuers: Nonissuers/Issuers
Interim FS Interim FS
Knowledge Knowledge Knowledge Same as compilation plus increased Extensive
Required of accounting of accounting knowledge of client's business knowledge of
principles and principles and economy, industry,
practices of practices of and client's
industry; general industry; general business
understanding of understanding of
client's business client's business
Inquiry and None unless None unless Inquiries of internal personnel Inquiries of external
Analytical information is information is Analytical procedures parties and internal
Procedures questionable questionable personnel
Required
Analytical
procedures
Audit procedures
GAAP May omit, but May omit most All are required or modify review All are required or
Disclosure need to disclose without restricting report "qualified/adverse"
Omitted in the financial use; warn with opinion
statement ending paragraph
GAAP May depart Modify report Modify report to discuss GAAP Modify report;
Departures from GAAP, but to discuss GAAP departure "qualified/adverse"
need to disclose departure opinion
in the financial
statement
Independence Not required Not required Required Required
(non‑attest but disclosure is
engagement) required
Engagement Presumptively Presumptively Presumptively Presumptively
Letter mandatory mandatory mandatory mandatory
Representation Not required Not required Required Required
Letter
Understanding Not required Not required Not required Required Required Required
of Internal (no test work) (no test
Control work)
Errors and Only obvious Only obvious Only errors discovered through inquiry Must be designed to
Irregularities errors errors found when and analytical procedures provide reasonable
Detection reading financial assurance of
statements detection of material
misstatements
FS Reported on One or more One or more One or more financial statements One or more
(BS/IS/RE/CF) financial financial allowed if scope of inquiry and financial statements
statements may statements analytical procedures have not been allowed if scope of
be prepared allowed to be restricted audit is not limited
reported on and all necessary
procedures are
applied
Communication Not required Not required Not Required Required Required
With required
Predecessor
Subsequent Not required Not required Required Required
Event Inquiries

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