Avoiding Substandard Audit Reports BY PAUL H. KOEHLER, CPA, GOVERNMENT/NONPROFIT SERVICES SPECIALIST THE PURPOSE OF AN AUDIT IS TO PROVIDE FINANCIAL statement users with an opinion by the auditor on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework, which enhances the degree of confidence that intended users can place in the financial statements (AU-C 200.03). An audit conducted in accordance with Generally Accepted Auditing Standards (GAAS) and relevant ethical requirements enables the auditor to form that opinion. Auditors are to obtain sufficient appropriate audit evidence to reduce audit risk (that is the risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated) to an acceptably low level (AU-C 200.05). According to newly effective AICPA SAS No. 138, misstatements, including omissions, are consideredmaterial if there is a substantial likelihood that, individually or in the aggregate, they would inf luence the judgement made by a reasonable user based on the financial statements. And it only takes one material misstatement to render a set of financial statements to be materially misstated. High quality audit reports are critical to serving the public interest, as discussed in SASNo. 146, paragraph 6. SASNo. 134, as amended by SAS No. 41, addresses audit reporting and was effective for periods ended on or after Dec. 15, 2021. Paragraph 20 of AU-C 200 states that “the auditor not represent compliance with GAAS unless the auditor has complied with all of the AU-C sections relevant to the audit.” (NOTE: This concept never involves the notion of materiality—just relevance or “applicability.”) In other words, auditing standards, including those dealing with reporting, are either relevant or not. SAS No. 134, paragraph .09, indicates the objectives of the auditor are to: a. Form an opinion on the financial statements; and b. Express clearly the opinion through a written report. For purposes of this report, an audit report will be considered “substandard” if it does not meet the above objectives or departs from a relevant audit standard including: Making false statements regarding audit scope, Generally Accepted Accounting Principles (GAAP), audit finding, or any other statement of substance; Failing to include required content specified by SAS No. 134 or other relevant standard, including content sequencing (for example, paragraph .24 of SAS No. 134 says the first section of the auditor’s report should include the auditor’s opinion and should have the heading “Opinion”; paragraph .28 requires the I S S U E 6 , 2 0 2 2 16 nebraska cpas
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