Basis for Opinion section, appropriately headed, to directly follow the “Opinion” section); Failing to express an appropriate opinion (the auditor incurs the “audit risk”). Per SAS No. 134, opinions are either unmodified, or modified (qualified, adverse, or disclaimer). • Of course, an auditor’s opinion is based on their professional judgement, which can vary among different professionals. AU-C 200 .A27 contains a very important observation in this regard: - The di s t ingui shing feat ure of professiona l judgement expected of an auditor is that such judgement is exercised based on competencies necessary to achieve reasonable (emphasis added) judgements, developed by the auditor through relevant training, knowledge, and experience. • Fur thermore, SAS No. 134, paragraph .A45, acknowledges that “there is an unavoidable risk that some material misstatements of the financial statements may not be detected even though the audit is properly planned and performed in accordance with GAAS. Accordingly, the subsequent discovery of a material misstatement of the financial statements resulting from fraud or error does not by itself indicate a failure to conduct an audit in accordance with GAAS.” • It follows, then, that auditors would be well-served to document all misstatements (as defined by AU-C 450, along with examples thereof ) noted during a GAAS audit and their evaluation regarding materiality. (An unnoted misstatement would never be a material misstatement that could affect the auditor’s opinion.) • Finally, amaterialmisstatement that goes undiscovered, even in a properly conducted GAAS audit, results in an inappropriate opinion that fails to serve the public interest. The SAS No. 134 objective regarding clearly expressing the auditor’s opinion is challenging to evaluate achievement thereof due to an apparent absence of a definition or practical criteria. (What is “clear”?) For example, some opinions include an update to a prior year opinion along with the current year opinion, and properly refer to “audits” plural, when other paragraphs of the same auditor’s report inappropriately refer to the “audit” singular. While awkward and potentially unclear, this report does not consider a substandard auditor’s report to have been issued, just because of this plural/singular issue. Reasonable readers may not be impacted. On the other hand, in an auditor’s report on a state or local government set of financial statements where auditors are to opine onmultiple opinion units separately (versus having only one opinion unit, or one overall opinion in certain special circumstances), an auditor’s failure to consistently refer to plural opinions versus a singular opinion may lack sufficient clarity so as to qualify as a substandard audit report. For purposes of this report, any auditor’s report that is not “substandard” is considered “standard.” Standard audit reports Continued on page 18 • Business succession and exit planning • Partnership taxation structuring and compliance • Tax credit, tax incentives, and alternative financing • Tax-free and tax-deferred acquisitions, mergers, and reorganizations • Tax-deferred Section 1031 exchanges • Wealth transfer planning, including trust and estate taxation • Nonprofit formation and tax-exempt qualification and compliance • Audit response and representation before the IRS, state, and local taxing authorities LET OUR EXPERIENCE WORK FOR YOU 1700 Farnam Street, Suite 1500 Omaha, NE 68102 www.bairdholm.com 17 nebraska society of cpas W W W . N E S C P A . O R G
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