can potentially depart from specific language available to auditors in illustrations or examples, or include unfortunate typographical, spelling, or grammatical errors. Audit report content, including the appropriateness of the auditor’s opinion(s) is what is critical to serving the public interest. Below are examples of actual auditor’s reports read by the author in recent years, issued by firms of all sizes, all of which were signed and dated, representing to have conducted their audit(s) in accordance with GAAS. Many of these reports contained multiple substandard characteristics, and all opinions were unmodified, unless otherwise noted. Making false statements An auditor who prepared and presented (an independence issue) comparative (two-year) cash basis financial statements on part of a nonprofit organization (NPO), but had only audited the current year, stated in the auditor’s report that the auditor had audited both years. (The auditor also failed to mention that the NPOwas a component unit of a government and that the basis of accounting used was inappropriate for the government’s GAAP basis financial statements.) An auditor reporting on a city’s financial statements under SASNo. 134 in the “going concern” paragraph referred to both Financial Accounting Standards Board (FASB) alternatives for defining the “reasonable period of time” management is to use for their evaluation of “substantial doubt” rather than the appropriate Governmental Accounting Standards Board (GASB) definition (see SAS No. 132). An auditor’s Yellow Book report in a Single Audit indicated there were reportable findings, but neither that report nor the accompanying Schedule of Findings and Questioned Costs reported any. That same auditor’s Single Audit compliance report indicated that the auditee’s major federal programs were identified in the Schedule of Findings and Questioned Costs. They were not. Neither of these auditor’s reports were subsequently recalled and corrected. Failing to include required content An auditor reporting on a Dec. 31, 2021, set of GAAP financial statements failed to follow SAS No. 134 with all its new required content and sequencing. An auditor reporting on a June 30, 2021, set of GAAP financial statements under SAS No. 134 (early application is permitted by SAS No. 141’s amendment) failed to: • opine on the entity’s change in financial position; • include a Basis for Opinion section; and, • report on Other Information presented with the financial statements. An auditor reporting on a city’s Dec. 31, 2020, financial statements under SAS No. 134 failed to use the heading “Opinions” as required by paragraph .24 thereof. (The plural form of that word would have been appropriate since there were multiple opinion units, but no heading at all was used.) Despite basing their opinions on “our audit and the report of other auditors,” the auditor failed to indicate anywhere in the audit report what was audited by the other auditors, whose report did not accompany theirs. An auditor’s adverse opinion on a local government’s financial statements prepared by the auditor failed to include all the material misstatements that would have resulted in the adverse opinion (see AU-C 705, paragraph .28). There were numerous additional GASB 34 material misstatements besides the one that was cited (lack of government-wide financial statements), including overstatement of assets on one line itemof $1.2MM, inclusion of account groups (superseded by GASB 34) in the basic financial statements, failure to report bymajor fund (not by fund type), and numerous footnote omissions. Auditors of numerous local government financial statements over multiple years failed to properly identify the individual opinion units in the financial statements subject to the respective audits. In general, auditors are to opine on a reporting entity’s financial position and changes therein and cash flows, not individual financial statements. One auditor recently opined on an entity’s “statements of functional expenses“ inappropriately, as well as causing additional confusion by then not listing the other individual statements presented therewith. Failing to express an appropriate opinion An auditor failed to modify their opinion on a set of financial statements they prepared for a special-purpose government engaged only in business-type activities for numerousmaterial GAAP departures (see GASB 34), including: • balance sheet not in “classified” format; • statement of revenues and expenses did not distinguish between operating and nonoperating items; • reporting capital assets previously disposed; • failure to report a very significant capital asset received previously from another government; and • several footnote disclosures needed for fair presentation. Continued from page 17 I S S U E 6 , 2 0 2 2 18 nebraska cpas
RkJQdWJsaXNoZXIy ODQxMjUw