Chapter 4 of 410–20% of exam

Area IV: Forming Conclusions and Reporting

This area covers what the auditor or accountant says at the end of the engagement: the type of opinion, the added paragraphs and sections, and the form of reports for issuers, nonissuers, attestation engagements, SSARS engagements, and compliance engagements. Much of it is template-driven, so knowing which situation calls for which report element does most of the work.

Audit opinions and report paragraphs

Two questions decide the opinion: whether the problem is a misstatement or an inability to obtain evidence, and whether its effect is material but confined or both material and pervasive. Emphasis-of-matter and other-matter paragraphs add information without modifying the opinion. A going concern section, consistency paragraphs, and key audit matters each follow their own triggers.

Choosing the opinion
A material but not pervasive misstatement leads to a qualified opinion, and a material and pervasive one to an adverse opinion. When evidence cannot be obtained, the result is a qualified opinion or a disclaimer, depending on pervasiveness.
AU-C 705.07-.10
Emphasis versus other matter
An emphasis-of-matter paragraph points to something already presented or disclosed in the statements. An other-matter paragraph covers something outside them that is relevant to the audit or the report.
AU-C 706 definitions
Going concern section
When substantial doubt remains and is adequately disclosed, the report adds a separate going concern section and the opinion stays unmodified. An inappropriate going concern basis leads to an adverse opinion.
AU-C 570.23-.24
Consistency
A justified change in accounting principle with a material effect, or the correction of a material misstatement, requires an emphasis-of-matter paragraph. If the change is applied retrospectively, the paragraph is needed only in the period of change.
AU-C 708.08-.09, .13

Issuer reporting: internal control and critical audit matters

Issuer reports under PCAOB AS 3101 include elements with no GAAS counterpart, such as auditor tenure and critical audit matters. In an integrated audit, the auditor also reports on internal control over financial reporting in a combined report or a separate one. By contrast, key audit matters for nonissuers appear only when the auditor is engaged to report them.

Material weakness
One or more material weaknesses lead to an adverse opinion on internal control over financial reporting, unless the scope was restricted.
PCAOB AS 2201.90-.92
Critical audit matters
A CAM is a matter communicated to the audit committee that relates to material accounts or disclosures and involved especially challenging, subjective, or complex judgment. Certain filers, including emerging growth companies, are exempt.
PCAOB AS 3101.11; PCAOB CAM fact sheet
Tenure and independence
The issuer report states the year the auditor began serving consecutively and that the auditor must be independent.
PCAOB AS 3101.09-.10
Key audit matters
For nonissuers, KAMs appear only when the auditor is engaged to report them and never alongside an adverse opinion or disclaimer unless law requires it.
AU-C 701.04

Attestation and SSARS engagements

Attestation engagements differ by level of service: an examination gives an opinion, a review gives a conclusion, and agreed-upon procedures report findings. SSARS engagements for nonissuers range from preparation, with no report required, to compilation, with no assurance, to review, with limited assurance and a requirement of independence. Report wording reflects each of these differences.

Agreed-upon procedures
The engaging party agrees to the procedures and acknowledges they are appropriate. The report lists procedures and findings, gives no opinion or conclusion, and may restrict its use.
AT-C 215.03, .34-.36
Preparation
Each page must state that no assurance is provided. Otherwise the accountant issues a disclaimer, performs a compilation, or withdraws.
AR-C 70.14
Compilation independence
An accountant who is not independent may still compile but must say so in the last paragraph of the report. Giving reasons is optional, but if any are given, all must be.
AR-C 80.22-.23
Review independence
A review requires independence, and the accountant withdraws if independence becomes impaired during the engagement.
AR-C 90.10

Other reporting considerations

Several reporting situations add responsibilities beyond the opinion itself: other information in the annual report, supplementary information, special purpose frameworks, reviews of interim information, and the extra reports required under Government Auditing Standards and the Uniform Guidance. Each sets a specific level of responsibility and specific report language.

Other information
The auditor reads other information in the annual report for material inconsistencies and reports on it in an Other Information section, with no opinion or assurance.
AU-C 720.16
Supplementary information
When the auditor is engaged to report on supplementary information, the opinion is whether it is fairly stated in relation to the financial statements as a whole.
AU-C 725
Special purpose frameworks
An emphasis-of-matter paragraph identifies the framework. A contractual or regulatory basis also requires an other-matter paragraph restricting use.
AU-C 800.20-.21
Government and single audit reports
GAGAS requires reports on internal control and compliance even when there are no findings. A single audit adds an opinion on compliance for each major program and a schedule of findings and questioned costs.
GAO Government Auditing Standards 2024, para. 6.40; 2 CFR 200.515

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