Audit Opinion: 4 types | Unqualified & Unmodified Opinion | Qualified Opinion | Adverse Opinion
Summary
TLDRIn this session, Professor Farhad discusses various audit opinions, focusing on the CPA exam's auditing section. He outlines four types of audit opinions: unmodified (clean), qualified, adverse, and disclaimer. He explains the conditions for an unmodified opinion and when to use explanatory paragraphs. Farhad also covers situations leading to modified opinions, emphasizing materiality and pervasiveness. He advises connecting on LinkedIn, subscribing on YouTube, and visiting his website for more resources, encouraging students to take their CPA exam preparation seriously.
Takeaways
- 👨🏫 The session is led by Professor Farhad, focusing on summarizing audit opinions covered in the playlist.
- 🔗 Professor Farhad encourages connecting with him on LinkedIn and subscribing to his YouTube channel for more accounting, auditing, tax, and finance lectures.
- 📚 The playlist includes a comprehensive list of courses, particularly beneficial for CPA exam preparation.
- 📈 There are four types of audit opinions: unmodified (or unqualified/clean), qualified, adverse, and disclaimer.
- 🟢 An unmodified opinion with an explanatory paragraph is still considered unmodified but highlights additional information for users.
- 🔍 Conditions for a clean unmodified opinion include complete financial statements, sufficient appropriate evidence, fair presentation, and no need for emphasis on any matter.
- 🚫 If an unmodified opinion isn't justified, auditors consider departures from GAAP, restrictions by the client, or lack of auditor independence.
- 📉 Materiality and pervasiveness of issues determine the type of opinion given: qualified for material but not pervasive issues, adverse for material and pervasive issues.
- ❌ A disclaimer opinion is issued if the auditor is not independent, regardless of materiality.
- 💼 Professor Farhad's website, Forhad Lectures, offers additional resources for CPA exam preparation.
Q & A
What are the four types of audit opinions mentioned in the script?
-The four types of audit opinions mentioned are unmodified (or unqualified), qualified, adverse, and disclaimer.
What is an unmodified opinion with an explanatory paragraph?
-An unmodified opinion with an explanatory paragraph is still an unmodified opinion, but it includes additional information that the auditor believes is important for users to know, such as a lack of consistency in the application of GAAP, substantial doubt about going concern, or emphasis of other matters.
What are the conditions required for an unmodified or unqualified audit opinion?
-For an unmodified or unqualified audit opinion, four conditions are required: all financial statements are included, there is sufficient appropriate evidence, the financial statements present fairly within the framework being used, and there are no circumstances requiring additional emphasis of a matter or paragraph.
What is the difference between an adverse opinion and a disclaimer of opinion?
-An adverse opinion is issued when there is a material and pervasive GAAP issue that the auditor does not agree with. A disclaimer of opinion is issued when the auditor is not independent, which is a general standard issue, and materiality is not a consideration in this case.
Why might an auditor issue a qualified opinion?
-A qualified opinion is issued when there is a material departure from GAAP that is not pervasive to the entire financial statements, or when there is a scope restriction imposed by the client that is material but not pervasive.
What does it mean for an issue to be 'material but not pervasive'?
-An issue is considered 'material but not pervasive' when it significantly affects the financial statements but does not impact the overall presentation to such an extent that it would change the overall opinion from unmodified to adverse or disclaimer.
How does the auditor's independence affect the audit opinion?
-If an auditor is not independent, it is a general standard issue, and a disclaimer of opinion is issued regardless of the materiality of the issue, as independence is a fundamental requirement for an audit.
What should a candidate do if they find the script's content helpful for their CPA exam preparation?
-A candidate should consider subscribing to the YouTube channel, liking the lectures, sharing them, and checking out the website for additional resources to supplement their CPA exam studies.
What is the significance of the color red used for the words 'adverse' and 'disclaimer' in the script?
-The color red is used to reflect that adverse and disclaimer opinions are unfavorable and indicate significant issues with the financial statements or the audit process.
What additional resources does Professor Farhad recommend for CPA exam preparation?
-Professor Farhad recommends visiting his website, forhadlectures.com, for additional resources, including lectures and materials specifically designed to support CPA exam candidates.
Outlines
📚 Introduction to Audit Opinions
Professor Farhad begins the session by introducing the topic of audit opinions covered in the playlist within an auditing and attestation course. He emphasizes the importance of connecting with him on LinkedIn and subscribing to his YouTube channel for over 1600 accounting, auditing, tax, and finance lectures. He also invites viewers to like, share, and utilize his lectures for educational purposes. The professor then outlines the four types of audit opinions: unmodified (also known as unqualified or clean), qualified, adverse, and disclaimer. He explains that an unmodified opinion can have a sub-opinion with an explanatory paragraph, which still indicates an unmodified opinion but draws attention to additional matters. The conditions for a clean unmodified opinion are also discussed, which include the presence of all financial statements, sufficient appropriate evidence, fair presentation in accordance with the framework, and no circumstances requiring additional emphasis.
🔍 In-depth Analysis of Non-Unmodified Audit Opinions
In the second paragraph, Professor Farhad delves into the scenarios where an unmodified audit opinion cannot be given and what alternative opinions might be issued. He discusses the three possible issues that could lead to a non-unmodified opinion: a departure from Generally Accepted Accounting Principles (GAAP), scope restrictions imposed by the client, and a lack of auditor independence. The professor explains that the materiality and pervasiveness of the issue determine the type of opinion issued. If the issue is material but not pervasive, a qualified opinion is given. If the issue is both material and pervasive, an adverse opinion is issued for a GAAP departure, and a disclaimer is given for a lack of independence, regardless of materiality. The summary concludes with a reminder to like, share, and subscribe for more CPA exam resources and a wish for the viewers' success and safety.
Mindmap
Keywords
💡Audit Opinion
💡Unmodified Opinion
💡Qualified Opinion
💡Adverse Opinion
💡Disclaimer of Opinion
💡GAAP (Generally Accepted Accounting Principles)
💡Materiality
💡Pervasive
💡Explanatory Paragraph
💡Going Concern
💡Independence
Highlights
Introduction to the session by Professor Farhad on audit opinions.
Emphasis on the importance of connecting with Professor Farhad on LinkedIn and subscribing to his YouTube channel.
Mention of over 1600 accounting, auditing, tax, and finance lectures available.
Encouragement to like, share, and put lectures in playlists if they are beneficial.
Invitation to connect with Professor Farhad on Instagram for educational supplementation.
Introduction of the website hadlectures.com for additional CPA exam resources.
Discussion of the four types of audit opinions: unmodified, qualified, adverse, and disclaimer.
Explanation of the term 'unmodified opinion' and its sub-opinion 'unmodified with explanatory paragraph'.
Differentiation between 'adverse' and 'disclaimer' opinions based on the severity of issues.
Conditions required for a clean unmodified or unqualified audit opinion.
Description of the circumstances under which an unmodified opinion with an explanatory paragraph is given.
Detailed explanation of the materiality and pervasiveness of issues affecting audit opinions.
Guidance on the type of audit opinion to give based on the materiality and pervasiveness of GAAP departures.
Clarification on the necessity of an adverse opinion for material and pervasive GAAP issues.
Discussion on the automatic issuance of a disclaimer opinion when auditor independence is compromised.
Summary of the audit opinion types and their usage, aimed at helping CPA exam candidates.
Closing remarks with a call to action for subscribing, liking, and sharing the content for CPA exam preparation.
Transcripts
hello and welcome to the session this is
Professor Farhad in this session I will
look at a summary basically a conclusion
of the various audit opinion that we
cover in this playlist this topic is
covered and auditing and attestation
course the CPA exam auditing section as
always I would like to remind you to
connect with me on LinkedIn if you
haven't done so YouTube is where you
would need to subscribe I have 1600 plus
accounting auditing tax and finance
lectures this is a list of all the
courses that I cover including CPA
questions if you like my lectures please
like them click on the like button it
doesn't cost you anything
shared them put them in playlists if
they benefit you it means they might
benefit other people so share the wealth
and please connect with me on Instagram
if you are looking to supplement your
education please check out my website
for had lectures comm for additional
resources especially if you're studying
for your CPA exam it's a 30 year
investment in your career take it
serious the first thing we're gonna look
at is the four types of audit opinion
which are unmodified you know or
unqualified depending whether you're
using the AICP or the PCAOB language or
clean opinion and with this opinion we
have a sub opinion of it it's called
unstow unmodified with explanatory
paragraph simply put it's unmodified
opinion that's the first opinion then we
have a qualified opinion then we have
adverse opinion then we have this claim
notice the adverse and the disclaimer
are in red to reflect that they are no
good now da we why do we use adverse vs.
disclaimer we're gonna see later that
adverse is when you have a gap issue and
we're gonna we explain this much much
more in detail in the explanation
session and disclaimer is a gas issue so
now so again all this opinion I went
over in detailed in separate session
check out the playlist for this for this
session what are the condition for the
clean unmodified or unqualified opinion
we need four conditions for this one is
include all the financial statements -
we have to have sufficient appropriate
evidence so the financial statements are
all there we have sufficient appropriate
evidence the financial statements
present fairly with
or the framework that we are using and
for no circumstances requiring the
additional emphasis of a matter or
paragraph so this is the cleanest kind
of clean-cut nothing to worry about
now again with unmodified or unqualified
we have unmodified opinion with
explanatory paragraph we are still
unmodified the only thing here we are
pointing out to something else we want
to we want the users to know about
something else what that could be such
that something else it could be lack of
consistency in the application of gap
but we agree but lack of consistency we
have to show it auditor agree with the
departure from the accounting principle
door so departure but we still agree
substantial doubt about going concern we
have a go there's a going concern issue
emphasis of other matters and reports
involving other auditors and here we use
revised wording now these topics I
covered them much much more in details
each one of them I'm just giving you a
summary of all the audit opinions so if
you want to know about this about these
explanatory paragraph please see the
recording output the playlist I'll put
the link for the playlist in the
description now now what happened if we
don't give unmodified opinion if we
don't give unmodified opinion now we
have to look at what other opinion can
we give because unmodified is not
justified here we're gonna have three
circumstances we could have a departure
from GAAP financial statements are not
prepared according to GAAP and the
auditor disagree because remember here
and one of the paragraph there's a lack
those auditor agree to a departure from
the accounting principle here we we
don't agree so we call this a gap issue
we could have schoo prescription either
by the client or other circumstances and
if it's by the client it could be a
major issue this is a gas generally
accepted or the things standard issue
and the auditor may not be independent
is not independent this is also a gas
issue so we could have three three
issues when we when we don't give
unmodified or clean opinion now when
that's the case what opinion do we give
well then we have to look at the
materiality of the issue if the the
issue could be material so the gap issue
could be material but not pervasive to
the whole
to the sick to the statement as a whole
or the issue could be material and
pervasive to the whole financial
statements so the next thing we look at
is the level of materiality and
pervasiveness now if it's not Material
we don't have to worry about it
obviously we only have to worry if it's
material and if it's material is it
pervasive pervasive or not the race of
or not so so if we have a gap issue
simply put we're not following up and
it's not pervasive easy we give a
qualified opinion so basically we say
the opinion except for this issue looks
good and we looked at this we looked at
this opinion much much more in detail in
a separate recording also the scope if
there's a scope or restriction by the
client but the issue is material but not
pervasive it's to a specific area and
the financial statements then we give a
qualified opinion so that's easy so
qualified when it's material but not
pervasive now if the issue of the issue
is gap its material and pervasive then
we give an adverse opinion if it's
material and pervasive if it's a gas
issue material and pervasive we give a
disclaimer we give a disclaimer now we
are left with auditor is not independent
it's a gas issue whether it's material
or not material here we disclaim whether
it's material or not whether it's
material or not materiality is not an
issue here if you are not independent if
you are not independent you disclaim you
disclaim so those are the opinion and
when we use them this is a summary
hopefully it will be very helpful if
you're studying for the CPA exam as
always if you like my recording please
like them share them put them in
playlists subscribe and if you're
studying for your CPA exam I strongly
suggest you check out my website for
additional resources good luck and study
hard and stay safe
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