Auditor's Report Guidelines

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Questions and Answers

What does OM in an auditor's report stand for?

Office Management

Operational Memorandum

Other Matter (correct)

Official Monitoring

Which of the following must be true for an OM to be included in the auditor's report?

The matter is required by law to be disclosed.

The matter must be highlighted in the financial statements.

The auditor is not prohibited by law or regulation. (correct)

The information is exclusively financial.

How should the OM paragraph be presented in the auditor's report?

In the summary section.

As an appendix.

At the beginning of the report.

Within a designated section labeled 'Other Matter'. (correct)

When the auditor identifies a material inconsistency in the other information, what is the auditor required to do?

Determine if the audited financial statements or other information is misstated. Signup and view all the answers

What does 'material inconsistency' imply in the context of an auditor's report?

Significant differences between the audited financial statements and the other information. Signup and view all the answers

Which of the following is NOT an example of 'other information' in an entity's annual report?

The auditor's report Signup and view all the answers

What action should an auditor take if management refuses to correct a material misstatement in the financial statements?

Modify the audit opinion. Signup and view all the answers

Which of the following best describes a misstatement of other information?

Information that is misleading or incorrectly stated. Signup and view all the answers

What is a primary reason for an auditor to issue a disclaimer of opinion on financial statements?

Inability to obtain sufficient appropriate audit evidence Signup and view all the answers

What must an auditor avoid when including an Emphasis of Matter (EOM) paragraph in the report?

Indicating a modification of the opinion Signup and view all the answers

Which condition must be met for an auditor to use an Emphasis of Matter paragraph?

The matter is fundamental for users' understanding of the financial statements Signup and view all the answers

What has replaced the use of EOM paragraphs regarding going concern issues in an auditor's report?

Material Uncertainty Paragraph Signup and view all the answers

In addition to not modifying the opinion, what key element should an EOM paragraph clearly reference?

The matter being emphasized and relevant disclosures Signup and view all the answers

Where should the Emphasis of Matter paragraph be located in the auditor's report?

Within a separate section with an appropriate heading Signup and view all the answers

Which statement accurately describes the nature of the information included in an EOM paragraph?

It must relate to information presented or disclosed in the financial statements Signup and view all the answers

What is one condition that does not warrant the inclusion of a KAM in the auditor's report?

The auditor's independence and ethical responsibilities Signup and view all the answers

Study Notes

Disclaimer of opinion

If the auditor is unable to form an opinion due to insufficient appropriate audit evidence, they must issue a disclaimer of opinion.
The auditor's report should not include a key audit matter (KAM) unless required by law or regulation.

Modified Auditor's Report

An Emphasis of Matter (EOM) paragraph or Other Matter (OM) paragraph is included in the auditor's report to highlight specific information.
The placement of these paragraphs depends on the nature of the information and its relative significance to users.

Emphasis of Matter (EOM)

EOM emphasizes information appropriately presented or disclosed in the financial statements that is crucial for users' understanding.
EOM is appropriate if the matter does not require a modification of the audit opinion and is not a KAM.
EOM is no longer used for going concern matters; a "Material Uncertainty" paragraph is used instead.
The EOM paragraph must:
- Be included in a separate section with an appropriate heading.
- Clearly reference the matter being emphasized and its location in the financial statements.
- State that the auditor's opinion is unmodified.

Other Matter (OM)

OM refers to information outside the financial statements relevant to users' understanding of the audit, the auditor's responsibilities, or the auditor's report.
OM is appropriate if not prohibited by law or regulation and is not a KAM.
The OM paragraph should be included in a separate section with a heading like "Other Matter."

Other Information

"Other information" refers to financial or non-financial information in an entity's annual report, excluding financial statements and the auditor's report.
Examples of other information include reports on operations, financial summaries, employment data, planned capital expenditures, financial ratios, names of officers and directors, and selected quarterly data.
The auditor should read the other information to identify material inconsistencies with the audited financial statements.
If a material inconsistency is discovered, the auditor must determine whether the financial statements or other information is incorrect.
If the financial statements are materially incorrect and management refuses to correct them, the auditor must modify the audit opinion.
If the other information is materially incorrect and needs revision but management refuses, the auditor must communicate this to the appropriate parties and either:
- Include an "Other Information" section in the auditor's report describing the inconsistency.
- Withdraw from the engagement if legally permitted.
Misstatement of other information can occur through incorrect statements or misleading information.

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Description

This quiz covers key concepts related to disclaimers of opinion and modified auditor's reports, including the Emphasis of Matter. Understand the criteria for issuing disclaimers and how to properly articulate the significance of specific information in audit reports.