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Questions and Answers
What does the standard auditor's opinion contain?
What does the standard auditor's opinion contain?
What type of opinion will an auditor issue if a firm has made exceptions to the accounting principles?
What type of opinion will an auditor issue if a firm has made exceptions to the accounting principles?
What will an auditor do if a material loss is probable but the amount cannot be reasonably estimated?
What will an auditor do if a material loss is probable but the amount cannot be reasonably estimated?
What is the purpose of the auditor's report?
What is the purpose of the auditor's report?
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What is the role of the auditor in financial statement preparation?
What is the role of the auditor in financial statement preparation?
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What does an unqualified or clean opinion indicate?
What does an unqualified or clean opinion indicate?
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In the United States, what must an auditor express an opinion on?
In the United States, what must an auditor express an opinion on?
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What is the purpose of internal controls?
What is the purpose of internal controls?
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What type of opinion will an auditor issue if the statements are not presented fairly?
What type of opinion will an auditor issue if the statements are not presented fairly?
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What is the purpose of the explanatory paragraph in the auditor's report?
What is the purpose of the explanatory paragraph in the auditor's report?
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Study Notes
Financial Statement Analysis
- Financial statements help investors and creditors evaluate firms by providing a snapshot of assets, liabilities, and equity (balance sheet), operating performance (income statement), cash flows (statement of cash flows), and ownership changes (statement of owners' equity).
- Financial reporting is done in periods of time, typically annually, but also quarterly on an interim basis.
Financial Reporting Periods
- Companies choose a 12-month reporting period (fiscal year), which may not coincide with the calendar year ending December 31.
International Financial Reporting Standards (IFRS)
- IFRS are accounting standards created by the International Accounting Standards Board (IASB), widely accepted in most major economies, including the European Union.
- In the United States, the Financial Accounting Standards Board (FASB) issues Generally Accepted Accounting Principles (U.S. GAAP), which has some differences with IFRS.
Financial Statement Analysis
- Allows users to assess the amount, timing, and uncertainty of estimates reported in financial statements.
- Footnotes provide additional information on accounting methods, assumptions, and estimates used by management.
Management's Commentary (MD&A)
- Discusses the nature, past performance, and future outlook of the company, including results from operations, capital resources, liquidity, and discontinued operations.
Auditing
- An independent review of an entity's financial statements to provide an opinion on fairness and reliability.
- The auditor examines accounting and internal control systems, confirms assets and liabilities, and checks for material errors.
Auditor's Report
- Contains three parts: management's responsibility, independent review, and adherence to accounting principles and reasonable estimates.
- The auditor's report may include an explanatory paragraph for exceptions to accounting principles or uncertainties.
Types of Auditor's Opinions
- Unqualified (clean) opinion: no material omissions or errors.
- Qualified opinion: exceptions to accounting principles.
- Adverse opinion: statements not presented fairly.
- Disclaimer of opinion: unable to express an opinion.
Internal Controls
- Processes a company uses to present financial statements accurately.
- In the United States, auditors must express an opinion on a company's internal controls.
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Description
Financial statements are useful in evaluating firms, providing snapshots of assets, liabilities, and equity, as well as summaries of operating performance and cash flows.
