Assignment
Opinion review
The following audit report has many deficiencies (including both incorrect statements and omissions) contained in the auditors' report on a nonpublic company as drafted below.
Auditors' Report
To the Board of Directors and Management XYZ Company
We have reviewed the consolidated balance sheet of XYZ Company as of December 31, 20XX, and the related statements of income, retained earnings, and cash flows for the year then ended. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted accounting standards. Those standards require that we plan and perform the audit to obtain absolute assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present the financial position of XYZ Company as of December 31, 20XX, and the results of operations and its cash flows for the year then ended in conformity with auditing standards generally accepted in the United States of America applied on a consistent basis with the preceding year.
Art Youngster & Co.
Certified Public Accountants Phoenix, Arizona
December 31, 20XX
One of the Audit Managers has reviewed the opinion letter prior to giving the letter to the Audit Partner for signature. The deficiencies are listed below. Did the Audit Manager catch all the mistakes?
The Audit Manager reported the following deficiencies:
1. Introductory paragraph
The introductory paragraph is missing a reference to the responsibility of the management. There should be a sentence describe to the reader that management is responsible for the preparation and fair presentation of the financial statements. Also omitted from the introductory paragraph is the responsibly of the auditor. It should state that the auditor is responsible for expressing an opinion on the statements based on a fair audit. Also, the word reviewed should be changed to audited.
2. Scope Paragraph.
The first sentence does mention GAAS, but it doesn't specify to which country. If it the audit was done following GAAS of the U.S, it should end that sentence with "generally accepted accounting standards of the United States" Also the "and perform the audit to obtain absolute assurance" should be changed to "and perform the audit to obtain "reasonable" assurance
3. Opinion Paragraph
There shouldn't be a mention of a "constant basis with the preceding year "This can be misinterpreted the wrong and mean that they followed the GAAP of the previous year. GAAP rules are constantly changing and auditors should be checking for the most GAAP. Additionally, "auditing standards" should be changed to "accounting principles". The statements follow the Generally Accepted Accounting Principles (GAAP) and not the standards of auditing. The auditors deal with auditing standards, while the financial statements deal with GAAP.
4. Other
The title of the report should include the word independent to signify that it wasn't the company who made the report, but an independent auditor. It should be titled "Independent Auditors Report". The audit report shouldn't be dated the last day of the year being audited, but rather to the last day of field work. It is highly unlikely that these are the same date, and the report should be revised to be dated the last day of field work.
List any deficiencies you think still need to be made. If non you must write no additional deficiencies corrections required.