McGraw-Hill/Irwin

Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 12
Reports on Audited Financial Statements
The television industry doesnt like to see the complexity of the world. It prefers simple reporting, with simple ideas: this is white, thats black; this is good, thats bad. Filmmaker Krisztof Kieslowski

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Reports Accompanying Financial Statements

Prepared by Auditor
Opinion on financial statements and related disclosures: Are F/S presented per applicable financial reporting framework (GAAP)? Opinion on internal control over financial reporting: Is I/C effective?

Prepared by Management
Opinion on internal control over financial reporting: Is I/C effective?
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Types of Auditors Reports

1. Standard report

Expresses an unqualified opinion

F/S are in conformity with GAAP Additional matters are disclosed in report

2. Unqualified opinion with modified wording

3. Qualified opinion
4. Adverse opinion

Except for some matter, F/S are in conformity with GAAP F/S are not in conformity with GAAP No opinion is issued by auditors

5. Disclaimer of opinion

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The Standard Report (Paragraphs)

Introductory
F/S and years examined Responsibility of auditors and management

Scope
Audit conducted in accordance with PCAOB standards Description of an audit (specific references to test basis, materiality, and significant estimates) Audit provides reasonable assurance

Opinion
Are F/S presented in conformity with applicable financial reporting framework (GAAP)?

Internal Control
References examination, report, and opinion on internal control

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Independent Auditors Report (AS 5)

Report Title
Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders DUNDER-MIFFLIN, INC. We have audited the accompanying balance sheets of DUNDER-MIFFLIN, INC. as of December 31, 2012 and 2011, and the related statements of income, shareholders equity, and cash flows for each of the years in the three-year period ended December 31, 2012. These financial statements are the responsibility of DUNDERMIFFLIN, INC.'s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DUNDER-MIFFLIN, INC. as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), DUNDER-MIFFLIN, INC.S internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated January 29, 2012 expressed an unqualified opinion thereon.

Report Address
Introductory Paragraph

Scope Paragraph

Opinion Paragraph Internal Control Paragraph Signature Report Date

Michael Scarn, LLP

Scranton, PA January 29, 2013 12-6

Departures from GAAP

Issue either qualified opinion or adverse opinion, depending upon materiality and pervasiveness
Opinion paragraph modifications
Qualified (In our opinion, except for the matter discussed in the preceding paragraph,.)
Adverse (financial statements do not present fairly)

Add paragraph discussing departure and amounts

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Scope Limitations
Issue either qualified opinion or disclaimer, depending upon materiality and pervasiveness Type of scope limitation Circumstance-imposed: Beyond auditors and clients control Client-imposed: Client specifically limits auditors procedures (more serious, disclaimer issued)
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Scope Limitation: Qualified Opinion Issued when scope limitations are material, but not pervasive Report Modifications: Introductory paragraph remains the same Scope paragraph: Except as discussed in the following paragraph [the scope limitation], we conducted our audit Add paragraph preceding the opinion paragraph describing the scope limitation Modify opinion paragraph (In our opinion, except for)
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Scope Limitation: Disclaimer of Opinion

Pervasive scope limitation, usually client-imposed
Significance of the limitation is such that auditors cannot gather sufficient appropriate evidence to form an opinion

Report Modifications:
Introductory paragraph: (We were engaged to audit .; omit auditors responsibility) Omit scope paragraph Add paragraph preceding the opinion paragraph describing the scope limitation Modify opinion paragraph (we do not express an opinion.) May still issue opinion on internal control if no scope limitation on the examination of internal control

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General Approach for Other Matters

Issue unqualified opinion but add paragraph to report to discuss the matter
Emphasis-of-matter paragraphs provide information related to users understanding of F/S Other-matter paragraphs provide information related to users understanding of audit, auditors responsibility, or auditors report

Situations
Consistency Going-concern Rule 203 departures from GAAP Division of responsibility Emphasis of a matter

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Division of Responsibility
Group auditors should
Verify component auditors reputation and independence Communicate and coordinate with component auditors

Options
Take responsibility for work: Standard report Name component auditors
Present report of component auditors, only with their permission

Refer to component auditors

Modify introductory, scope, and opinion paragraphs of report Still express unqualified opinion, if appropriate

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Association with Unaudited F/S

Auditors permit use of name in communication including F/S Issue disclaimer of opinion (one paragraph)
Do not mention auditing procedures performed Must identify any known departures from GAAP in the report Should cover all unaudited prior-years financial statements

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Comparative F/S
Continuing Auditors
Update opinion by considering if previously-issued opinions still appropriate If previously-issued opinions not appropriate, revise opinion in current report

Predecessor auditors
With permission, auditors may present reissued report from predecessor on prior-years F/S along with their report on current F/S If predecessors report not presented, auditors report must reference predecessors report and opinion on prior-years F/S

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Information Accompanying F/S

Summary financial statements
Expand report on full F/S to provide conclusion on summary F/S (in relation to full F/S)

Other information (includes Presidents letter, MD&A, and other information)

Exception-based reporting

Consider whether any inconsistencies affect opinion on F/S

Required supplementary information

Required to perform limited procedures Expand report on F/S to discuss procedures and issues encountered with engagement or information (if any) Disclaim an opinion on supplementary information

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Reporting Summary
Opinion Material Departure from GAAP Scope Limitation Other matters (Consistency, Going-concern, Rule 203, Emphasis of a matter) Other matters (Division of responsibility when referencing work of component auditors) Qualified Qualified Unqualified Pervasive Adverse Disclaimer Unqualified X Paragraphs modified/added Intro Scope Opinion X X Addl X X X

Unqualified

Unqualified

May issue disclaimer if: Lack of independence Associated with financial statements Material and pervasive going-concern uncertainty
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