Archive for October, 2011

Friday, October 28th, 2011

Anvar from Alma Aty wrote:

Frank,
let me make an addition.
You wrote:
They do not realize that an organisation with financial difficulties may receive an unqualified opinion, as long as these circumstances are adquatly reflected in the financial statements.

I believe, that if company suffers financial difficulties which may affect the users opinon, it must be reflected in emphasis of matter paragraphs, in accordance with ISA 706. So Users of audit report, even if there was unqualified opinion, will understand from auditor’s report, that there is some difficulties in company.

Friday, October 28th, 2011

Etleva Dhamo from Tirana wrote:

Proceeding further with Anvar’s response , ISA 700 is about the unmodified opinion, whereas ISA 705 is about the types of modification to the auditor’s opinion. And they are:
1- Qualified Opinion – when the misstatements are material, but not pervasive, to the financial statements .
2- Adverse Opinion – when the misstatements are both material and pervasive to the financial statements.
3- Disclaimer of the Opinion – when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion and he/she concludes that the possible effects on financial statements of undetected misstatements, if any, could be both material and pervasive.

Friday, October 28th, 2011

I understood the question as follows: Is there a convention how the headline of the opinion paragraph should look like? ISA 700 gives an illustration of an independent auditor´s report in case of an unqualified opinion. The illustration explicitly uses the headline “opinion”.

ISA 705 gives an illustration in case of a qualified opinion. The illustration explicitly uses the headline “Qualified opinion”.

I have not seen an illustration of an report in the ISAs that would use the wording “Unqualified opinion” for paragraph headlines. Okay, I am not a English native speaker, but anyway I would feel that it is not necessary to add the word “unqualified” into the headline. The meaning of the word “unqualified” is that we have nothing to add. Thus, we should not add unnessary words into the headline. On the other hand, I cannot see that it is contradictive or misleading to use the word “unqualified”. It is not exactly the wording like in the illustrations, but I would not say that it is noteworthy deviation from the standard.

Much more important is that – up to now – many auditees believe that an unqualified opinion is something bad (in analogy to sportsmen that have not qualified for the Olympics). Here is still work to do – auditors have to explain the professional terminology to the auditees. Even worse: many auditees believe that an unqualified opinion means that “everything is okay”. They do not realize that an organisation with financial difficulties may receive an unqualified opinion, as long as these circumstances are adquatly reflected in the financial statements.

Frank Fabel, CPA

Terminology questions

Wednesday, October 26th, 2011

Ms. Elda Bidaj from Tirana wrote to us:

Our NGO was audited by an international audit firm. I have a concern regarding the terminology used. Is it worldwide that the Audit Standards have changed?

 OLD STANDARD

 Unqualified Opinion

In our opinion, the combined financial statements present fairly, in all material respects, the financial position of the Organisation as of June 30, 2011 and of its financial performance and its cash flows for the year then ended in accordance with cash modified basis of accounting described in note 2 to the combined financial statements.

NEW STANDARD

 Opinion

In our opinion, the combined financial statements present fairly, in all material respects, the financial position of the Organisation as of June 30, 2011 and of its financial performance and its cash flows for the year then ended in accordance with cash modified basis of accounting as described in note 2 to the combined financial statements.

I understood that the question is only in the word “unqualified”. Who could help Bidaj?

Frank Fabel, CPA