Question

An auditor explained that public companies almost always earn an unqualified opinion, and that she herself has worked in clients where “Going Concern” language was added to the opinion.   Please answer the following in 2-3 sentences:

1. Why are almost all public company audits issued an unqualified opinion?  Describe what influences are driving that process.

2. Why would a company need Going Concern language in their audit opinion?  

3. Describe the required communications that an auditor must have with the audit committee and management to comply with auditing standards about the final results of the audit.

Answer 1

Answer :

A.

Part 1.

Auditor mostly issues unqualified audit opinion to public companies because as we all know public companies are more in security either from Stock exchange boards, tax authorities or even from general public than any other form of organization So, it very significant for public companies to maintain their reputation by following standards of external financial reporting at the highest level. They invest high resources to ensure compliance related to the external financial reporting standards by having Internal audit team and other compliance team that ensure company has maintained the highest level of external financial reporting standards. Such teams also help to rectify the problem as when required.

So, due to higher standards of quality regarding financial reporting auditors often give unqualified audit opinion to public companies.

Part 2

Management and Those charged with governance - These are part of top level management like Board of directors , president etc. These are responsible for establishing, implementing and maintaining necessary controls to ensure the achieve of objectives related to financial reporting , assets management etc.

Audit Committee - Sub - Committee made up of members of board of directors who are NOT officers / employees looking after day to day operations to oversight of entity's financial reporting , Controls etc and appoint / oversee the external auditors.

Internal Auditor - internal auditor helps the company to ensure compliance. The work of internal auditor can be used by external auditors but ultimate responsible will be external auditors for work used.

Above people have quite influence in the working of companies. Similarly below mentioned people have quite influence in outside of the company.

1. Engagement partner - Partner of audit firm who is also partner in audit engagement. The same who signs the audit report.

2. Audit staff - the staff of audit firm who conducts the audit.

3. Peer reviewer and quality reviewer - other external auditor who is not part of engagement firm responsible for carrying out review the quality of audit which is completed by the engagement team.

B

"GOING CONCERN " is fundamental accounting assumption which must be satisfied by all the entities. Going concern implies that entity will continue for foreseeable future. Company neither has intention nor necessity for closing the operation in near future.

Going concern language is used in audit to ensue compliance of accounting assumption and also to provide sense of security to the users regarding the continuity of the operations.

C

Communication with AUDIT COMMITTEE and MANAGEMENT :

1. Auditor's responsibilities with regards to financial statements audit.

2. Scope and Timing of the audit as planned.

3. Internal Control issues identified in an audit.

4. Significant finding and issues from the audit.

* Significant difficulties encountered during the audit.

** Uncorrected misstatements.

*** Management and auditors disagreements.

**** Views of auditors on qualitative aspects of the entity's significant accounting practices.