Question

A careful reading of an unmodified opinion report indicates several important phrases. (Note: these phrases will need to be memorized to answer the multiple choice questions on the CPA exam.) Explain why each of the following phrases or clauses is used rather than the alternative provided:

a. "The financial statements referred to above present fairly, in all material respects, the "financial position" rather than "The financial statements mentioned above are correctly stated. "

b. "In conformity with accounting principles generally accepted in the United States of America" rather than "are properly stated to represent true economic conditions."

c. "In our opinion,, the financial statements present fairly" rather than "The financial statements present fairly."

d. "Brown & Philips, CPAs (firm name)," rather than "James E. Brown, CPA (individual partner's name)."

e. "We conducted our audit in accordance with auditing standards generally accepted in the United States of America" rather than "Our audit was performed to detect material misstatements in the financial statements

Answer 1

1) An auditor's duty is to express an opinion on the true and fair view of the financial statements .An auditor needs to mention that financial statements are free from Material Misstatements..In this case, Phrase " the financial statements referred to above present fairly, in all material respects, the "financial position" rather than "The financial statements mentioned above are correctly stated" is used. The first phrase explains the fact that on the basis of information provided ( refer to above), financial statements presents fairly which means that an auditor is only expressing his opinion but in the second phrase " Fiancial statements are correctly stated" indicates that auditor is giving assurance that these are correct in every manner.

so, considering the Duty of an auditor to express an opinion only. the first phrase is used rather than the second phrase which gives a clean judgement of the financial statements.

2) An Auditor should explain in his audit report that what Accounting policies and Accounting standard has been followed while preparing the financial statements of an organisation. In this case the phrase "In conformity with accounting principles generally accepted in the United States of America" is used rather than "are properly stated to represent true economic conditions." The first phrase phrase clarifies that Fiancial statements are prepared using some Accouting statndards applicable in the country while the secong phrase explains general economic conditions. there is no specifications that while preparing the financial statements what Accounting policies and standards are used. Thats why the first phrase in correct.

3)   As the Preparation of financial statements are the responsilibity of Management of the organisation. Auditor's duty is to express an opinion on the same. that why the phrase "In our opinion,, the financial statements present fairly" is used rather than "The financial statements present fairly. Because the second phrase indicates a clean judgments that these are accurate, there in no expression of opinion.

4) when a firm conducts an audit then the audit report should be issued by the name of the firm rather than in their individual's name.Because all the partners of firms are jointly liable for the act done by any partner of the firm. if one or more partners of firm conducts an audit then firm will be liable for the complete action. Thats why in this case name of the firm is used rather than using the name of individual partners of the firm.

5) Before conducting an audit, auditor needs to design an Audit Programme which should be in accordance with the Auditing standard laid down by the competent authority of the country. Dectecting some material mistatament is a part of that Audit programme. In this case phrase "We conducted our audit in accordance with auditing standards generally accepted in the United States of America" is used rather than "Our audit was performed to detect material misstatements in the financial statements. because the second phrase itself is a part of Audit programme which is expected to be prepared in accordance with the Auditing Standard generally accepted in United states of America.