Question

Discuss each of the five circumstances when an auditor would issue an unqualified audit report with an explanatory paragraph or modified wording. (In your own words write a brief explanation or example of each type)

Answer 1

Here is my Answer for the above question

An Audit report is an evaluation done by internal or external independent proffessional auditor,regarding the financial status of an entity.Auditor will express their opinion on financial statements that weather there are any misrepresentations or not in the audit report.Audit report can be classified into two broad categories , unmodified Audit report and Modified Audit report.

Unqualified Audit report with an explanatory paragraph or modified wording is the one type of un modified Audit report, this report is issued by the Auditor when An auditor is satisfied with the financial statements and presented in true and fair view basis,however auditor believes that additional information or modify wording is necessary.

The following are the five circumstances where Auditor will give Unqualified audit report with explanatory paragraph or modified wording.

1. Application of approved Accounting standards is lacking of consistency

2. There is a significant doubt against the going concern

3. Auditor agrees with a deviation from promulgated Accounting principles.

4. There is specific matters about the financial statements need to be emphasized

5. Other Auditors are involved in the report

1. Application of approved Accounting standards is lacking of consistency.

In the absence of clear guidance- permit managers to choose between different Accounting methodsthen different time period managers choose different methods which leads to inconsistancy in Application of Accounting standards in the relavent periods.

2. There is significant doubt against the going concern

For example when the auditor found that company does not have an ability to pay its debts when its due, then Auditor will give Explanatory paragraph about the current position.

3. Auditor agrees with a deviation from promulgated Accounting principles.

For instance, auditor issues an unqualified audit report with explanatory paragraph which explain that there will be a misleading if the company continues to stick to the promulgated accounting principles (Deviation)

4.There is specific matters about the financial statements need to be emphasized.

This matteres affect the financial position of the company

5. other Auditors are involved in the reports.

For instance, an unqualified audit report with modified wording is issued when auditor wants to make reference in audit report or to qualify the opinion. (Other auditors are involved).