06. Decision Process for Audit Opinion

🔎 Decision Process for Audit Opinion

📝 Audit Opinion Decision Process:

1. Perform audit procedures.
2. Identify if there is a:
   • GAAP Departure (e.g., incorrect accounting)
   • GAAS Issue (e.g., unable to obtain sufficient evidence)
3. Assess materiality:
   • Not material ➝ Unmodified Opinion
   • Material ➝ Go to next step
4. Assess pervasiveness:
   • Not pervasive ➝ Qualified Opinion
   • Pervasive ➝
     • GAAP issue ➝ Adverse Opinion
     • GAAS issue ➝ Disclaimer of Opinion
5. Discuss with management.
6. Write and finalize audit report.

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🔍 Step-by-Step: Auditor’s Opinion Decision Framework

1. Did the financial statements conform to the applicable financial reporting framework (e.g., U.S. GAAP)?

   • Yes → Proceed to Step 2
   • No → Material? → Pervasive?
     • Not pervasive → Qualified Opinion (GAAP issue)
     • Pervasive → Adverse Opinion

2. Was the audit performed in accordance with GAAS (sufficient appropriate audit evidence obtained)?

   • Yes → Unmodified (Nonissuer) / Unqualified (Issuer) Opinion
   • No → Material? → Pervasive?
     • Not pervasive → Qualified Opinion (GAAS issue)
     • Pervasive → Disclaimer of Opinion

3. Any other matters?

   • Emphasis-of-Matter or Other-Matter paragraph (Nonissuer)
   • Explanatory paragraph (Issuer)

✅ Key Steps Summary

1. Perform audit procedures
2. Identify any GAAP departures or scope limitations
3. Assess whether the issue is material
4. If material, assess pervasiveness
5. Determine proper opinion:
   • Qualified Opinion (Material but not pervasive)
   • Adverse Opinion (GAAP issue, material and pervasive)
   • Disclaimer of Opinion (Scope limitation, material and pervasive)
6. Discuss with management
7. Write and finalize the report

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