ACC 411 Module Five Audit Report Activity Guidelines and Rubric

Overview

An audit report is written to provide a professional opinion of an organizations financial performance. It is used by organizational boards and nonprofit organizations to understand the company's financial status and to make comparisons from year to year about growth and stability. The report summarizes the companys assets and liabilities to ascertain whether they are free of material misstatement. It helps determine where investors choose to invest. There are four types of audit opinion. Companies hope for a clean or unqualified report, but if they receive a report that is not unqualified, meaning there are some inconsistencies or misstatements, the report may be deemed qualified, and those areas must be addressed. If major concerns exist, the auditors may distance themselves from the company by issuing a disclaimer opinion or an adverse audit report.

Directions

Begin by reading AS 3101: The Auditors Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion document found in the Supporting Materials section below. Use the verbiage found in AS 3101 to fill in sections of the audit report. Within the reading, you will identify the parts of an audit report to complete the Audit Report Template found in the What to Submit section. In the Supporting Materials section, you will find the Audit Report Supporting Data that will help you complete the audit report including the section called Challenge the Audit Opinion because it shows how critical audit matters are evaluated and supported. This final section allows you to apply critical thinking skills to think like an auditor about critical matters.

Specifically, you must address each section of the Audit Report Template using the following rubric criteria:

1. Write an audit summary.
2. Identify the audit objectives of the report.
3. Explain the basis for an audit opinion.
4. Describe the critical audit matters:
   1. Determination
   2. Communication
   3. Documentation
5. Challenge the audit opinion: Challenge the basis for an unqualified opinion.
   1. Identify areas of concern.
   2. Justify your concerns.

Module Five Audit Report Supporting Data

Audit Report information needed to complete the template:

• Audit firm name: Audit Partners
• Audit firm location: Boston, Massachusetts
• Audit Partners has been ABC Electronics auditor since 2019
• Date of audit report: February 11, 2023
• Company name: ABC Electronics
• Current audit period ending: December 31, 2022
• Comparative statement: December 31, 2021
• The audit report also references the audit of the companys internal control over financial reporting as of December 31, 2022, based on criteria established in the Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. That audit report, dated February 11, 2023, expressed an unqualified opinion on the company's internal control over financial reporting.

Critical audit matters are used to render an opinion.

1. Description The company enters into long-term service agreements within the generator segments. These agreements require the company to provide maintenance services for customer assets over the contract term, which generally range from 5 to 10 years. Revenue for these agreements is recognized using the percentage of completion method, based on costs incurred relative to total estimated costs over the contract term. As part of the revenue recognition process, the company estimates both customer payments that are expected to be received and costs to perform maintenance services over the contract term.
   • Tested amount and timing of revenue recognition of the service agreements

Audit Tests Performed

• Tested the effectiveness of controls over the revenue recognition process for the long-term service agreements, including controls over managements key estimates
• Evaluated managements risk assessment process through observation of key meetings and processes
• Tested managements process for estimating the timing and amount of costs associated with maintenance

1. Description The company performs premium testing to assess the adequacy of future insurance reserves on an annual basis or whenever events or changes in circumstances indicate that a premium deficiency event may have occurred.
   • Involved our actuarial specialists

Significant uncertainties exist in testing cash flow projections in the adequacy of the reserves for these insurance contracts. Given the significant judgments made by management in estimating the cash flow projections used in the reserve calculation, a high degree of auditor judgment is required.

Audit Tests Performed

• Tested the effectiveness of controls related to controls over the development of key assumptions and managements judgments related to the development of the cash flow projections
• Tested the underlying data for completeness and accuracy that served as the basis for the actuarial estimates

ACC 411 Module Five Audit Report Template Report of Independent Registered Public Accounting Firm

[Note: To complete this template, replace the bracketed text with your own content. Remove this note before you submit your assignment.]

To the shareholders and the board of directors of X Company

Audit Summary

[Add content.]

Objectives of the Audit Report

Opinion on the Financial Statements

We have audited the accompanying balance sheets of X Company (the "Company") as of December 31, 20[X]2 and 20[X]1, the related statements of [insert titles of the financial statements, e.g., income, comprehensive income, stockholders' equity, and cash flows] for each of the [insert text] years in the period ended December 31, 20[X]2, and the related notes [and schedules] (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20[X]2 and 20[X]1, and the results of its operations and its cash flows for each of the [insert text] years in the period ended December 31, 20[X]2, in conformity with [insert the applicable financial reporting framework].

Basis for Audit Opinion

[Add content.]

These financial statements are [add content].

We conducted our audits in accordance with the standards of the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, [add content].

Our audits also included evaluating the accounting principles [add content].

Critical Audit Matters: Determination, Communication and Documentation

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

• relate to accounts or disclosures that are material to the financial statements
• involved our especially challenging, subjective

[Add critical audit matters.]

[Signature]

We have served as the Company's auditor since [year].

[City and State or Country] [Date]

Challenge the Audit Opinion

Challenge the basis for an unqualified opinion. Identify areas of concern and explain what might be done to perform a more complete audit using Sample Audit Report Opinion and Critical Audit Matters as a model.

[Add content.]