The standard unmodified audit report for nonpublic companies

Answer these Questions:

1: H and I 2: D 3: E 4: C 5: F 6: C & D 9: D & E

10: For all of the public companies above look up the most recent 10K and provide a brief description of the differences between the one you were asked to look up and the most recent.

Questions

1. Find Coca-Cola Company’s 2014 10-K filing on the SEC website. The financial statement date is December 31, 2014. For this question, you will want to search for “Coca Cola Co” to find the correct entity.

a. List the purpose of each of the first three paragraphs. 


b. Why is the final paragraph included? 


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c. What is the date on which the auditor obtained sufficient appropriate evidence to support the auditor’s opinion?

d. What type of audit opinion was issued on the financial statements – standard unqualified, unqualified with explanatory paragraph or modified wording, qualified, adverse, disclaimer? 


e. What type of opinion was issued on the internal control over financial reporting? 


f. What criteria was used to evaluate internal control over financial reporting? 


g. What is the date of the auditor’s report on internal control over financial reporting? 
What does this date match? 


Research & further analysis:

h. What conditions were likely present to warrant the type of opinion on the financial statements discussed in question 1d above? 


i. Would you expect the opinion on internal control over financial reporting to always be the same as the opinion on the financial statements? Why or why not? 


2. Find Coca-Cola Company’s 2012 10-K filing on the SEC website. The financial statement date is December 31, 2012. Similar to question 1, search for “Coca Cola Co” to find the correct entity.

a. This audit report has an additional paragraph. What is the purpose of this paragraph?

b. Where is this paragraph located in the report?
c. What type of opinion was issued on the financial statements – standard unqualified,

unqualified with explanatory paragraph or modified wording, qualified, adverse, disclaimer?

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Research & further analysis:

d. Do the relevant auditing standards require that the auditor include information about the specific circumstance discussed in question 2a above? If not required, why would the auditor include this additional information?

3. Find Borders Group, Inc.’s 2011 10-K filing on the SEC website. The financial statement date is January 29, 2011.

a. This audit report has an additional paragraph. What is the purpose of this paragraph? 


b. Where is this paragraph located in the report? 


c. What type of opinion was issued on the financial statements – standard unqualified, 
unqualified with explanatory paragraph or modified wording, qualified, adverse, 
disclaimer? 


d. Read Note 2 in the footnotes to Border’s financial statements. Summarize the key 
points disclosed by management about this issue. 


4. Research & further analysis: 
e. Do the relevant auditing standards require that the auditor include information about the specific circumstance discussed in question 3a above? If not required, why would the auditor include this additional information? 


5. Find Majestic Capital, Ltd.’s 2010 10-K filing on the SEC website. The financial statement date is December 31, 2010. 


a. What type of opinion was issued on the financial statements – standard unqualified, unqualified with explanatory paragraph or modified wording, qualified, adverse, disclaimer?

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b. What do the auditor and management disclose as the reasons for this type of opinion?

Research & further analysis:

c. Based on your review of the relevant auditing standards, why does this opinion differ from the opinion issued for Borders Group, Inc. in question 3c above?

5. Find Canon Inc.’s 2008 20-F filing on the SEC website. The financial statement date is December 31, 2008.

a. What is a 20-F filing? 


b. Who is the auditor for Canon Inc. during this period? 


c. The audit report includes an additional paragraph just prior to the opinion 
paragraph. What issue does this additional paragraph identify? 


d. The audit report includes an additional paragraph just after the opinion paragraph. 
What is the purpose of this paragraph? 


e. What type of opinion was issued on the financial statements – standard unqualified, 
unqualified with explanatory paragraph or modified wording, qualified, adverse, 
disclaimer? 


Research & further analysis:

f. Identify the specific auditing standards used by the auditor when issuing the opinion discussed in question 5e above. Why is this type of opinion appropriate given the specific circumstances for this company?

6. Find Barnes & Noble, Inc.’s 2013 10-K filing on the SEC website. The financial statement date is April 27, 2013. Note that this company files these financial statements under the “EX-13.1” item rather than the “FORM 10-K.”

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a. The first report relates to the financial statements, while the second report relates to internal control over financial reporting. What type of opinion was issued on the financial statements – standard unqualified, unqualified with explanatory paragraph or modified wording, qualified, adverse, disclaimer? 


b. What type of opinion was issued on the internal control over financial reporting? Does this opinion differ from the opinion issued for the financial statements? If so, discuss why this difference could arise. 


Research & further analysis:

c. What type(s) of internal control deficiencies did the auditor describe in the report on internal control over financial reporting? Is it possible that the auditor could have identified other types of internal control deficiencies that were not included in the report? Explain.

d. Following these two reports, you will find a third report related to the prior year financial statements (2012). Who is the auditor for this report? What is the purpose of the last paragraph in this report (and Note 2 in the financial statements)? Referring to guidance in the relevant auditing standards, identify why this audit report is dual dated.

7. Find the 2014 Annual Report for Anheuser-Busch Inbev. While this public company also files a 20-F on the SEC website, please obtain a copy of the annual report from the company’s website. To do so, go to the company’s website (http://www.ab-inbev.com) and find the full annual report for 2014 in English. “HY” stands for half year, so you’ll want to make sure you get the full annual report and not the half-year report. The financial statement date is December 31, 2014.

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a. What standards did the auditor follow when performing this audit? 


b. What type of opinion was issued on the financial statements – standard unqualified, unqualified with explanatory paragraph or modified wording, qualified, adverse, 
disclaimer? 


c. Who signed the audit report? How does this differ from audit reports in the U.S.? 


Research & further analysis:

d.

In 2013, the PCAOB issued a reproposal of an auditing standard addressing the difference noted in question 7c above. Read the summary titled “Fact Sheet: Improving Transparency Through Disclosure of Engagement Partner and Certain Other Participants in Audits” (available at: http://tiny.cc/pcaobTransparency). How would this 2013 proposal change audit reports and disclosures for U.S. companies regarding the signature on the audit report?

Read the rationale provided by the PCAOB for the change discussed in question 7d above. You can find this information on the PCAOB website where the board discloses the status of all standard-setting activity. On the PCAOB’s website (http://pcaobus.org), click on Standards in the menu bar, find the section for Standard-Related Activities, and go to Current & Recent Standard-Setting Activities. Scan the titles of recently adopted standards and click on the Docket No. for the appropriate project. The PCAOB’s rationale is included in the link to the Reproposed Rule (Release No 2013-009) under the heading titled “Releases and Rule Filings” on the Docket page. In your response to this question, list two arguments the PCAOB offered in support of the proposed rule.

e.

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f. Now read the feedback from two different constituents for the change discussed in question 7d above. On the Docket page, click on View Comment Letters to see the feedback that constituents submitted to the PCAOB. Focus on the comment letters for the Reproposed Rule and the Proposed Rule. Read one letter written by a state society, CPA association, or large accounting firm, as well as a second letter of your choosing. In your response to this question, provide the author name(s) along with two concerns about the reproposed/proposed rule for each of the two letters reviewed. 


g. On the Docket page under the “Releases and Rule Filings” heading, open the Supplemental Request issued on June 30, 2015 and read this alternative proposal. This supplemental request also has its own set of comment letters that you can review. If you were a member of the PCAOB, which option would you choose (the existing standards, the reproposed rule from question 7e above, or the alternative proposal you just read)? What factors do you find most relevant in making your decision? 


Private Company Audit Reports: The second set of audit reports relates to privately-held companies. Private companies are not required to provide their financial statements to the general public; therefore, the examples shown below represent two instances when a private company voluntarily discloses this information on its website.

8. Find the most recent consolidated financial statements (not the annual report) for Northwestern Mutual Life Insurance Company. These consolidated financial statements can be found on the company’s website following the links to About Us, then Financial Information, and then Our Results (http://www.northwesternmutual.com).

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a. Find the audit report. List at least two general differences in the audit report of a private company relative to the audit reports of publicly traded companies that you previously reviewed. 


b. What is the “Statutory Basis of Accounting”? Read Note 1 in the footnotes of the consolidated financial statements to understand this basis of accounting used for insurance companies. What type of opinion was issued on the consolidated financial statements under the Statutory Basis of Accounting – standard unmodified, unmodified with explanatory paragraph or modified wording, qualified, adverse, disclaimer? 


c. What type of opinion was issued on the consolidated financial statements under U.S. GAAP – standard unmodified, unmodified with emphasis-of-matter paragraph or modified wording, qualified, adverse, disclaimer? 


d. What additional paragraph was added to explain this type of opinion for U.S. GAAP? What reason does it describe for this opinion? 


Research & further analysis:

e. AU-C Section 800 of the AICPA Clarified Statements on Auditing Standards provides guidance for audit reports of financial statements prepared under a special purpose framework, commonly referred to as other comprehensive bases of accounting (e.g., cash basis, tax basis, regulatory basis, etc.). Paragraphs .18 through .21 detail additional information required for these reports. Identify the paragraph and report illustration in AU-C Section 800 that specifies the appropriate report format for Northwestern Mutual Life Insurance Company based on the company’s intended use of this audit report.

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9. Visit the website for Tribune Company (http://www.tribunemedia.com) and click on the Investors link. Note: Tribune Company was renamed to Tribune Media Company in August of 2014.

a. Under Financial Information, find the 2012 Archives and open the 2012 Consolidated Financial Statements. The financial statement date is December 30, 2012. What type of opinion was issued on the financial statements – standard unmodified, unmodified with emphasis-of-matter paragraph or modified wording, qualified, adverse, disclaimer? What is the reason for this opinion? 


b. Now open the 2013 Consolidated Financial Statements in the 2013 Archives. The financial statement date is December 29, 2013. What additional information is included in the first paragraph of the Auditor’s Responsibility section? 


c. What type of opinion was issued on the financial statements for 2013 – standard unmodified, unmodified with emphasis-of-matter paragraph or modified wording, qualified, adverse, disclaimer? 


Research & further analysis:

d. The 2013 audit report references the work of other auditors. Would the involvement of other auditors always be disclosed in this way or are there other alternatives? As a user of the financial statements, what additional information about the other auditors would you be interested in learning? 


e. What factors would the auditor have considered before issuing the type of opinion noted in question 9a for the 2012 financial statements? Can you think of other circumstances that would warrant a similar report? 


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f. The 2013 comparative financial statements include an audit opinion for the 2012 financial statements. Does that report match the original report issued with the 2012 financial statements? Review AU-C Section 560 of the AICPA Clarified Statements on Auditing Standards and discuss the guidance that addresses the set of circumstances present in this scenario.

Governmental Entity Audit Report: The final example allows you to read an audit report issued for a governmental entity. While these standards and reports differ from those of public and private companies discussed previously, you will find the underlying concepts are still in alignment.

10. Find the consolidated financial statements of the U.S. Government for fiscal year 2014. The consolidated financial statement date is September 30, 2014. You can find this document on the U.S. Government Accountability Office (GAO) website (http://www.gao.gov) and searching for key words (e.g., “2014 consolidated”).

a. Find the Independent Auditor’s Report towards the end of the document. Who signs the audit report (name and title)? 


b. What standards did the auditor follow when performing this audit? 


c. What type of opinion was issued on the U.S. Government’s consolidated financial 
statements? 


d. Were any problems identified with the U.S. Government’s internal control over 
financial reporting? If so, list the deficiencies discussed in the report. 


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e. What are the major challenges presented in the “Long Term Fiscal Challenges” paragraph? Does the first paragraph of this section remind you of a specific type of audit opinion? How does it differ?

Research & further analysis:

f. Generally Accepted Government Auditing Standards (GAGAS), also referred to as the “Yellow Book,” are available on the GAO’s website. Find these standards and review Chapter 4 to determine the auditor’s requirement for reporting on internal control over financial reporting. If an audit finding involves an internal control deficiency, what elements should the auditor develop for disclosure? 


g. Consider the audit report of the U.S. Government’s 2014 financial statements. Was an opinion issued on internal control over financial reporting? Is there a provision in GAGAS that supports this decision? 


What I already finished

1 H

In the auditors’ opinion section, this should be an unmodified standard reports, since all 3 F/s included, 3 standards of GAAP are followed, sufficient evidence collected, and no circumstances need modification.

1 I

No. Not same for

2 D

Coca-Cola Company’s 2012 audit report should be emphasis of matter paragraph-emphasize a matter approximately presented in F/s, in which additional paragraph should be further information recognizing the differences in accounting principles as compared to previous time. Since changes of accounting principles could significantly affect the financial statements, additional paragraph is required to add on the audit report.

3 E

Border Group Inc’s 2011 audit report should be an unmodified opinion-with an other matter paragraph. The auditor’s opinion discusses substantial doubt of the entity’s ability to continue-going concern. This is required to be added on the audit report.

4 C

5 F

Canon Inc. ’s 2018 20-F filing additional paragraph should be Emphasis of matter paragraph-emphasized a matter approximately presented in F/S. It recognizes the change in standards from year to year, such as methods of accounting for depreciation.

6 C

In the 10-k filing of Barnes Noble Inc. ‘s, auditor recognizes the material weakness in the report. Auditors could also identify the “significant weakness” which is less severe than material weakness. (or less than significant weakness)

6 D

9 D

9 E