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ADVANCED NOTES

- the need for technical competence and familiarity

with current standards of practice is embodied in the
CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS Code of Professional Conduct

Need for Public Confidence

Its provisions are acknowledged by the Framework and is - without public confidence in the attestor, the attest
adapted from the IFAC Code of Ethics for Professional function serves no useful purpose.
Accountants

1. INTEGRITY – not merely honest but fair dealing and

AICPA CODE OF PROFESSIONAL CONDUCT
truthfulness
- adopted in 2014, provides guidance and rules to
2. OBJECTIVITY – obligation to be fair, intellectually
CPAs in the performance of their professional
honest, and free from conflicts of interest
responsibilities.
3. CONFIDENTIALITY – not use or disclose any
The Code consists of:
information during the course without proper and
specific authority unless there is legal right or duty to 1) Principles
disclose
2) Rules
4. PROFESSIONAL BEHAVIOR – act in a manner
consistent with the good reputation of the 3) Interpretations
profession

5. PROFESSIONAL COMPETENCE AND DUE CARE – Principles

continually strive to improve his knowledge and skills
to perform professional services in accordance with - goal-oriented, positively stated statements on the
technical and professional standards carefully, profession’s responsibilities to the public, clients and
thoroughly, and on a timely basis. fellow practitioners.

Rules

NEED FOR PROFESSIONAL ETHICS - requirements that are enforceable under the AICPA
bylaws
Responsibility to Serve the Public
Interpretations
- ensure that information is fair to all parties and not
biased to benefit one group at the expense of - AICPA Division of Professional Ethics to provide
another. guidelines for the scope and application of the rules

- independence is perhaps the most important

concept embodied in public accounting’s Code of
INDEPENDENCE RULE: A member in public practice shall be
Professional Conduct
independent in the performance of professional services as
Complex Body of Knowledge required by standards promulgated by bodies designated by
Council
- accounting must reflect what is taking place in an
increasingly complex environment
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Independence of mind UNMODIFIED OPINION

- a state of mind that permits the CPA to perform an - Where the auditor concludes that the F/S present
attest service without being affected by influences fairly the financial position, results of operations,
that might compromise professional judgment and cash flows consistently in all material respects,
in accordance with the identified financial reporting
Independence in appearance
framework.
- requires the avoidance of circumstances that might
Issued when:
cause a reasonable and informed third party aware
of all relevant information (1) Audit has been performed in accordance with GAAS
(2) F/S are presented fairly and in conformity with
applicable financial reporting framework and include
INTEGRITY AND OBJECTIVITY RULE: In the performance of all disclosures
any professional service, a member shall maintain objectivity
and integrity, shall be free of conflicts of interest, and shall
not knowingly misrepresent facts or subordinate his or her QUALIFIED OPINION (MODIFIED OPINION)
judgment to others.
- Where the auditor states that “EXCEPT FOR” the
effect of the matter to which the qualification
relates, the financial statements present fairly.
COMPLIANCE WITH STANDARDS RULE: A member who
- This opinion is issued when the auditor concludes
performs auditing, review, compilation, management
that an unmodified opinion cannot be expressed but
consulting, tax, or other professional services shall comply
that the effect of any disagreement or limitation on
with standards promulgated by bodies designated by Council.
scope is not so material and pervasive as to require
an adverse opinion.

ACTS DISCREDITABLE RULE: A member shall not commit an Gist: It cannot be called an unmodified opinion because of
act discreditable to the profession. some sort of disagreement or limitation, but such
disagreement or limitation is IMMATERIAL.
Example violation
Material but Not Pervasive (or immaterial) situations where
- Soliciting or knowingly disclosing Uniform CPA exam a qualified opinion is expressed:
questions or answers.

- Unauthorized disclosure of confidential client ● Departure from the applicable financial reporting
information. framework
● Disagreement with management

● Limitation on scope
AUDIT OPINION

The assurance provided in the audit report is contained in the ADVERSE OPINION (MODIFIED OPINION)
audit opinion expressed in the report.
- States that the F/S do not present fairly
TYPES OF AUDIT OPINION - This opinion is expressed when the effect of a
departure from GAAP or a disagreement with
1. Unmodified opinion
management is so material and pervasive to the
2. Qualified opinion (Modified)
financial statement that the auditor concludes that
3. Adverse opinion (Modified)
qualification is not adequate.
4. Disclaimer of opinion
5. Piecemeal opinion* Highly Material and Pervasive (or material) situations where
an adverse opinion is expressed:
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● Departure from the applicable financial reporting
framework
● Disagreement with management

DISCLAIMER OF OPINION

- A statement by an auditor that an opinion cannot be

expressed on the financial statements
- Expressed when a limitation on scope is so material
and pervasive that the auditor cannot obtain
sufficient appropriate evidence
- Also expressed when the auditor is not entirely
independent of the client

PIECEMEAL OPINION

- An expression of opinion to certain identified items

in the financial statements
MATTERS THAT DO NOT AFFECT THE AUDITOR’S
- This opinion is now prohibited because an audit
UNMODIFIED OPINION
opinion should be expressed on financial statements
as a whole. Emphasis of Matter Paragraph

- Included when an auditor wants to draw user’s

attention to information presented or disclosed in
DEVIATIONS FROM AN UNMODIFIED OPINION: Materiality
the financial statements
and Pervasiveness
- Means that auditor had obtained sufficient
4 general situations that would preclude the auditor from appropriate audit evidence that the matter is not
issuing an unmodified opinion: materially misstated in the F/S
- Included after the opinion paragraph
● Departure from GAAP
Included under circumstances such as:
● Disagreement with management
● Early application of a new accounting standard
● Limitation on scope – client-imposed or imposed by
the circumstances ● Major catastrophe with significant effect in entity’s
financial position
● Lack of independence
● Going concern uncertainty

● F/S prepares using Special Purpose Financial

MATERIALITY AND PERVASIVENESS Reporting Frameworks
- Considered by an auditor who decides to issue a Other Matter Paragraph
modified opinion or disclaimer of opinion.
- Auditor considers that a matter other than those
Materiality – a matter of professional judgement that are presented or disclosed in the financial
Pervasive – when it renders the F/F misleading when taken as statement is relevant to user’s understanding of the
a whole; affects materiality of a particular item audit
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AUDIT REPORTING
Independent auditor’s report
o Describes the nature of an audit and audit
- End product or output of the financial statement process
audit 6. Opinion Paragraph
- Means through which the auditor provides o States auditor’s opinion as to fairness and
reasonable assurance that the F/S are fairly stated reasonableness
- Uniform in format and suitably titled to avoid o Also states that an opinion cannot be
confusion regarding the level of assurance being expressed
provided 7. Other Reporting Responsibilities
o States auditor’s additional responsibilities
to report on other supplementary matters
AUDIT REPORT 8. Auditor’s Signature
o Signature of auditor, either in the name of
- The final step in the audit process
audit firm and/or personal name of auditor
- End product and main output of the audit
9. Date of Auditor’s Report
- The issuance of the audit report containing the
o Date should not be earlier than the date on
expression of an opinion by the auditor is the
manifestation of the auditor’s attest function which the auditor has obtained sufficient
appropriate audit evidence
(1) Addressed to intended users – usually BOD and o Ordinarily dated on the last day of fieldwork
stockholders 10. Auditor’s Address
(2) Released and included in the annual report of o Location where the auditor is practicing
company o Location of the main office of audit firm
(3) Available for the perusal of the general public

The audit report describes:

(1) Responsibilities of auditor and mgt. in F/S audit

(2) Nature of the audit
(3) Audit findings or results
(4) Auditor’s opinion – most often anticipated

PARTS OF THE AUDIT REPORT

1. Title
o “Independent Auditor’s Report” (PSA 700)
o To be distinguished from other reports
2. Addressee
o Often to stockholders
3. Introductory Paragraph
o Entity whose F/S are audited
o States that F/S are audited
4. Management’s Responsibility Paragraph
o States that mgt. is responsible for the
preparation and presentation of F/S
5. Auditor’s Responsibility Paragraph
o States that auditor is to express an opinion
on F/S