When financial statements for multiple periods are presented together, the auditor's report must address each period. The report date of the most recent audit is used, and prior opinions may need to be updated based on new information or changes in conditions.
The auditor may express varying opinions for different periods. Examples include:
Unmodified Prior Year and Qualified Current Year: A qualified opinion in the current year might arise from issues like omitted lease obligations.
Unmodified Current Year and Disclaimer on Prior Year: When evidence for prior period statements (e.g., inventory observations) is insufficient, the auditor may disclaim an opinion on those statements.
If evidence from the current audit changes the appropriateness of a prior opinion, the auditor updates the opinion and discloses:
Date of the prior report.
Type of prior opinion.
Reason for the prior opinion.
Changes in circumstances.
Statement that the opinion is now different.
If the predecessor auditor’s report is reissued, they confirm its appropriateness based on current circumstances.
If the report is not reissued, the successor auditor references it in an other-matter (nonissuer) or explanatory (issuer) paragraph, noting details of the prior audit.
When unaudited prior period financial statements are presented with audited current period statements, the unaudited nature of prior statements must be clearly disclosed.
Component: An entity or activity included in group financial statements.
Component Auditor: Auditor of the component’s financial information.
Group Engagement Team: Responsible for the overall group audit and report.
The group engagement team evaluates:
Independence and ethical compliance.
Professional competence.
Information availability for consolidation.
Regulatory oversight of the component auditor.
No Reference: When the group auditor assumes full responsibility, no reference is made to the component auditor.
Reference Included: If the group auditor relies on a component auditor’s work, they must:
Confirm the component audit followed GAAS or PCAOB standards.
Clearly disclose the component auditor’s scope and any additional adjustments.
When a component auditor issues a modified opinion or includes emphasis-of-matter or other-matter paragraphs, the group auditor must consider their impact on the overall report. Adjustments may include modifying the group auditor's opinion or adding relevant explanatory paragraphs.
Comparative reports require careful assessment of consistency, prior modifications, and scope limitations.
Group financial statements demand thorough coordination between the group engagement team and component auditors to ensure compliance and clarity in reporting.
When reporting on comparative financial statements, an auditor ordinarily should change the previously issued opinion on the prior year's financial statements if the:
Comparative financial statements include the prior year's statements that were audited by a predecessor auditor whose report is not presented. If the predecessor's report was unmodified, the successor should:
The group auditor decides not to refer to the component auditor who audited a subsidiary of the group auditor's client. In this situation, the group auditor most likely would: