1)Identify the deficiencies in the following audit report of the AICPA. Explain
ID: 2591275 • Letter: 1
Question
1)Identify the deficiencies in the following audit report of the AICPA. Explain why each item is a deficiency.
Report of the Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders, XYZ Company
We have audited the accompanying consolidated financial statements of XYZ Company and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the years then ended, and the related notes to the financial statements. These statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the management's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by during the audit, as well as evaluating the overall presentation of the consolidated financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of XYZ Company and its subsidiaries as of December 31, 2013, and 2012, and the results of its operations and its cash flows for the years then ended in accordance with auditing standards of the Public Company Accounting Oversight Board.
Optional Paragraph
Report on Other Legal and Regulatory Requirements
[Auditor's signature]
[Auditor's city and state]
Explanation / Answer
Below deficiencies are observed in Audit Report :
2. Auditor should mention in Auditor’s responsibility section that “they believe that the audit evidence they have obtained is sufficient and appropriate to provide reasonable basis for their audit report”. This is required to know the fact of audit scope covered by auditor.
3. Audit report does not accompany signed balance sheet, income statement, Changes in equity statement, Cash flow statement and foot notes which is basic information for any stakeholder to refer. These basic statements are required for judgement of company’s performance for current year and past year.
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