Type:
Solution Manual
Resource:
Auditing and Assurance Services, Global Edition
Edition:
16th Edition
Author(s):
Alvin A. Arens Randal J. Elder Mark S. Beasley
Instructor’s Resource Manual
Auditing and Assurance Services Sixteenth Edition Global Edition
Alvin A. Arens Randal J. Elder Mark S. Beasley Chris E. Hogan
CONTENTS Page
Course Approach Suggestions.................................................................... v Suggested Syllabi ................................................................................ v One-Quarter Schedule ........................................................................... vi One-Semester Schedule ........................................................................ vii One-Quarter Assignment Schedule ............................................................ viii One-Semester Assignment Schedule ......................................................... ix Chapter Opening Vignettes — Lessons from Practice ...................................... x End of Chapter Cases and Research Problems .............................................. xi Pinnacle Manufacturing Integrated Case ...................................................... xi Use of ACL Software ............................................................................. xi Assignment of Computer-Related Problems in the Textbook............................... xii Instructor’s Resource Center ................................................................... xii Other Resources That We Use xiii Use of Systems Understanding Aid xiii Use of Integrated Audit Practice Case xiii Use of Auditing Cases xiii Suggested Term Projects xiv Summary of Additional, Changed, and Deleted Problem Material xxiii CHAPTERS I.
THE AUDITING PROFESSION 1 The Demand for Audit and Other Assurance Services 1-1 2 The CPA Profession 2-1 3 Audit Reports 3-1 4 Professional Ethics 4-1 5 Legal Liability 5-1
II.
THE AUDIT PROCESS 6 Audit Responsibilities and Objectives 6-1 7 Audit Evidence 7-1 8 Audit Planning and Analytical Procedures 8-1 9 Materiality and Risk 9-1 10 Section 404 Audits of Internal Control and Control Risk 10-1 11 Fraud Auditing 11-1 12 The Impact of Information Technology on the Audit Process 12-1 13 Overall Audit Strategy and Audit Program 13-1
III. APPLICATION OF THE AUDIT PROCESS TO THE SALES AND COLLECTION CYCLE 14 Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions 14-1 15 Auditing Sampling for Tests of Controls and Substantive Tests of Transactions 15-1 16 Completing the Tests in the Sales and Collection Cycle: Accounts Receivable 16-1 17 Audit Sampling for Tests of Details of Balances 17-1 (continued on the following page)
iii
CONTENTS (continued) IV. APPLICATION OF THE AUDIT PROCESS TO OTHER CYCLES 18 Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable 18-1 19 Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts 19-1 20 Audit of the Payroll and Personnel Cycle 20-1 21 Audit of the Inventory and Warehousing Cycle 21-1 22 Audit of the Capital Acquisition and Repayment Cycle 22-1 23 Audit of Cash and Financial Instruments 23-1 V.
COMPLETING THE AUDIT 24 Completing the Audit 24-1
VI. OTHER ASSURANCE AND NONASSURANCE SERVICES 25 Other Assurance Services 25-1 26 Internal and Governmental Financial Auditing and Operational Auditing 26-1
iv
Chapter 1 The Demand for Audit and Other Assurance Services Usually students will not have read Chapter 1 before the material is covered. As a policy, we always give students the entire scheduled time on the first day of class. In addition to getting a seating chart set up (which we always use), and handling the course procedures, we attempt to cover the following major topics in the chapter: Chapter Opening Vignette — “Monozukuri by KOBELCO” We use this vignette about Kobe Steel, Ltd. (KOBELCO) CSR reporting to highlight the role of auditors in providing assurance on CSR and sustainability reports, as well as many other types of information. Students have a great interest in sustainability, but most are not familiar with sustainability reporting and assurance with respect to CSR. This is a great way to gain students’ interest by emphasizing the valuable role of auditors in providing assurance on all types of information. Nature of Auditing (page 28) Start by asking students to tell you what auditing is. A student’s own definition is then displayed. Other students are asked to discuss it until there is a reasonably usable definition. The three things that should be stressed are: 1. Evidence (define the term) 2. Information 3. Determining degree of correspondence Students tend to think of auditing as auditing financial statements by CPA firms in accordance with GAAS or other auditing standards. We therefore use Figure 1-1 on page 29, to discuss the definition. (See Figure 1-1; shown on Slide 1-9) We also like to display the matrix on OH-1-1 and go through it with the students. As a part of this, students are briefly introduced to IRS auditors, CPAs, and internal auditors. None of this is usually lecture. (See OH-1-1) After you have gone over this information, refer students to the definition of auditing as included on Slide 1-4. Briefly talk about the importance of: ◼ ◼
Competence and independence of auditor (Chapter 4) Need to report on findings (Chapters 3, 24, and 25) 1-1 .
Distinction between Auditing and Accounting (page 30) We spend little time on the distinction between accounting and auditing, but it is at least desirable to point out the differences and relationship between the two. Then ask why auditors need to have knowledge of accounting to be effective auditors. See Review Question 1-2. Economic Demand for Auditing (page 30) We like to spend a few minutes discussing the economic role of auditors in society in Chapter 1. Refer back to this material again in Chapter 5 (legal liability) and Chapter 8 (audit planning and materiality). First, go over the three factors determining interest rates, with emphasis on information risk. Use OH-1-2 to summarize the material in the text. It is useful to discuss the effect on earnings of reducing an organization’s interest rate by 1 or 2%. Problem 1-16 is useful for demonstrating the level of assurance associated with audits and reviews, and the effect of these services on information risk and borrowing costs. (See OH-1-2) Assurance Services (page 32) We start by asking students to describe assurance services. The term will be unfamiliar to most students, but some may recognize the concept. We discuss the following services: ◼ ◼ ◼ ◼ ◼
Assurance services Attestation services Audits of historical financial statements Attestation on internal control over financial reporting Management consulting and other nonassurance services
We then cover Problem 1-15 in class to help students distinguish assurance, attestation, and audit services. Ask students to suggest other types of information on which users may desire assurance and the most likely provider of the assurance. OH-1-3 can be used to list their responses. To start the discussion, we often name one or two types of assurance that aren’t provided by CPAs, such as gas pump inspections and Arbitron radio ratings. Ask students to suggest reasons why the demand for assurance is increasing. Table 1-1 (page 35) is helpful for identifying other types of assurance services that may be provided by CPAs. (See OH-1-3) (See Table 1-1; shown on Slide 1-23) Problem 1-17 can be covered in class to give students a perspective on the similarity between assurance services offered by CPAs and the role played by organizations such as Consumers Union. 1-2 .
Types of Audits and Auditors (page 36, page 38) Most students at our universities know little of the types of auditors and the nature of CPA firms. In a brief lecture, we tell the students: ◼ ◼
The nature of financial, operational, and compliance audits The primary differences between independent CPAs, government auditors, internal revenue agents, and internal auditors
OH-1-1 and Table 1-2 (page 36) can be used as part of this discussion. Problem 1-19 is a good one to use in class as part of a discussion about careers in accounting. Problem 1-20 can also be used to help distinguish the types of audits, and the auditor most likely to perform the audit. (See OH-1-1) (See Table 1-2; shown on Slide 1-26) Certified Public Accountant (page 40) We talk briefly about why some people want to be a CPA. We use Figure 1-3 (page 40) to review the requirements for becoming a CPA, and also discuss the exam requirements and the format of the computerized exam. (See Figure 1-3; shown on Slide 1-35) We then review the CPA Exam eligibility requirements in our state. We encourage students to visit the CPA Examination portion of the AICPA website (www.aicpa.org) to learn more about the exam and obtain the CPA Candidate Bulletin. We find students appreciate this information and it saves us a lot of time in the office telling them the same thing individually.
1-3 .
CHAPTER 1
CROSS-REFERENCE OF LEARNING OBJECTIVES AND PROBLEM MATERIAL DISCUSSION QUESTIONS AND PROBLEMS
1-4
LEARNING OBJECTIVES
CONCEPT CHECKS
REVIEW QUESTIONS
MULTIPLE CHOICE QUESTIONS
1-1
Describe auditing.
P. 8, 1
1-1, 1-8
1-12
1-18
1-2
Distinguish between auditing and accounting.
1-2
1-3
Explain the importance of auditing in reducing information risk.
1-3, 1-4
1-12
1-16, 1-17, 1-21
1-4
List the causes of information risk, and explain how this risk may be reduced.
1-5
Describe assurance services and distinguish audit services from other assurance and nonassurance services provided by CPAs.
1-6
Differentiate the three main types of audits.
1-7
Identify the primary types of auditors.
1-8
Describe the requirements for becoming a CPA.
P. 8, 2
1-5, 1-6
1-17
1-7, 1-10
1-12, 1-14
1-15, 1-17, 1-21, 1-22, 1-23
P. 17, 1
1-9, 1-10
1-13, 1-14
1-20
P. 17, 2
1-8, 1-9
1-13
1-19, 1-20
1-11
.
1-24
CASES
INFORMATION BEING AUDITED, TYPE OF AUDITOR, CRITERIA, AND NATURE OF EVIDENCE INFORMATION BEING AUDITED
CRITERIA TO WHO DETERMINE NATURE OF PERFORMS CORREEVIDENCE THE AUDIT SPONDENCE USED
Tax Return of an Individual
Financial Statements of a Corporation
Efficiency and Effectiveness of a Computer Installation
OH-1-1 .
ECONOMIC DEMAND FOR AUDITING Factors Determining Interest Rate
Risk Free Interest Rate
Business Informa+ Risk tion Risk
+
INFORMATION RISK CAUSES
WAYS TO REDUCE
⚫ Remoteness of Information ⚫ Biases and Motives of Provider ⚫ Voluminous Data ⚫ Complex Exchange Transactions
⚫ User Verifies Information ⚫ User Shares Information Risk with Management ⚫ Information is Audited
OH-1-2 .
INFORMATION AND SOURCE OF ASSURANCE INFORMATION
ASSURER
Example: Number of radio listeners
Arbitron
OH-1-3 .
Chapter 2 The CPA Profession In Chapter 1, students learned about the demand for assurance services and the different types of audits. Chapter 2 describes the CPA profession, and the standards that govern audit performance. Chapter Opening Vignette — “Good Auditing Includes Good Client Service” This vignette demonstrates that auditors are expected to provide value-added services to clients. The vignette also challenges preconceived notions about the role of auditors, and illustrates that students will be in a position to assist clients immediately upon entering the profession. We use this as an opportunity to discuss the performance expected of new auditors, and that students need to be familiar with real-world activities by reading such sources as the Journal of Accountancy and The Wall Street Journal. Certified Public Accounting Firms and their Activities (page 49, page 50) Many students will be familiar with the “Big 4” and the activities of these firms, but many will not. Most students will have little knowledge of other CPA firms. In a brief class discussion, we highlight for students: ◼ ◼ ◼
The three categories of CPA firms The names of the Big 4, plus several major firms in the other categories that recruit at our universities Changes occurring in each category of firms
We then ask students for their perceptions about why there have been changes among the Big 4 and National/Regional firms. We use this as an opportunity to discuss the forces affecting the profession. We are careful not to offer opinions about the desirability of these changes, or preferences for one firm or category of firm versus another. We briefly mention the major activities of the firms (audit and assurance services, taxes, and management consulting and risk advisory services). We also note that management consulting and other advisory services are once again growing in importance at the Big 4, although they are restricted from providing many services to public company audit clients. Table 2-1 (page 49) is helpful in describing the relative size of firms in each category, and the relative importance of each activity. We encourage students to learn more about the major CPA firms by visiting their web sites. (See Table 2-1; shown on Slide 2-4)
2-1 .
Structure of CPA Firms (page 51) We briefly describe the six organizational structures of CPA firms. We emphasize the use of limited liability corporations and partnerships. We ask students to evaluate the desirability of these organizational forms as a potential new entrant into the profession, from the perspective of a partner, and the perspective of an investor. We use Table 2-2 (page 52) to describe the typical positions in a CPA firm, the responsibilities of the position, and how long a person stays in each category. We emphasize that technology has increased the responsibility given new staff, and that advancement is fairly rapid. (See Table 2-2; shown on Slide 2-9) Sarbanes–Oxley Act and PCAOB (page 53) We discuss the origins of the Sarbanes–Oxley Act and the significant changes it has brought to financial reporting and the accounting profession. We then discuss the role of the PCAOB in establishing auditing and quality control standards for registered firms with public company audit clients. We clarify that the PCAOB oversight is limited to public company audits and audits of brokers and dealers registered with the SEC. We also discuss the importance of the PCAOB inspections process. Securities and Exchange Commission (SEC) (page 54) The four most important things to explain to students about the SEC are: 1. 2. 3. 4.
Role of the SEC in general and as it relates to auditors. What companies are required to report to the SEC. Differences between the AICPA and SEC and relation between the PCAOB and SEC. How the SEC influences auditing.
AICPA (page 55) We talk briefly of the role of the AICPA, with emphasis on its responsibility for the CPA exam and establishing standards and rules. We briefly explain the role of Statements on Auditing Standards in this section, but discuss in more detail in the following section. We encourage students to consider joining the AICPA as a student affiliate member, which is explained more fully on the AICPA website.
2-2 .
International and U.S. Auditing Standards (page 56) We discuss the role of auditing standards and introduce the International Auditing and Assurance Standards Board. We note that globalization has increased the need for uniform international accounting and auditing standards. We discuss how the AICPA Auditing Standards Board (ASB) has revised most of its standards to converge with the international standards and how the PCAOB considers existing international standards as it develops PCAOB standards. The vignette at the top of page 57 provides an overview of the approach the ASB is using to converge their standards with international standards. We use Figure 2-1 (page 57) to indicate when international, AICPA (U.S. GAAS), and PCAOB standards apply. Homework problems 2-18 and 2-19 are also useful to cover this concept. We emphasize the similarity of the standards. (See Figure 2-1; shown on Slide 2-26) Organization of U.S. Auditing Standards (page 58) First, we describe the Clarity Project and introduce the Principles that provide the framework for generally accepted auditing standards. We review each of these Principles as described on pages 58 through 61 and briefly mention how each of the Principles in the AICPA auditing standards relate to the ten GAAS standards originally included in the PCAOB interim standards. We also note the PCAOB has now reorganized their standards and the 10 GAAS standards no longer apply. Figure 2-2 (page 59) provides a summary of the AICPA Principles. Similarly, a summary is provided on OH-2-1. (See Figure 2-2; shown on Slide 2-30) (See OH-2-1) In this section, we also distinguish the principles from the standards and discuss the classification of AICPA and PCAOB standards. We note that the ASB Clarity Project has resulted in a new AU-C numbering system for the Codification of Statements on Auditing Standards that aligns the organizational structure of AICPA auditing standards with the structure used for international standards. Review Questions 2-7 and 2-8 can be helpful for class discussion. Students are told they are required to know the core elements of the Principles, but that they do not need to memorize them word for word. Problem 2-20 is a good one to help students understand the application of the Principles that provide the framework for GAAS to practice.
2-3 .
Quality Control (page 62) With the increased emphasis on quality control in the profession, we discuss both quality control and peer review briefly. We emphasize the purposes, benefits, and costs of both. Problem 2-17 is useful for defining the elements of quality control. Students often have difficulty understanding the relation between quality control and peer review. A useful analogy is to describe peer review as an audit of the firm’s quality control system. Figure 2-3 (page 64) is helpful in describing the relation between audit standards, quality control, peer review, and the AICPA practice and quality centers. We clarify that PCAOB inspections relate to public company audits, and peer review relates to other areas of a firm’s assurance practice. (See Figure 2-3; shown on Slide 2-40) Summary After covering Chapters 1 and 2, students have an understanding of the value of audit and assurance services, and some of the factors that affect auditor performance. Figure 2-4 (page 65) provides a useful summary of these factors, and can be used to introduce the concepts of professional ethics and legal liability covered in Chapters 4 and 5. (See Figure 2-4; shown on Slide 2-41)
2-4 .
CHAPTER 2
CROSS-REFERENCE OF LEARNING OBJECTIVES AND PROBLEM MATERIAL MULTIPLE CHOICE QUESTIONS
DISCUSSION QUESTIONS AND PROBLEMS
REVIEW QUESTIONS
2-1
Describe the nature of CPA firms and what they do.
P. 28, 1
2-1
2-2
Describe the structure of CPA firms.
P. 28, 2
2-1
2-3
Understand the role of the Public Company Accounting Oversight Board and the effects of the Sarbanes–Oxley Act on the CPA profession.
P. 38, 1
2-2, 2-5
2-15
2-4
Summarize the role of the Securities and Exchange Commission in accounting and auditing.
2-3, 2-7
2-15
2-5
Describe the key functions performed by the AICPA.
P. 38, 2
2-4, 2-5
2-6
Understand the role of international auditing standards and their relation to U.S. auditing standards.
P. 38, 3
2-5, 2-6
2-15
2-18, 2-19, 2-21
2-7
Use U.S. auditing standards as a basis for further study.
2-7, 2-8, 2-9
2-13, 2-15
2-16, 2-18, 2-20
2-8
Identify quality control standards and practices within the accounting profession.
2-1, 2-10, 2-11, 2-12
2-14
2-17
2-5
LEARNING OBJECTIVES
CONCEPT CHECKS
.
CASES
AICPA PRINCIPLES UNDERLYING AN AUDIT
Purpose of an Audit • Provide an opinion about the financial statements Responsibilities • Possess appropriate competence and capabilities • Comply with ethical requirements • Maintain professional skepticism and exercise professional judgment Performance • Obtain reasonable assurance about whether financial statements are free of material misstatement • Plan work and supervise assistants • Determine and apply materiality level or levels • Identify and assess risks of material misstatement based on understanding of entity and its environment, including internal controls • Obtain sufficient appropriate audit evidence Reporting • Express opinion on financial statements in a written report • Whether financial statements are presented fairly in accordance with financial reporting framework
OH-2-1 .
Chapter 3 Audit Reports Audit reports can be covered at any time during the course. Some professors prefer to overview audit reports early, whereas others teach it near the end of the course. Either option is great. There will be no problem if you prefer to teach reports later or to split it into two segments as shown in the one-quarter syllabus. We find that students are able to comprehend the primary reporting issues early in the term and that it helps for them to see the end product of an audit. We therefore cover audit reports early so that we can refer to reporting concepts throughout the term as we address various other topics. The way we teach audit reporting is less conceptual and more rule-oriented than any other part of the course. The following are the topics we cover: ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼
Chapter opening vignette Overview Parts of the audit report for non-public entities Categories of audit reports Unqualified audit report under PCAOB auditing standards Separate report on internal control over financial reporting Unmodified opinion audit report with explanatory paragraph or modified wording Conditions requiring a departure Audit reports other than unmodified opinion Other issues
Chapter Opening Vignette — “The Audit Report Was Timely, But at What Cost?” This vignette highlights several important issues. The first, and overriding issue, is the importance of knowing that the audit has been completely and properly performed before the audit report is issued. The case shows the severe penalty that can result from one poor judgment on the part of the auditor. The second issue is the effect of conflicting responsibilities that can occur in public accounting. Here, the partner’s participation in the engagement is essential, yet he was unable to give this audit sufficient attention until the day the report was to be filed with the SEC. Third is the problem of time pressure to complete an audit by a deadline. This is especially common when filing a registration statement. The problem is that this is also a situation where risk is great. So the auditor is “caught between a rock and a hard place.” The fourth issue is the notion of risk. The company is going public, which will provide management with great financial rewards. Audit risk is high because management, which has extensive control, is strongly motivated to overstate earnings. Business risk is also high because of the market aspects. 3-1 .
Fifth, there are evidence issues involving management’s representations, representations by the Company’s attorney, and the weakness of a fax confirmation. The final issue is the matter of the client’s behavior and how the auditor reacts to it. A difficult aspect of auditing or any other business is how to deal with negative or threatening behavior. Overview For the class period dealing with audit reporting, we post materials on our course web page that includes selected portions of annual reports or copies of the auditor’s report downloaded from Form 10-Ks filed with the SEC (www.sec.gov) from different companies. We ask students to bring these materials to class so that we can review them together in class that day. We make sure there are a few explanatory paragraphs, and if possible, a few modified wording opinions included in the annual reports. At the start of class, each student is asked to review the auditor’s report. With the annual report as a frame of reference, we cover the following general concepts: ◼ ◼ ◼ ◼
Purpose of auditors’ reports Distinction between the auditor’s and management’s responsibility Which financial statements and other information are covered by the auditor’s report Auditor’s responsibility for “other information” in the annual report, including specific examples from students’ annual reports
If you do not have a web page for the course, you can take copies to class. As an alternative to providing report examples, prior to this class session you can assign students responsibility for searching for audit report examples from company web sites or SEC filings on EDGAR. Before discussing audit reports, we note that the form of the audit report for nonpublic entities under the clarified AICPA auditing standards is different than the report for public companies under PCAOB auditing standards. We emphasize that there are more similarities than differences in the formats of the two audit reports. Parts of the Standard Unmodified Opinion Audit Report non-Public Entities (page 71) It is important to note that AICPA standards replaced the term “unqualified audit report” with the term “unmodified opinion audit report” but PCAOB standards still use the term “unqualified opinion”. Throughout this book, we use the term “unmodified opinion” to represent the term “unqualified opinion” unless the setting is clearly applicable only to a public company. We start by showing the parts of the audit report for non-public entities under AICPA auditing standards included on OH-3-1. (See OH-3-1; also included on Slide 3-5) Report Title – We emphasize the inclusion of the word “Independent” under 3-2 .
both AICPA and PCAOB auditing standards. Address – Ask students to state any report address other than “The Stockholders of the Company.” Introductory Paragraph – The purpose of the introductory paragraph is discussed along with the standard wording. Ask each student to compare titles on the financial statements with those on the auditor’s report. Then, display the standard wording of the introductory paragraph on the overhead (Figure 3-1, on page 72). (See Figure 3-1, shown on slide 3-6) Management’s Responsibility – Ask students the purpose of the paragraph for management’s responsibilities. We emphasize that management is responsible for the financial statements, including selection of appropriate accounting principles and maintenance of internal control over financial reporting. Auditor’s Responsibility – The purpose of the section on the auditor ’s responsibility is discussed along with the standard wording. We discuss the standard wording of the scope paragraph (Figure 3-1, on page 72). Auditor’s Opinion – Go through the same routine with the opinion paragraph. Discuss the meaning of the wording “present fairly, in all material respects.” Name and Address of CPA Firm – Ask why the name is included. Ask students to refer to their sample reports and inquire whether all names are in script and whether any audits have been done by firms other than the “Big Four.” Audit Report Date – The purpose of the date is explained. Ask students to refer to their reports and calculate the number of days between the balance sheet date and the date of the auditor’s report. The least and most number of days are identified, and possible reasons for the differences are briefly discussed. Categories of Audit Reports (page 75) The next topic we cover is the four categories of audit reports, including Figure 3-2 on page 75. We emphasize the increasing severity of the departures from a standard unmodified opinion audit report, as depicted in Figure 3-2. (See Figure 3-2; shown on Slide 3-9) Unqualified Audit Report under PCAOB Auditing Standards (page 76) We briefly review the content of the standard unqualified audit report under PCAOB auditing standards in Figure 3-3 on page 76. We make sure students can identify and understand that the content is similar to the report for non -public entities in Figure 3-1. 3-3 .
(See Figure 3-3; shown on Slide 3-12) Separate Report on Internal Control over Financial Reporting (page 77) We display the wording of a separate report on internal control over financial reporting in Figure 3-4 on page 77. We discuss why reporting on internal control is required for accelerated filer public companies under the Sarbanes–Oxley Act, and the effect this has on the amount of audit testing and audit fees. We discuss the additional paragraphs for the definition of internal control and inherent limitations of internal control. Finally, we highlight the differences in the introductory, scope, and opinion paragraphs from the standard audit report on the financial statements, and we highlight the framework used for internal control and that internal control is evaluated as of the end of the most recent fiscal year. We also note that because the audit report is for a public company, it refers to practice standards established by the PCAOB. Note: An example combined report on financial statements and internal control over financial reporting is included in the glossy Hillsburg Hardware Annual Report inserted in the text and issues surrounding the nature of the auditor’s opinion on internal control are addressed in Chapter 12. (See Figure 3-4; shown on Slide 3-14) Unmodified Opinion Audit Report with Emphasis-of-Matter Explanatory Paragraph or Nonstandard Report Wording (page 78) Next we cover the five causes of an unmodified opinion audit report with an emphasis-of-matter explanatory paragraph or nonstandard wording. We put most of the emphasis on reports involving the going concern situations, the use of other auditors, and consistency exceptions, because they are the most common ones in practice. We show illustrations from practice. For a summary of unmodified opinion audit reports with an explanatory paragraph or modified wording, we use OH-3-2. (See OH-3-2) When we plan to discuss the use of other auditors more extensively, we also use OH-3-5. Modifications to the Opinion on the Audit Report (page 82) At this point we go over, in some detail, each of the three conditions, the type of opinion that is appropriate for each condition, and examples. We then refer students to Table 3-2 (page 91) and try to make sure students understand everything on that page. OH-3-3 is also useful in covering the conditions and type of report. (See OH-3-3) (See Table 3-2) 3-4 .
3-5 .