[Thefacta]

Alright, got a tough one here for you all! I’ve looked several places in Becker/CRAM/Online and get several answers…

If you are reporting an opinion (f/s) on a client that has omitted the Statement of Cash Flows, what opinion would you give?

Qualified? Adverse?

Qualifed or Adverse depending on materiality?

Initially I thought it could be Qualified OR Adverse, though most places I look states JUST qualified. However, it seems it could be adverse considering SCF is required by GAAP therefore this would be a major departure.

Bring on the input!

REG - 81 (2/2)
BEC - 87 (2/28)
FAR - 76 (4/18)
AUD - 75 (5/20)

[Last_First_MI]

Usually on the exam they will never ask you to choose between qualified and adverse because they are usually a judgment call by the auditor based on materiality.

My opinion is if you are doing a full blown audit a statement of cash flows is required by GAAP and cash is usually a material and the most liquid asset you have so I would say adverse, but of course this is not always the case and is a judgment call based on the person signing that coveted audit report, and when it comes down to it its your rear on the line so why not just go with an adverse and cover yourself as much as possible.

[rknight21]

90% of the times it will be a qualified…. from my understanding the client nor the auditor ever likes giving an adverse…. as much as we have learned it in school it is very rare that an adverse opinion is given.. in every sense it is worse than a disclaimer. Plus everytime i have seen this question the answer is always qualified and like the previous poster said you shouldnt see adverse & qualified as separate answers… usually together or just one

[rknight21]

and it isnt that material as you may believe.. everything on the scf is taken from the balance sheet n IS…. so not providing it will force readers to put it together themselves

[Anonymous]

If you have the Wiley book go to page 326 (Module 5 Reporting). About the 5th paragraph down it says:

“Be familiar with two specific circumstances relating to departures from GAAP: omission of the statement of cash flows and incorrect segment disclosures. When a company presents financial statements that purport to present financial position AND results of operations (e.g. balance sheet and an income statement) a statement of cash flows must also be presented. The omission of a statement of cash flows in such circumstances is a departure from GAAP that requires issuance of a QUALIFIED OPINION (an adverse opinion is not recommended).

Becker has also always said a Qualified opinion is generally the appropriate choice. I hope this helps.

[Last_First_MI]

That is very true RKnight I never thought of the fact that if you have the BS and IS in front of you then putting together a statement of cash flows can be done. For the record I am not an auditor at all, I work in Private Sector, so I would listen to these other people as I am just aware that on the exam you will usually never have to distinguish between these two reports and on the CPA exam I've also noticed that being conservative and covering your rear seems to also help to answer lots of questions as the CPA exam. This is probably why I wouldn't want to be an auditor with my license on the line I wouldn't sign an audit report that omitted a statement of cash flows as I would feel the client is hiding something, but it could also be that the client is just lazy and doesn't want to put together a statement of cash flows because it can be a daunting task and they don't have the resources so I can see why someone would want to put out a qualified. Also the omission of the statement doesn't also mean that the FS's have material misstatements. Okay it was a long response i was thinking out loud. 🙂

[rknight21]

ditto, it is a job fill with pressure being that your name will be on representated on reports… just consider this when u lose your license you can always to private..lol and still be rich… a lil different than losing your bar license.

[Thefacta]

Thanks for the response guys- very good, thorough explanations. I agree, qualified is the way to go!

Another question I've run across is if there is doubt about a company's future (going concern issue) that is FULLY disclosed in the notes. In some areas of Becker I've seen that if it is already fully disclosed, it does not need an explanatory paragraph. In other areas, I've seen it still requires an explanatory paragraph. Can ya'll shed some light on this opinion? Thanks again.

REG - 81 (2/2)
BEC - 87 (2/28)
FAR - 76 (4/18)
AUD - 75 (5/20)

[rknight21]

r u sure that u saw it not needing an explantory paragraph when it has been disclosed….. this is what i know: when there is substantial doubt about a clients ability to continue then your only two options are unqualified with explantory paragraph (client has disclosed the fact) and qualified (when it has not been disclosed)

[Thefacta]

RK- I am with you , I do believe it needs a modified unqualified even if it is disclosed. The only reason I wanted to confirm is because I could have swore in one of Becker's passmaster questions it stated that it didn't need an explanatory paragraph because the client “has done all they can do” and diclosed it properly means it might not need a separate paragraph.

By the way, do you use SKYPE? I'm at Matthew.JBailey if you care to add me.

REG - 81 (2/2)
BEC - 87 (2/28)
FAR - 76 (4/18)
AUD - 75 (5/20)

[rknight21]

I havent used skype in years but i know it is making a big come back… I'll create an account and add you….the reason i asked if u were sure thats what you saw is because when i was studying for aud i was doing so many questions that after a while i wasnt sure of what i saw lol….

[Thefacta]

Haha, yeah its the same way for me. After so many questions and paragraphs… they all commingle.

Add me, we can be online study buddies-lol. That goes for anybody taking audit soon!

REG - 81 (2/2)
BEC - 87 (2/28)
FAR - 76 (4/18)
AUD - 75 (5/20)

[Author]

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