Discussion No. 1 (three paragraphs and three references)
Under what circumstances may an auditor express an unqualified opinion when the related financial statements contain a material departure from a FASB or GASB standard?
Discussion No. 2 (three paragraphs and three references)
Should the materiality of misstatements be considered individually or combined to be considered in aggregate with other misstatements when considering whether the financial statements are misstated? When is a misstatement considered clearly?
Comment No. 1 (DN) (One paragraph and one reference)
An unqualified opinion is the decision of an independent auditor that financial statements of a corporation are reported reasonably and accurately, with no defined anomalies, and in compliance with generally accepted accounting principles (GAAP). The most common type of report by auditors is an unqualified opinion (Tuovila, 2019).
There are two types of departures first one is unjustified departure, in this case the auditor generally issues qualified or adverse opinion. The second type is the justified departure, where auditors simply analyze the explanation given and give unqualified opinion.
Justified material departure from FASB offers some evidences or clarification on which the auditor gives an unqualified opinion in the preparation of financial statements in compliance with FASB requirements.
According to AS 3105 (2017) “there is a lack of sufficient appropriate evidential matter or there are restrictions on the scope of the audit that have led the auditor to conclude that he or she cannot express an unqualified opinion and he or she has concluded not to disclaim an opinion” (
par. 2) however material departure is a vast term which includes pervasiveness and other factors which determine whether there shall be qualified and adverse opinion it must be understood clearly that as justified departure provides auditor proper scope for presenting reason as why such departure happened and what could be the effect of those departures in interest of company and its investor.
However, in case of justified departure full disclosure is required in reference to such departure.
Additionally, when auditors express a qualified opinion, they should disclose all of the substantive reasons for the qualified opinion in one or more separate paragraphs immediately following the opinion paragraph of the auditor’s report.
The auditor should also include, in the opinion paragraph, the appropriate qualifying language and a reference to the paragraph that discloses all of the substantive reasons for the qualified opinion (AS 3105, 2017).
Comment No. 2 (AH) (One paragraph and one reference)
I find this question very interesting, in the past year I have taken 2 auditing classes and neither one has discussed de minimus (DM). DM was a tick mark that I used at my time at PWC, it was generally calculated at 10% of performance materiality. It was used to justify such a small error that it wouldn’t even be calculated in aggregate of materiality. But I digress.
Misstatements should generally be measured in aggregate to determine if the financial statements are misstated. (Sanders, 2014).
An auditor’s job is to make sure that the financial statements are free of misstatements and fraud, if I were a smart controller looking to commit fraud and I knew that material misstatements is judged by just a singular number I would just take small pieces from a few different accounts to avoid the materiality test and I would get away with it. This is why materiality should be judged in aggregate.
The idea of a misstatement being trivial is why I mentioned DM before, generally speaking a few thousand trivial misstatements can add up but individually there are not enough accounts at any company to make this a material matter. It is also inefficient for auditors to try and track down any amount this small. This is why we used DM at PwC.