Certain circumstances, while not affecting the auditor's unqualified opinion, may require that the auditor add an explanatory fn 10 These circumstances include:
- The auditor's opinion is based in part on the report of another auditor (paragraphs .12 and .13).
- To prevent the financial statements from being misleading because of unusual circumstances, the financial statements contain a departure from an accounting principle promulgated by a body designated by the AICPA Council to establish such principles (paragraphs .14 and .15).
- There is substantial doubt about the entity's ability to continue as a going concern. fn 11
- There has been a material change between periods in accounting principles or in the method of their application (paragraphs .16 through .18).
- Certain circumstances relating to reports on comparative financial statements exist (paragraphs .68, .69, and .72 through .74).
- Selected quarterly financial data required by SEC Regulation S-K has been omitted or has not been reviewed. (See section 722, Interim Financial Information, paragraph .50.)
- Supplementary information required by the Financial Accounting Standards Board (FASB), the Governmental Accounting Standards Board (GASB), or the Federal Accounting Standards Advisory Board (FASAB) has been omitted, the presentation of such information departs materially from FASB, GASB, or FASAB guidelines, the auditor is unable to complete prescribed procedures with respect to such information, or the auditor is unable to remove substantial doubts about whether the supplementary information conforms to FASB, GASB, or FASAB guidelines. (See section 558, Required Supplementary Information, paragraph .02.)
- Other information in a document containing audited financial statements is materially inconsistent with information appearing in the financial statements. (See section 550, Other Information in Documents Containing Audited Financial Statements, paragraph .04.)
In addition, the auditor may add an explanatory paragraph to emphasize a matter regarding the financial statements (paragraph .19). [As amended, effective for reports issued or reissued on or after February 29, 1996, by Statement on Auditing Standards No. 79. Revised, November 2002, to reflect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 100.]
Footnotes (AU Section 508 — Reports on Audited Financial Statements):
fn 9 Unless otherwise required by the provisions of this section, an explanatory paragraph may precede or follow the opinion paragraph in the auditor's report. [Footnote renumbered by the issuance of Statement on Auditing Standards No. 93, October 2000.]
fn 10 See footnote 3. [Footnote renumbered by the issuance of Statement on Auditing Standards No. 93, October 2000.]
fn 11 Section 341, The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern, describes the auditor's responsibility to evaluate whether there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time and, when applicable, to consider the adequacy of financial statement disclosure and to include an explanatory paragraph in the report to reflect his or her conclusions. [Footnote renumbered by the issuance of Statement on Auditing Standards No. 93, October 2000.]