Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

What should the updated report on prior year's financial statements indicate if they have been properly restated?

1. Make no reference to the prior opinion type.

2. Remain unchanged from the earlier opinion.

3. Express an unmodified opinion and include an emphasis-of-matter paragraph afterwards.

4. Express an unmodified opinion and include an emphasis-of-matter paragraph beforehand.

The correct answer is: Express an unmodified opinion and include an emphasis-of-matter paragraph afterwards.

When prior year's financial statements have been properly restated, the updated report should indicate an unmodified opinion regarding those statements. This means that the auditor believes the restated financial statements present a true and fair view. The inclusion of an emphasis-of-matter paragraph is appropriate as it draws attention to the restatement and its significance in understanding the financial health and results of the entity. Placing the emphasis-of-matter paragraph after the opinion signals to the reader that there is additional, important context regarding the prior statements that should be considered. This approach helps ensure clarity regarding what has changed and why those changes are significant, maintaining transparency in the audit process. The reasoning behind this choice aligns with standard auditing practices, which allow for the auditor to communicate noteworthy changes while affirming that the restated financials meet the reporting standards required for an unmodified opinion. This reinforces the credibility of the financial statements and enhances the user's understanding of the financial reporting landscape.