Comprehensive Material Series
Audit Reports
1) Explain why auditors’ reports are important to users of financial
statements and why it is desirable to have standard wording.
: Auditor's reports are important to users of financial statements because they
inform users of the auditor's opinion as to whether or not the statements are fairly
stated or whether no conclusion can be made with regard to the fairness of their
presentation. Users especially look for any deviation from the wording of the
standard unqualified report and the reasons and implications of such deviations.
Having standard wording improves communications for the benefit of users of the
auditor’s report. When there are departures from the standard wording, users are
more likely to recognize and consider situations requiring a modification or
qualification to the auditor’s report or opinion.
2) List the seven parts of a standard unqualified audit report and
explain the meaning of each part. How do the parts compare with
those found in qualified report?
: The unqualified audit report consists of:
1. Report title Auditing standards require that the report be titled and
that the title includes the word independent.
2. Audit report address The report is usually addressed to the company,
its stockholders, or the board of directors.
3. Introductory paragraph The first paragraph of the report does three
things: first, it makes the simple statement that the CPA firm has done
an audit. Second, it lists the financial statements that were audited,
including the balance sheet dates and the accounting periods for the
income statement and statement of cash flows. Third, it states that the
statements are the responsibility of management and that the
auditor's responsibility is to express an opinion on the statements
based on an audit.
4. Scope paragraph. The scope paragraph is a factual statement about
what the auditor did in the audit. The remainder briefly describes
important aspects of an audit.
5. Opinion paragraph. The final paragraph in the standard report states
the auditor's conclusions based on the results of the audit.
6. Name of CPA firm. The name identifies the CPA firm or practitioner
who performed the audit.
7. Audit report date. The appropriate date for the report is the one on
which the auditor has completed the most important auditing
procedures in the field.
The same seven parts are found in a qualified report as in an unqualified
report. There are also often one or more additional paragraphs explaining reasons
for the qualifications.
3) What are the purposes of the scope paragraph in the auditor’s
report? Identify the most important information included in the
scope paragraph.
: The purposes of the scope paragraph in the auditor's report are to inform the
financial statement users that the audit was conducted in accordance with generally
accepted auditing standards, in general terms what those standards mean, and
whether the audit provides a reasonable basis for an opinion.
The information in the scope paragraph includes:
