auditing Chapter3
Chapter 3
Audit Reports
Review Questions
3-1 Auditors’ reports are important to users of financial statements because they inform users of the auditor’s opinion as to whether or not the financial 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.
3-2 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 introductory paragraph of the report 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.
4. Management’s responsibility This paragraph indicates that the financial statements are the responsibility of management, including selecting appropriate accounting principles and maintaining internal control over financial reporting.
5. Auditor’s responsibility The auditor’s responsibility section of the report includes three paragraphs. The first paragraph indicates that the auditor’s responsibility is to express an opinion on the statements based on an audit conducted in accordance with auditing standards, and that the audit provides reasonable assurance that the financial statements are free of material misstatement.
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Audit Reports
Review Questions
3-1 Auditors’ reports are important to users of financial statements because they inform users of the auditor’s opinion as to whether or not the financial 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.
3-2 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 introductory paragraph of the report 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.
4. Management’s responsibility This paragraph indicates that the financial statements are the responsibility of management, including selecting appropriate accounting principles and maintaining internal control over financial reporting.
5. Auditor’s responsibility The auditor’s responsibility section of the report includes three paragraphs. The first paragraph indicates that the auditor’s responsibility is to express an opinion on the statements based on an audit conducted in accordance with auditing standards, and that the audit provides reasonable assurance that the financial statements are free of material misstatement.
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