Comprehensive Material Series
Explain why auditors’ reports are important to users of financialstatements and why it is desirable to have standard wording.
: Auditor's reports are important to users of financial statements because theyinform users of the auditor's opinion as to whether or not the statements are fairlystated or whether no conclusion can be made with regard to the fairness of theirpresentation. Users especially look for any deviation from the wording of thestandard unqualified report and the reasons and implications of such deviations.Having standard wording improves communications for the benefit of users of theauditor’s report. When there are departures from the standard wording, users aremore likely to recognize and consider situations requiring a modification orqualification to the auditor’s report or opinion.2)
List the seven parts of a standard unqualified audit report andexplain the meaning of each part. How do the parts compare withthose found in qualified report?
: The unqualified audit report consists of:1.
Auditing standards require that the report be titled andthat the title includes the word
Audit report address
The report is usually addressed to the company,its stockholders, or the board of directors.3.
The first paragraph of the report does threethings: first, it makes the simple statement that the CPA firm has donean
. Second, it lists the financial statements that were audited,including the balance sheet dates and the accounting periods for theincome statement and statement of cash flows. Third, it states that thestatements are the responsibility of management and that theauditor's responsibility is to express an opinion on the statementsbased on an audit.4.
. The scope paragraph is a factual statement aboutwhat the auditor did in the audit. The remainder briefly describesimportant aspects of an audit.5.
. The final paragraph in the standard report statesthe auditor's conclusions based on the results of the audit.6.
Name of CPA firm
. The name identifies the CPA firm or practitionerwho performed the audit.7.
Audit report date
. The appropriate date for the report is the one onwhich the auditor has completed the most important auditingprocedures in the field. The same seven parts are found in a qualified report as in an unqualifiedreport. There are also often one or more additional paragraphs explaining reasonsfor the qualifications.3)
What are the purposes of the scope paragraph in the auditor’sreport? Identify the most important information included in thescope paragraph.
: The purposes of the scope paragraph in the auditor's report are to inform thefinancial statement users that the audit was conducted in accordance with generallyaccepted auditing standards, in general terms what those standards mean, andwhether the audit provides a reasonable basis for an opinion. The information in the scope paragraph includes: