Auditor's report

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The auditor's report is a disclaimer thereof, issued by either an internal auditor
or an independent external auditor as a result of an internal or external audit, as
an assurance service in order for the user to make decisions based on the results
of the audit.

An auditor's report is considered an essential tool when reporting financial

information to users, particularly in business. Since many third-party users
prefer, or even require financial information to be certified by an independent
external auditor, many auditees rely on auditor reports to certify their
information in order to attract investors, obtain loans, and improve public
appearance. Some have even stated that financial information without an auditor's
report is "essentially worthless" for investing purposes.[1]

Contents
1 Auditor's report on financial statements
1.1 Unqualified Opinion
1.2 Qualified Opinion report
1.3 Adverse Opinion report
1.4 Disclaimer of Opinion report
1.5 Auditor's report on internal controls of public companies
1.6 Going concern
1.7 Other explanatory information and paragraphs
1.8 Auditor's reports on financial statements in different countries
2 Opinion shopping
3 Other engagements and reports
3.1 Report to the audit committee or board
4 See also
5 References
Auditor's report on financial statements
See also: Financial audit
It is important to note that auditor reports on financial statements are neither
evaluations nor any other similar determination used to evaluate entities in order
to make a decision. The report is only an opinion on whether the information
presented is correct and free from material misstatements, whereas all other
determinations are left for the user to decide.
There are four common types of auditor's reports, each one presenting a different
situation encountered during the auditor's work. The four reports are as follows:

Unqualified Opinion
An opinion is said to be unqualified when he or she does not have any significant
reservation in respect of matters contained in the Financial Statements. The most
frequent type of report is referred to as the "Unqualified Opinion", and is
regarded by many as the equivalent of a "clean bill of health" to a patient, which
has led many to call it the "Clean Opinion", but in reality it is not a clean bill
of health, because the Auditor can only provide reasonable assurance regarding the
Financial Statements, not the health of the company itself, or the integrity of
company records not part of the foundation of the Financial Statements.[2] This
type of report is issued by an auditor when the financial statements are free of
material misstatements and are presented fairly in accordance with the Generally
Accepted Accounting Principles (GAAP), which in other words means that the
company's financial condition, position, and operations are fairly presented in the
financial statements. It is the best type of report an auditee may receive from an
external auditor.

An Unqualified Opinion indicates the following �

(1) The Financial Statements have been prepared using the Generally Accepted
Accounting Principles which have been consistently applied;

(2) The Financial Statements comply with relevant statutory requirements and
regulations;

(3) There is adequate disclosure of all material matters relevant to the proper
presentation of the financial information subject to statutory requirements, where
applicable;

(4) Any changes in the accounting principles or in the method of their application
and the effects thereof have been properly determined and disclosed in the
Financial Statements.

The report consists of a title and header, a main body, the auditor's signature and
address, and the report's issuance date. US auditing standards require that the
title includes "independent" to convey to the user that the report was unbiased in
all respects. Traditionally, the main body of the unqualified report consists of
three main paragraphs, each with distinct standard wording and individual purpose.
Nonetheless, certain auditors (including PricewaterhouseCoopers[1]) have since
modified the arrangement of the main body (but not the wording) in order to
differentiate themselves from other audit firms, even though such modification is
contrary to the clarified US AICPA standards on auditing.

The first paragraph (commonly referred to as the introductory paragraph) states the
audit work performed and identifies the responsibilities of the auditor and the
auditee in relation to the financial statements. The second paragraph (commonly
referred to as the scope paragraph) details the scope of audit work, provides a
general description of the nature of the work, examples of procedures performed,
and any limitations the audit faced based on the nature of the work. This paragraph
also states that the audit was performed in accordance with the country's
prevailing generally accepted auditing standards and regulations. The third
paragraph (commonly referred to as the opinion paragraph) simply states the
auditor's opinion on the financial statements and whether they are in accordance
with generally accepted accounting principles.[1]

The following is an example of a standard unqualified auditor's report on financial

statements as it is used in most countries, using the name ABC Company as an
auditee's name. Note that this report is acceptable only for periods ending before
December 15, 2012:

INDEPENDENT AUDITOR'S REPORT

Board of Directors, Stockholders, Owners, and/or Management of
ABC Company, Inc.
123 Main St.
Anytown, Any Country

We have audited the accompanying balance sheet of ABC Company, Inc. (the "Company")
as of December 31, 20XX and the related statements of income, retained earnings,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in

(the country where the report is issued). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 20XX,
and the results of its operations and its cash flows for the year then ended in
accordance with generally accepted accounting principles in (the country where the
report is issued).

AUDITOR'S SIGNATURE
Auditor's name and address

Date = Last day of any significant field work

This date should not be dated earlier than when the auditor has sufficient audit
evidence to support the opinion.

Recently modifications have been made by the PCAOB to the opinion in the
independent auditors report. These changes can be attributed to the introduction of
SAS No. 122 and SAS No. 123.[3] For periods ending after December 15, 2012, the
following is an example of a standard unqualified auditor's report on financial
statements as it is used in most countries, using the name ABC Company, which was
incorporated in California, as an auditee's name:

INDEPENDENT AUDITOR'S REPORT

Board of Directors, Stockholders, Owners, and/or Management of
ABC Company, Inc.
123 Main St.
Anytown, Any Country

We have audited the accompanying financial statements of ABC Company, Inc. (a

California corporation), which comprise the balance sheet as of December 31, 20XX,
and the related statements of income, retained earnings, and cash flows for the
year then ended, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these

consolidated financial statements in accordance with U.S. generally accepted
accounting principles; this includes the design, implementation, and maintenance of
internal control relevant to the preparation and fair presentation of consolidated
financial statements that are free from material misstatement, whether due to fraud
or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these consolidated financial

statements based on our audit. We conducted our audit in accordance with U.S.
generally accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts
and disclosures in the consolidated financial statements. The procedures selected
depend on the auditors' judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control
relevant to the entity's preparation and fair presentation of the consolidated
financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. Accordingly, we express no such
opinion. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated
financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of ABC Company, Inc. as of December 31,
20XX, and the results of its operations and its cash flows for the year then ended
in accordance with U.S. generally accepted accounting principles.

AUDITOR'S SIGNATURE
Auditor's name and address

Date = Last day of any significant field work

This date should not be dated earlier than when the auditor has sufficient audit
evidence to support the opinion.

Qualified Opinion report

Qualified report is given by the auditor in either of these two cases:

When the financial statements are materially misstated due to misstatement in one
particular account balance, class of transaction or disclosure that does not have
pervasive effect on the financial statements.
When the auditor is unable to obtain audit evidence regarding particular account
balance, class of transaction or disclosure that does not have pervasive effect on
the financial statements.
The report is mostly like a Clear Opinion Report and only includes a paragraph viz.
Basis for Qualification after Scope paragraph and before Opinion paragraph. Opinion
paragraph in addition to its standard wording includes �except for the matter
described in Basis for Qualification paragraph the financial statements give true
and fair view.�

Detailed below:

A Qualified Opinion report is issued when the auditor encountered one of the two
types of situations which do not comply with generally accepted accounting
principles, however the rest of the financial statements are fairly presented. This
type of opinion is very similar to an unqualified or "clean opinion", but the
report states that the financial statements are fairly presented with a certain
exception which is otherwise misstated. The two types of situations which would
cause an auditor to issue this opinion over the Unqualified opinion are:

Single deviation from GAAP � this type of qualification occurs when one or more
areas of the financial statements do not conform with GAAP (e.g. are misstated),
but do not affect the rest of the financial statements from being fairly presented
when taken as a whole. Examples of this include a company dedicated to a retail
business that did not correctly calculate the depreciation expense of its building.
Even if this expense is considered material, since the rest of the financial
statements do conform with gaap, then the auditor qualifies the opinion by
describing the depreciation misstatement in the report and continues to issue a
clean opinion on the rest of the financial statements.
Limitation of scope � this type of qualification occurs when the auditor could not
audit one or more areas of the financial statements, and although they could not be
verified, the rest of the financial statements were audited and they conform to
GAAP. Examples of this include an auditor not being able to observe and test a
company's inventory of goods. If the auditor audited the rest of the financial
statements and is reasonably sure that they conform with GAAP, then the auditor
simply states that the financial statements are fairly presented, with the
exception of the inventory which could not be audited.
The wording of the qualified report is very similar to the Unqualified opinion, but
an explanatory paragraph is added to explain the reasons for the qualification
after the scope paragraph but before the opinion paragraph. The introductory
paragraph is left exactly the same as in the unqualified opinion, while the scope
and the opinion paragraphs receive a slight modification in line with the
qualification in the explanatory paragraph.

The scope paragraph is edited to include the following phrase in the first
sentence, so that the user may be immediately aware of the qualification. This
placement also informs the user that, except for the qualification, the rest of the
audit was performed without qualifications:

"Except as discussed in the following paragraph, we conducted our audit..."

The opinion paragraph is also edited to include an additional phrase in the first
sentence, so that the user is reminded that the auditor's opinion explicitly
excludes the qualification expressed. Depending on the type of qualification, the
phrase is edited to either state the qualification and the adjustments needed to
correct it, or state the scope limitation and that adjustments could have but not
necessarily been required in order to correct it.

For a qualification arising from a deviation from GAAP, the following phrase is
added to the opinion paragraph, using the depreciation example mentioned above:
"In our opinion, except for the effects of the Company's incorrect determination of
depreciation expense, the financial statement referred to in the first paragraph
presents fairly, in all material respects, the financial position of�"
For a qualification arising from a scope of limitation, the following phrase is
added to the opinion paragraph, using the inventory example mentioned above:

"In our opinion, except for the effects of such adjustments, if any, as might have
been determined to be necessary had we been able to perform proper tests and
procedures on the Company's inventory, the financial statement referred to in the
first paragraph presents fairly, in all material respects, the financial position
of�