Introduction to Audit Reporting

Audit Reporting
Audit Report

 Introduction to Audit Reporting • A written opinion of an auditor regarding an

entity’s financial statements

 The Audit Report • Evaluates the validity and reliability of a

company or organization’s financial
statements
 Departures from the Unqualified
Audit Report

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Introduction to Audit Reporting Introduction to Audit Reporting

Benefits of audit reporting The Sarbanes-Oxley Act of 2002

• Provides validity • An act passed by the U.S. Congress to protect
investors from the possibility of fraudulent
• Discovers errors accounting practices by corporations
• Limits legal and tax issues • Supports efforts to increase public confidence
• Educates business owner
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in capital markets by seeking to improve
corporate governance, internal controls, and
• Increases credibility audit quality

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 Introduction to Audit Reporting The Audit Report

The Sarbanes-Oxley Act of 2002 Types of audit opinion

• Requires that the management of public
companies implement an adequate system of Unqualified
internal control over their financial reporting or Qualified
unmodified
processes
• Two (2) key provisions of the SOX:
oSection 302
Adverse Disclaimer
oSection 404

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The Audit Report The Audit Report

Possible circumstances for the unqualified
opinion
• All statements are included in the financial
statements
• The three (3) general standards have been
followed in all aspects on the engagement
Possible circumstances for the unqualified
opinion
• Sufficient evidence has been accumulated and
the auditor has conducted the engagement in
a manner that enables him/her to conclude
that the three (3) standards of field work have
been met

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 The Audit Report The Audit Report

Possible circumstances for the unqualified Parts of the audit report

opinion • Title
• The financial statements are presented in • Addressee
accordance with generally accepted
• Introductory paragraph
accounting principles
• Management responsibility for financial
• There are no circumstances requiring the statements
addition of an explanatory paragraph
• Auditor’s responsibility
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The Audit Report The Audit Report

Parts of the audit report Possible types of reports in case there is more
than one auditor
• Auditor’s opinion
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• No reference is made to the other auditor
• Other reporting responsibilities
• Issue a shared opinion in which reference is
• Signature of the auditor
made to the other auditor
• Date of the auditor’s report
• Qualified opinion

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 Departures from the Unqualified Audit Departures from the Unqualified Audit
Report Report

• The scope of the audit has been restricted Conditions to determine the type of auditor’s
opinion
• The financial statements have been not
prepared in accordance with generally • Materiality
accepted • Scope
• The auditor is not independent • Departure from the applicable financial
reporting framework

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Departures from the Unqualified Audit Departures from the Unqualified Audit
Report Report

Effects of materiality on audit opinion Effects of materiality on audit opinion

• If the limitations in scope or departure from • Judgments about the effects of departures
applicable financial framework is immaterial, from financial statements are similar to
the auditor can issue an unmodified opinion judgments about materiality of scope
• The auditor should evaluate the nature and
• If the auditor lacks independence, it is always
magnitude of the possible effects of the items
considered highly material
and its significance to overall financial
statements

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 Departures from the Unqualified Audit Departures from the Unqualified Audit
Report Report

Effects of scope limitation on audit opinion Effects of scope limitation on audit opinion
• A scope limitation results from the inability of
the auditor to obtain sufficient appropriate
evidence about some component of the
financial statements
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• Auditors should be especially cautious when a • If the auditor can overcome a scope limitation
client limits the scope of the audit by performing alternative procedures, an
engagement unmodified opinion may be issued

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Departures from the Unqualified Audit Departures from the Unqualified Audit
Report Report

Effects of departures from applicable financial
frameworks on audit opinion
• When the financial statements include an
accounting policy that is not acceptable, the
auditor should issue a qualified or adverse
opinion, depending on materiality
Effects of departures from applicable financial
frameworks on audit opinion
• If the departure's effect is so pervasive that
the financial statements taken as a whole are
not presented fairly, the auditor should issue
an adverse opinion.

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