Accounting and Finance Foundations

Unit 13

Accounting and Finance Foundations Unit 13: Auditing 1004

Auditing

Chapter 30

Student Guide

Lesson 30.5 The Audit Process—Issuing the Audit Report

Stage 4: Issuing the Audit Report

The last stage of an audit is to prepare and issue an audit report. Auditors use audit reports to share their

conclusions about audited companies’ financial statements, while businesses use these same reports to

build credibility, attract investors, and obtain loans. Regardless of how these businesses plan to use the

reports, audit reports are typically quite similar and include the following components:

n    Title

n    Addressee

n    Is usually the company that was audited

n    Introduction

n    Explains the auditor’s and audited company’s responsibilities

n    Example: “The financial statements are the responsibility of management and the auditor’s

responsibility is to express an opinion.”

n    Scope

n    Explains the audit work that was performed

n    Identifies any limitations that the auditor faced

n    Typically states that the audit:

•    Was    conducted   in  accordance  to  GAAS    (Generally  Accepted    Auditing    Standards)

•    Was    planned and performed   to  obtain  reasonable  assurance   

•    Included   examining   evidence    

•    Included   assessing   significant estimates   made    by  management  as  well    as  the accounting  

principles used

•    Provides   a   reasonable  basis   for an  opinion

n    Opinion

n    States the auditor’s opinion on the financial statements, including the fair presentation of

the financial statements and the audited company’s compliance with Generally Accepted

Accounting Principles (GAAP)

n    Auditor’s name and contact information

n    Date

Opinions

Auditors have four options in terms of their opinions: unqualified, qualified, disclaimer, and adverse. While

businesses hope to receive an unqualified or, at the very least, a qualified opinion, they strive to avoid dis-

claimers and adverse opinions as much as possible. Let’s look at each opinion more closely.

n    Unqualified opinion

n    The financial statements are complete and free of misstatements, were prepared using GAAP,

and comply with relevant laws and explanations.

n    The auditor could not find any significant problems with the financial statements.