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 Possible circumstances for the unqualified
opinion opinion
• All statements are included in the financial • Sufficient evidence has been accumulated and
statements the auditor has conducted the engagement in
a manner that enables him/her to conclude
• The three (3) general standards have been
that the three (3) standards of field work have
followed in all aspects on the engagement
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 Effects of departures from applicable financial
frameworks on audit opinion frameworks on audit opinion
• When the financial statements include an • If the departure's effect is so pervasive that
accounting policy that is not acceptable, the the financial statements taken as a whole are
auditor should issue a qualified or adverse not presented fairly, the auditor should issue
opinion, depending on materiality an adverse opinion.

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