Chapter 3 Audit Reports

Key objectives:

1. Describe the parts of the standard unqualified audit report for non-public entities under AICPA auditing standards.
2. Specify the conditions required to issue the standard unqualified audit report.
3. Understand reporting on financial statements and internal control over financial reporting required under PCAOB auditing standards.
4. Describe the five circumstances when an unqualified report with an emphasis-of-matter explanatory paragraph or modified wording is appropriate.
5. Identify the types of audit reports that can be issued when an unqualified opinion is not justified.
6. Explain how materiality affects audit reporting decisions.
7. Know the key terms that identify different audit reports.
8. Determine the appropriate audit report for a given audit situation.

1. Purpose of audit report

• Communicates auditor's work and conclusions reached. • It's the auditor's product, and the only visible outcome of the audit process.

2. Short-form report (unqualified or "clean" opinion)

A. When appropriate

1. All 4 statements and appropriate disclosure (An opinion can be issued on less than a full set of financial statements - see Ch. 24).

GAAS specifically provides that in the case of omission of the cash flows statement, a qualified opinion is issued. 3. Auditor has gathered sufficient appropriate evidence in accordance with GAAS 4. Statements in accordance with GAAP (including adequate disclosure) or other applicable accounting framework. 5. No other circumstances.

B. There are seven parts to the report. It is important to understand the content of the three main paragraphs (in bold).

Parts of Audit Report 1. Title 2. Report addressee 3. Introductory paragraph 4. Management’s Responsibility