Report on XYZ Companys Financial Statements

Independent Auditors Report

[Appropriate Addressee]
Report on the Financial Statements
We have audited the financial statements of XYZ, comprising of the balance sheet as on 31
December 2013, cash-flow statement and income statement for the year 2012-13. We have also
referred the accounting policies and other documents of the Company Record ABC.
Managements responsibility for the financial statements
The directors of the company are responsible for the preparation of the financial statements so as
to give a true and fair view in accordance with the accounting principles generally accepted in
the United States of America. The directors are also responsible for the internal control as
defined by the management to enable preparation of the financial statements that are free from
any misstatements, whether due to fraud or error.
Auditors responsibility
Our responsibility is to express our opinion on the financial statements of your company based
on our audit. We have conducted the audit in an independent and fair manner in accordance with
the auditing standards of the United States of America and the standards applicable to financial
audits. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free from material misstatements.
We have followed the procedures mentioned in our detailed audit plan to collect evidence about
the disclosures made in the financial statements and have made the necessary risk assessments
based on our judgement and experience. We believe that the evidence so collected during our
audit is sufficient to formulate our audit opinion.
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects,
the respective financial position of the Company XYZ as of 31 December 2013 and its
performance and cash flows indicated are in accordance with the accounting principles generally
accepted in the United States of America.
Report on Other Legal and Regulatory Requirements
In accordance with the auditing standards of the United States of America, we have also issued
our report dated [date of report] on our consideration of Company XYZs internal control over
financial reporting and our tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements and other matters. The purpose of that report is to describe the

scope of our testing of internal control over financial reporting and compliance and the results of
that testing, and not to provide an opinion on internal control over financial reporting or on
compliance. That report is an integral part of an audit performed in accordance the auditing
standards of the United States of America in considering XYZs internal control over financial
reporting and compliance.
Other Matters
This report is made solely to the members of the Company XYZ, as a body, in accordance with
the auditing standards of the United States of America and for no other purpose. We do not
assume responsibility to any other person for the content of this report.
[Auditors Signature]
[Auditors City and State]
[Date of the Auditors Report]

Extracts from modified auditors reports:

Example 1 Unqualified opinion Emphasis of matter. Possible outcome of a lawsuit,
unable to quantify effect on financial statements

UK non-publicly traded company prepares UK GAAP financial statements.

A lawsuit alleges that the company has infringed certain patent rights and claims
royalties and punitive damages. The company has filed a counter action, and preliminary
hearings and discovery proceedings on both actions are in progress.
The ultimate outcome of the matter cannot presently be determined, and no provision for
any liability that may result has been made in the financial statements.
The company makes relevant disclosures in the financial statements.
The auditor issues an unqualified auditors report with an emphasis of matter paragraph
describing the situation giving rise to the emphasis of matter and its possible effects on
the financial statements, including that the effect on the financial statements of the
resolution of the uncertainty cannot be quantified.

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and
Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis,
of evidence relevant to the amounts and disclosures in the financial statements. It also includes
an assessment of the significant estimates and judgments made by the directors in the preparation

of the financial statements, and of whether the accounting policies are appropriate to the
companys circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which
we considered necessary in order to provide us with sufficient evidence to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by
fraud or other irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion:

the financial statements give a true and fair view, in accordance with United Kingdom
Generally Accepted Accounting Practice, of the state of the companys affairs as at
and of its profit [loss] for the year then ended;
the financial statements have been properly prepared in accordance with the Companies
Act 1985; and
the information given in the Directors Report is consistent with the financial statements.

Emphasis of matter - possible outcome of a lawsuit

In forming our opinion on the financial statements, which is not qualified, we have considered
the adequacy of the disclosures made in note x to the financial statements concerning the
possible outcome of a lawsuit, alleging infringement of certain patent rights and claiming
royalties and punitive damages, where the company is the defendant. The company has filed a
counter action, and preliminary hearings and discovery proceedings on both actions are in
progress. The ultimate outcome of the matter cannot presently be determined, and no provision
for any liability that may result has been made in the financial statements.
Registered auditors
Address
Date
Example 2 Qualified opinion Disagreement. Inappropriate accounting treatment of
debtors

UK non-publicly traded company prepares UK GAAP financial statements.

The debtors shown on the balance sheet include an amount of Y due from a company
which has ceased trading. XYZ plc has no security for this debt.
The auditors opinion is that the company is unlikely to receive any payment and full
provision of Y should have been made.
The auditor does not believe that the effect of the disagreement is so material and
pervasive that the financial statements as a whole are misleading and issues a qualified
opinion except for disagreement about the accounting treatment of debtors.

Qualified opinion arising from disagreement about accounting treatment

Included in the debtors shown on the balance sheet is an amount of Y due from a company
which has ceased trading. XYZ plc has no security for this debt. In our opinion the company is
unlikely to receive any payment and full provision of Y should have been made. Accordingly,
debtors should be reduced by Y, deferred taxes should be reduced by X and profit for the year
and retained earnings should be reduced by Z.
Except for the financial effect of not making the provision referred to in the preceding paragraph,
in our opinion the financial statements:
give a true and fair view, in accordance with United Kingdom Generally Accepted
Accounting Practice, of the state of the companys affairs as at ... and of its profit [loss]
for the year then ended; and
have been properly prepared in accordance with the Companies Act 1985.
In our opinion the information given in the Directors Report is consistent with the financial
statements.
Registered auditors
Address
Date
Example 3 Qualified opinion Disagreement. Prior period qualification unresolved and
results in a modification of the auditors report regarding the current period figures

UK non-publicly traded company prepares UK GAAP financial statements.

Included in the debtors shown on the balance sheet of 31 December 20X4 and 31
December 20X5 is an amount of Y which is the subject of litigation and against which
no provision has been made. The auditor considers that a full provision of Y should
have been made in the year ended 31 December 20X4.

Qualified opinion arising from disagreement over accounting treatment

Included in the debtors shown on the balance sheets of 31 December 20X4 and 31 December
20X5 is an amount of Y which is the subject of litigation and against which no provision has
been made. In our opinion, full provision of Y should have been made in the year ended 31
December 20X4. Accordingly, debtors at 31 December 20X4 and 20X5 should be reduced by
Y, deferred taxes at 31 December 20X4 and 20X5 should be reduced by X, and profit for the
year ended 31 December 20X4 and retained earnings at 31 December 20X4 and 20X5 should be
reduced by Z.
In our opinion the financial statements give a true and fair view, in accordance with United
Kingdom Generally Accepted Accounting Practice, of the companys profit [loss] for the year
ended 31 December 20X5.

Except for the financial effect of not making the provision referred to in the preceding paragraph,
in our opinion the financial statements:

give a true and fair view, in accordance with United Kingdom Generally Accepted
Accounting Practice, of the state of the companys affairs as at 31 December 20X5; and
have been properly prepared in accordance with the Companies Act 1985.

In our opinion the information given in the Directors Report is consistent with the financial
statements.
Registered auditor
Address
Date
Example 4 Disclaimer of opinion. Unable to observe all physical stock and confirm trade
debtors

UK non-publicly traded company prepares UK GAAP financial statements.

The evidence available to the auditor was limited because the auditor was not able to
observe all physical stock and confirm trade debtors due to limitations placed on the
scope of the auditors work by the directors of the Company.
As a result, the auditor has been unable to form a view on the financial statements and
issues a modified opinion disclaiming the view given by the financial statements.

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and
Ireland) issued by the Auditing Practices Board, except that the scope of our work was limited as
explained below.
An audit includes examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the significant estimates
and judgments made by the directors in the preparation of the financial statements, and of
whether the accounting policies are appropriate to the companys circumstances, consistently
applied and adequately disclosed.
We planned our audit so as to obtain all the information and explanations which we considered
necessary in order to provide us with sufficient evidence to give reasonable assurance that the
financial statements are free from material misstatement, whether caused by fraud or other
irregularity or error. However, the evidence available to us was limited because we were unable
to observe the counting of physical stock having a carrying amount of X and send confirmation
letters to trade debtors having a carrying amount of Y due to limitations placed on the scope of
our work by the directors of the company. As a result of this we have been unable to obtain

sufficient appropriate audit evidence concerning both stock and trade debtors. Because of the
significance of these items, we have been unable to form a view on the financial statements.
In forming our opinion we also evaluated the overall adequacy of the presentation of information
in the financial statements.
Opinion: disclaimer on view given by the financial statements
Because of the possible effect of the limitation in evidence available to us, we are unable to form
an opinion as to whether the financial statements:

give a true and fair view, in accordance with United Kingdom Generally Accepted
Accounting Practice, of the state of the companys affairs as at ... and of its profit [loss]
for the year then ended; and
have been properly prepared in accordance with the Companies Act 1985.

In respect solely of the limitation of our work referred to above:

we have not obtained all the information and explanations that we considered necessary
for the purpose of our audit; and
we were unable to determine whether proper accounting records have been maintained.

Notwithstanding our disclaimer on the view given by the financial statements, in our opinion the
information given in the Directors Report is consistent with the financial statements.
Registered auditor
Address
Date
Example 5 Adverse opinion. No provision made for losses expected to arise on certain
long-term contracts

UK non-publicly traded company prepares UK GAAP financial statements.

No provision has been made for losses expected to arise on certain long-term contracts
currently in progress, as the directors consider that such losses should be off-set against
amounts recoverable on other long-term contracts.
In the auditors opinion, provision should be made for foreseeable losses on individual
contracts as required by [specify accounting standards].
The auditor issues an adverse opinion due to the failure to provide for the losses and
quantifies the impact on the profit for the year the contract work in progress and deferred
taxes payable at the year end.

Adverse opinion on the financial statements

As more fully explained in note x to the financial statements no provision has been made for
losses expected to arise on certain long-term contracts currently in progress, as the directors

consider that such losses should be off-set against amounts recoverable on other long-term
contracts. In our opinion, provision should be made for foreseeable losses on individual contracts
as required by [specify accounting standards] If losses had been so recognised the
effect would have been to reduce the carrying amount of contract work in progress by X,
deferred taxes payable by Y, and the profit for the year and retained earnings at 31 December
20X1 by Z.
In view of the effect of the failure to provide for the losses referred to above, in our opinion the
financial statements do not give a true and fair view, in accordance with United Kingdom
Generally Accepted Accounting Practice, of the state of the companys affairs as at 31 December
20X1 and of its profit [loss] for the year then ended.
In all other respects, in our opinion the financial statements have been properly prepared in
accordance with the Companies Act 1985.
Notwithstanding our adverse opinion on the financial statements, in our opinion the information
given in the Directors Report is consistent with the financial statements.
Registered auditor
Address
Date