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Chapter Eighteen
Reports on Audited Financial Statements
and Internal Control
over Financial Reporting

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Reporting on the Financial Statement

Audit: The Standard Unqualified Report

The standard unqualified report is issued when the

auditor has gathered sufficient evidence, the audit was
performed in accordance with GAAS, and the financial
statements conform to GAAP.
Seven Elements
1. Report title
2. Addressee
3. Introductory paragraph
4. Scope paragraph
5. Opinion paragraph
6. Name of auditor
7. Audit report date.
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Explanatory Language Added to the
Standard Unqualified Financial Statement
Audit Report
Opinion based in part on
the report of another Going concern.
auditor.

Agreement with a departure

from GAAP.

Lack of consistency. Emphasis of a matter.

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Going Concern

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Auditor Agrees with a Departure from

Promulgated Accounting Principles

In unusual circumstances financial statements may be

misleading if a promulgated accounting principle was
followed.

An explanatory paragraph
Rule 203 of the Code of should describe the departure,
Professional Conduct allows the approximate effects of the
the auditor, in such departure, if practicable, and the
circumstances, to issue an reasons that compliance with the
unqualified opinion. accounting principle results in
misleading financial statements.

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Lack of Consistency
Changes Affecting Consistency

Change in
accounting Change in
principle reporting
entity
Correction
of an error Changes Not Affecting
in principle Consistency
Correction of an
Change in error that does
accounting not involve an
estimate accounting
principle

Change in Change
classification expected to
and have a material
reclassification future effect

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Lack of Consistency

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Emphasis of a Matter

Under certain circumstances an auditor may want to

emphasize a specific matter regarding the financial
statements even though he or she intends to express an
unqualified opinion.

This information
should be presented
in an explanatory
paragraph.

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Departures from an Unqualified

Financial Statement Audit Report

Qualified

Adverse

Disclaimer

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Discussion of Conditions Requiring Other
Types of Financial Statement Audit
Reports
Results from an inability to obtain
Scope sufficient competent evidence
Limitation about some component of the
financial statements.

Not in Results when financial statements

Conformity are materially affected by an
with GAAP unacceptable departure from GAAP.

Auditor Not Results when auditor is not

Independent independent.

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Discussion of Conditions Requiring Other
Types of Financial Statement Audit
Reports

Scope Issue a qualified opinion or a

Limitation disclaimer.

Not in
Issue a qualified opinion or
Conformity adverse opinion.
with GAAP

Auditor Not
Issue a disclaimer.
Independent
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Special Reporting Issues

Reports on
comparative
financial
statements.

Other
information.

Special reports.

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Different Reports on Comparative

Financial Statements
Prior Years Current Year
Issued Standard Issues Qualified
Unqualified Opinion. Opinion.

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Different Reports on Comparative

Financial Statements
Prior Years Current Year
Issued Qualified Opinion Issues Unqualified
or Disclaimer. Opinion.

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Report by a Predecessor Auditor

The predecessor auditor should

do the following before
reissuing the report:

1. Read the financial statements of the

current period.

2. Compare the prior-period financial

statements reported on with the
current-year financial statements.

3. Obtain a letter of representation from

the current-year or successor auditor.

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Other Information in Documents

Containing Audited Financial Statements
The auditor has no responsibility beyond the financial
information contained in the report, and he or she has
no obligation to perform any audit procedures to
corroborate the other information. However, the auditor
is required to read the other information and consider
whether it is consistent with the information contained
in the audited financial statements.

Annual Registration
Reports Statements

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Special Reports

Financial statements Specified elements,

prepared on a accounts, or items
comprehensive of a financial
basis of accounting statement.
other than GAAP.
Compliance with
aspects of
contractual
agreements or
regulatory
Financial requirements. Financial
presentations to information
comply with presented in
contractual prescribed forms or
agreements or schedules that
regulatory require a prescribed
provisions. form of report.
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Financial Statements Prepared on a
Comprehensive Basis of Accounting
Other Than GAAP

Regulatory Basis

Tax Basis

Cash (or Modified Cash)

Basis

A Definite Set of Criteria

Having Substantial
Support
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Specific Elements, Accounts, or

Items of a Financial Statement
In some situations an auditor may be engaged
to audit only part (or specified elements,
accounts, or items) of the financial statements.

Other
comprehensive
GAAP Basis of basis of accounting
Accounting (OCBOA)

Basis of accounting
prescribed by a
contract or
agreement

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Compliance Reports Related to

Audited Financial Statements
The auditor provides negative assurance as to compliance
with the provisions of contractual agreements or regulatory
requirements.

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Reporting on the Audit of Internal

Control over Financial Reporting
The auditors report on the audit of internal control
contains opinions on
1. Managements assessment of the effectiveness of internal
control over financial reporting and
2. The effectiveness of internal control (based on the auditors
independent audit work.)

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Modifications to the Unqualified Report on

the Effectiveness of Internal Control
The auditor should modify the standard
report if any of the following conditions exist.
1. There is a material weakness in the companys internal control over
financial reporting.
2. There is a restriction on the scope of the engagement.
3. The auditor decides to refer to the report of other auditors as the
basis, in part, for the auditors own report.
4. A significant subsequent event has occurred since the date being
reported on.
5. There is other information contained in managements report on
internal control.
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End of Chapter 18

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