Standard Unqualified Audit Report

Standard Unqualified Audit Report An unqualified opinion is the most common type of audit’s report. It is an independent judgment that a company’s financial records and statements are appropriately presented in accordance with Generally Accepted Accounting Principles (GAPP). A standard unqualified audit report indicates the auditor’s opinion that a client’s financial statements are fairly presented in accordance with agreed upon criteria. It is a written notice from an auditor starting that a company has complied with GAPP. Basic Parts of Standard Unqualified Audit Report I. Report Title: A report title is one that represents the basic element and II. Address: This part contains the addresses of the stockholders, company, and III. Introductory Page: An introductory paragraph is one which gives a primary characteristics of that particular report. the Board of Director. view of the report and generally commences the actual report. It should ensure the following subject matters: a. It says an audit has been done. b. It lists financial statements which were audited. c. It states that the statements are the responsibility of management and that auditor’s responsibility is to express an opinion. IV. Management Responsibility: It ensures that management is responsible for V. Auditor’s Responsibility-Scope Paragraph: Auditors are responsible for the VI. Opinion Paragraph: Opinion paragraph contains opinion which is based upon VII. Name and Address of CPA Firm: It indicates city and state where it is located. the financial statements. opinion and scope tells what auditor did during the audit. professional judgment, not a guarantee. VIII. Audit Report Date: There must be a specific date on when field work will be completed. An Unqualified Audit Report with an Explanatory Paragraph or Modified Wording Description of unqualified audit report /explanatory paragraph on modified wording meets criteria of complete satisfactory audit. An unqualified report with an explanatory paragraph is a report an audit can issue when falls under one of five situations. Reason 1: Inconsistent GAAP application: Current period is not consistent with previous period. required for both voluntary and required changes, Auditor must agree with change. Explanatory paragraph added after opinion. Reason2: Going concern reports: A client that has a possibility of not remaining a going concern, but has footnotes from the management about they propose to bring their business back to life, would receive an unqualified report opinion. The auditor will write an explanatory paragraph that expresses his or her doubt about the going concern of the business in clear and understandable language. Reason 3: Auditor agree with departure from GAAP: If applying GAAP would be misleading. Explanatory paragraph added before opinion. paragraph refers to explanatory paragraph. Very unusual. Reason 4: Emphasis of other matters: Used to highlight something in FS Explanatory paragraph added after opinion. Reasons: Significant related-party transaction on sequent event. Reason 5: Reference to other Auditors: When the principle auditing firm has a client that is a very large corporation and has many locations, they will sometimes enlist the experience of other auditing firms. When the unqualified audit is complete, the principle auditor will author the shared report. The senior auditor may or may not mention the assisting auditors in the introductory paragraph. Conditions Requiring Departures There are three conditions that require a departure from an unqualified report. These are:  Scope Limitation- a scope restriction imposed by the client or by circumstances beyond the auditor’s or client’s control which prevents the auditor from accumulating sufficient evidence to reach a conclusion regarding whether financial statements are stated in accordance with GAAP. In this condition, the auditor would issue either a qualified scope and opinion report, or a disclaimer of opinion.  GAAP Departure- the financial statements were not prepared in accordance with GAAP. In this condition, the auditor would issue a qualified opinion if the GAAP violation were moderately material, or an adverse opinion if the GAAP violation were highly material.  Lack of Independence- the auditor is not independent. In this condition, the auditor must issue a disclaimer of opinion. This is to say that any one of these conditions, if material, must result in a qualified opinion, an adverse opinion, or a disclaimer of opinion.  A qualified opinion could happen if there is scope limitation or GAAP departure, as long as the auditor concludes that the financial statements are fairly presented. Qualification is possible for both the scope and opinion, or just the opinion. A key indicator of a qualified opinion is that the auditor must use the phrase "except for" in the opinion paragraph, which points to the qualifying issue.  An adverse opinion is used when the auditor concludes that the financial statements are so misstated or misleading that they do not fairly present the income, financial position or cash flows of the company. The auditor must have knowledge that the statements are not fairly stated; therefore, the adverse opinion is rarely used.  A disclaimer of opinion is issued when the auditor is unable to reach the conclusion that the financial statements are fairly presented. Audit Report Other than Unqualified There are four type of audit report and unqualified report is one of them. Sometimes an auditor can’t issue unqualified report if for some reasons. So three reporting options are available to an auditor. They are given below: Qualified Report: An auditor issues qualified opinion when company’s financial records have not been maintained according to GAAP but no misrepresentations are identified. An opinion rendered in a qualified report is similar to an unqualified opinion. Here auditing body highlights why audit report is not qualified. Disclaimer Report: An auditor gives disclaimer report when he becomes unable to provide a define opinion. This can be due to lack of properly maintained financial records or insufficient support from management. For that reason, an auditor may not have had the opportunity to fulfill tasks that deem to be crucial to the audit. Adverse Report: The worst type financial report that can be issued to a business is called an adverse report. This indicates that the firm’s financial records do not conform to GAAP. In addition, the financial report provides by the business have been misrepresented. It indicates fraud though this may occur by error. When this type of report is issued a company must correct its financial statement. This type of report generally unaccepted for investors, lenders and other parties.