Question

List the types of reports on audited financial statements and discuss the respective condition of each. Provide an example of a situation when each type of report would be issued

Answer 1

The four conditions stated above have been met.

Adverse or Disclaimer

The auditor concludes that the financial statements are not fairly presented (adverse), he or she is unable to form an opinion as to whether the financial statements are fairly presented (disclaimer), or he or she is not independent (disclaimer).

Unqualified with Emphasis of matter , Explanatory Paragraph or Modified Wording

A complete audit took place with satisfactory results and financial statements that are fairly presented, but the auditor believes that it is important or is required to provide additional information.

Qualified

The auditor concludes that the overall financial statements are fairly presented, but the scope of the audit has been materially restricted or applicable accounting standards were not followed in preparing the financial statements.3.List and describe the main components of an unqualified audit report.Three main types of audit reports are issued under these conditions: qualified opinion,adverse opinion, and disclaimer of opinion.

TYPES AND COMPONENTS OF FINANCIAL STATEMENT

A qualified opinion report can result from a limitation on the scope of theaudit or failure to follow generally accepted accounting principles. A qualified opinion report can be used only when the auditor concludes that the overall financial statements are fairly stated. A disclaimer or an adverse report must be used if the auditor believes that he condition being reported on is highly material. Therefore, the qualified opinion is considered the least severe type of departure from an unqualified report.

An adverse opinion is used only when the auditor believes that the overallfinancial statements are so materially misstated or misleading that they do not present fairly the financial position or results of operations and cash flows in conformity with GAAP.

A disclaimer of opinion is issued when the auditor has been unable to satisfy himself or herself that the overall financial statements are fairly presented. The necessity for disclaiming an opinion may arise because of asevere limitation on the scope of the audit or a nonindependent relationship under the Code of Professional Conduct between the auditor and the client. Either of these situations prevents the auditor from expressing an opinion on the financial statements as a whole. The auditor also has the option to issue a disclaimer of opinion for a going concern problem.