Question

Discuss why the auditors’ reports are important to users of financial statements. What conditions are required to issue a standard unqualified audit report?

Answer 1

The auditors' reports are important to users of financial statements because they inform users of the auditor's opinion as to whether or not the statements are fairly stated or whether no conclusion can be made with regard to the fairness of their presentation. Users especially look for any deviation from the wording of the standard unqualified report and the reasons and implications of such deviations. Having standard wording improves communications for the benefit of users of the auditor’s report. When there are departures from the standard wording, users are more likely to recognize and consider situations requiring a modification or qualification to the auditor’s report or opinion.

Conditions required to issue a standard unqualified audit report are :

1. All statements - Balance Sheet, Income Statement, Statement of Retained Earnings and Statement of Cash flows are included in the financial statements.

2. The three general principles of GAAS have been followed in all respects on the engagement.

3. Sufficient appropriate audit evidence has been accumulated and the auditor can conclude that the three fieldwork standards have been followed.

4. The financials statements are presented in accordance with GAAP.

5. There are no circumstances requiring the addition of an explanatory paragrapgh or modification of wordings of the audit report.