Question

Explain why it is necessary for the Standard Audit Report to contain these words and phrases: "Opinion";"present fairly in all material respects"; and "generally accepted accounting principles

Answer 1

The auditor's report consists of an opinion as to whether the financial statements present fairly, in all material respects, an organisation's financial status, operations results, and cash flows in conformity with generally accepted accounting principles. It is necessary because the auditor must look to the requirements of the Securities and Exchange Commission for the entity under audit in regard to the accounting principles applicable to that company. Moreover, it is required to ensure that:

(a) the accounting principles selected and applied must hold general acceptance;

(b) the accounting principles are appropriate as per the circumstances;

(c) the financial statements, inclusive of the related notes, must be informative related to matters that may affect their usage, understanding, and interpretation;

(d) the information provided in the financial statements should be classified as well as summarized in a reasonable approach, that is, neither too detailed nor too condensed

(e) the financial statements shows the underlying transactions and events in an approach that provides the financial position, operation results and cash flows stated within a range of acceptable limits, which means the limits that are reasonable and practicable to attain in financial statements