Question

Avoid brevity and no handwriting. Thanks in advance

1. Describe the parts of the standard unqualified report.

2. Specify the conditions required to issue the standars unqualified audit report.

3.Define the four categories of audit reports.

4. Compare consistency versus Comparability.

Answer 1

following are the parts of standard unqualified report.

Report Title: word independent must be used

Address: To “stockholders” but can also be to “Company” or “Board of Directors”

3.Introductory Paragraph*Says an audit has been done*Lists FS’s which were audited

4.Management’s Responsibility: states that management is responsible for the FS’s

5.Auditor’s Responsibility – Scope Paragraph-Auditors are responsible for the opinion, and Scope Tells what auditor Did during the audit. Idea of reasonableness is presented here! (Focuses on fairness, not the correct)

6.Opinion Paragraph: conclusion, which is an opinion based upon professional judgment, not a guarantee.

7.Name and Address of CPA Firm (city and state) where are you,8.Audit Report Date (date field work is completed)

Audit Report Date (date field work is completed)

A standard unqualified audit report indicates that the opinion expressed is "clean" and management'sassertions in regard to the financial statements are usually found to be in conformance with generallyaccepted accounting principles. The standard unqualified audit report is the most common type of audit report. Both the auditor and the client desire the issuance of an unqualified report, because itindicates that "the auditor has no reservations about the fairness of presentation" (Rittenberg &Schwieger, 2005). An unqualified report indicates that the "audit was performed in accordance withgenerally accepted auditing standards (for nonpublic companies) or in accordance with the standardsof the PCAOB (for public

Unqualified Audit Report

issued by auditor to financial statements when auditor found no material misstatements after their testing. This report contain the unqualified opinion from an independence auditor. The report shown that the entity financial statements are prepared and present true and fair and complying with accounting framework being used. This is the good sign for all kind of stakeholders that willing to uses the financial statements. You might find whether the audit report is clean or not in the opinion paragraph.

Qualified Audit Report

Qualified Audit report is the report that issue by auditors to the financial statements that found material misstatements on them. But those material misstatements are not pervasive. For example, the opening balance of entity contain the large amount of inventories that could not verify.

In this case, auditor issue qualified audit opinion on the qualified audit report. However, if the auditor think that the misstatement is pervasive, they will issued the adverse opinion in their report.

Adverse Audit Report

Adverse Audit Report is type of audit report that issued to the financial statements when auditors found that there are material misstatements in the financial statements. The misstatements found here are different from the material misstatements found qualified audit report.

They are not only material misstated for themselves but also affect others accounts and items in the whole financial statements. These are called pervasive. That mean all the items and accounts in the whole financial statements could not be trusted by shareholders, investors and others stakeholders.

In this report, auditors will list down the client name, financial statements that they were audited and the period the financial statements covered. Auditor will also state all misstatements found and how they are affected the the financial statements and well as the users of financial statements.

Disclaimer Audit Report

Disclaimer audit report is the report that issues to the financial statements where there are mater to auditor’s independence and those mater cause auditor not be able to obtain sufficient audit’s evidence to support their opinion.

This is happen when auditors are prevented to access to certain information related to items or accounts in financial statements while those items or accounts are believed to be materially misstated and pervasive. Auditors might not issued the disclaimer opinion if the restrictions are made only the the items or accounts that material misstated but not pervasive.

Financial statements of one accounting period must be comparable to another in order for the users to derive meaningful conclusions about the trends in an entity's financial performance and position over time. Comparability of financial statements over different accounting periods can be ensured by the application of similar accountancy policies over a period of time.

A change in the accounting policies of an entity may be required in order to improve the reliability and relevance of financial statements. A change in the accounting policy may also be imposed by changes in accountancy standards. In these circumstances, the nature and circumstances leading to the change must be disclosed in the financial statements.

Financial statements of one entity must also be consistent with other entities within the same line of business. This should aid users in analyzing the performance and position of one company relative to the industry standards. It is therefore necessary for entities to adopt accounting policies that best reflect the existing industry practice