audit reports

Reports are essential to audit and assurance engagements because they com -
municate the auditor’s findings. Users of financial statements rely on the auditor’s
report to provide assurance on the company’s financial statements. As the story at the
beginning of this chapter illustrates, the auditor will likely be held responsible if an
incorrect audit report is issued.
The audit report is the final step in the entire audit process. The reason for studying
it now is to permit reference to different audit reports as evidence accumulation is
studied throughout this text. These evidence concepts are more meaningful after you
understand the form and content of the final product of the audit. We begin by
describing the content of the standard auditor’s report.
STANDARD UNQUALIFIED AUDIT REPORT
To allow users to understand audit reports, AICPA professional standards provide uniform
word ing for the auditor’s report, as illustrated in the auditor’s standard unqualified
audit report in Figure 3-1. Different auditors may alter the wording or presentation
slightly, but the meaning will be the same.
Parts of Standard
Unqualified Audit Report
OBJECTIVE 3-1
Describe the parts of the standard
unqualified audit report.
The auditor’s standard unqualified audit report contains seven distinct parts, and
these are labeled in bold letters in the margin beside Figure 3-1.
1. Report title. Auditing standards require that the report be titled and that the title
include the word independent. For example, appropriate titles include “independent
auditor’s report,” “report of independent auditor,” or “independent accountant’s opinion.”
The requirement that the title include the word inde pendent conveys to users that
the audit was unbiased in all aspects.
2. Audit report address. The report is usually addressed to the company, its stockholders,
or the board of directors. In recent years, it has become customary to address
the report to the board of directors and stockholders to indicate that the auditor is
independent of the company.
3. Introductory paragraph. The first paragraph of the report does three things: First,
it makes the simple statement that the CPA firm has done an audit. This is intended to
distinguish the report from a compilation or review report. The scope paragraph (see
part 4) clarifies what is meant by an audit.
Second, it lists the financial statements that were audited, including the balance
sheet dates and the accounting periods for the income statement and statement of cash
flows. The wording of the financial statements in the report should be identi cal to
those used by management on the financial statements. Notice that the report in Figure
3-1 is on comparative financial statements. Therefore, a report on both years’ state -
ments is needed.
Third, the introductory paragraph states that the statements are the respon sibility
of management and that the auditor’s responsibility is to express an opinion on the
statements based on an audit. The purpose of these statements is to communicate that
management is responsible for selecting the appro priate gener ally accepted accounting
principles and making the measurement decisions and disclosures in applying those
principles and to clarify the respective roles of management and the auditor.
4. Scope paragraph. The scope paragraph is a factual statement about what the
auditor did in the audit. This paragraph first states that the auditor followed U.S. generally
accepted auditing standards. For an audit of a public company, the para graph
will indicate that the auditor followed standards of the Public Company Accounting
Oversight Board. Because financial statements prepared in accordance with U.S.
accounting principles and audited in accordance with U.S. auditing standards are available
throughout the world on the Internet, the country of origin of the accounting
46 PART ONE / THE AUDITING PROFESSION