The Different Types Of Audit Reports That Can Be Issued

The different types of audit reports that can be issued explaining the form and content and why they are issued

Write a three to five page double-spaced report discussing: 1. The different types of audit reports that can be issued explaining the form and content and why they are issued. 2. Does this mean that publicly traded companies always "do things right" and what are the implications of a qualified or an adverse opinion for a publicly traded company? Do non-public entities receive opinions other than unqualified? 3. Paraphrase the opinion paragraph for an unqualified, qualified, adverse, and disclaimer of opinion report. Submit your completed assignment to the Assignments folder by the date specified by your facilitator.

Paper For Above instruction

Auditing is a vital process in financial reporting, providing independent assurance on the accuracy and fairness of a company's financial statements. One of the key elements of an audit is the audit report, which communicates the auditor's opinion regarding the financial statements. There are various types of audit reports, each serving a specific purpose based on the findings and the circumstances under which the audit was conducted. Understanding these different types of reports, their content, and their implications is critical for stakeholders, including investors, regulators, and management.

Types of Audit Reports:

The most common audit report issued is the unqualified (or unmodified) opinion, which indicates that the financial statements present a true and fair view in accordance with accounting standards. Its form generally includes an introductory paragraph, a scope paragraph, an opinion paragraph, and sometimes additional explanatory paragraphs. The opinion paragraph states that the financial statements are free of material misstatements.

A qualified opinion is issued when the auditor encounters a specific issue that, in their judgment, is material but not pervasive enough to invalidate the entire statement. It is accompanied by an explanatory paragraph outlining the reasons and the scope limitation.

An adverse opinion indicates that the financial statements are materially misstated and do not fairly present the company's financial position or results of operations. This type of report signals serious issues and can significantly affect the credibility of the entity.

A disclaimer of opinion is issued when the auditor is unable to obtain sufficient evidence to form an opinion, often due to scope limitations or uncertainties. This report essentially states that the auditor does not express an opinion on the financial statements.

Implications for Publicly Traded Companies:

While an unqualified opinion generally suggests that a company is compliant with accounting standards, it does not necessarily mean that the company "does things right." Companies can still have issues not detected by auditors or may engage in unethical practices that are not evident in financial statements. An adverse or qualified opinion, however, signals potential concerns, with a qualified opinion indicating specific issues and an adverse opinion indicating fundamental problems. Such opinions can undermine investor confidence and may trigger regulatory actions.

Publicly traded companies typically receive opinions similar to private companies but are subject to stricter scrutiny by regulators such as the SEC. They do not usually receive opinions other than unqualified unless there are specific issues, such as scope limitations or uncertainties, which may lead to a qualified opinion or, in rare cases, a disclaimer of opinion. Non-public entities, on the other hand, also receive similar types of opinions, but their reporting standards and regulatory requirements may differ depending on jurisdiction and size.

Paraphrasing Opinion Paragraphs:

An unqualified opinion states: "In our opinion, the financial statements present fairly, in all material respects, the financial position of the company as of [date], and its financial performance and cash flows for the year then ended in accordance with [applicable accounting standards]."

A qualified opinion is paraphrased as: "Except for the effects of the matters discussed in the basis for qualified opinion paragraph, the financial statements present fairly, in all material respects, the financial position of the company as of [date], and its financial performance and cash flows for the year then ended in accordance with [applicable accounting standards]."

An adverse opinion can be paraphrased as: "Because of the significance of the matters described in the basis for adverse opinion paragraph, the financial statements do not present fairly the financial position of the company as of [date], or its financial performance and cash flows for the year then ended in accordance with [applicable accounting standards]."

A disclaimer of opinion states: "We were unable to obtain sufficient appropriate audit evidence to provide a basis for an opinion on the financial statements. Accordingly, we do not express an opinion on the financial statements."

References

• Arens, A. A., Elder, R. J., & Beasley, M. S. (2020). Auditing and Assurance Services (16th ed.). Pearson.
• Auditing Standards Board (ASB). (2020). AU-C Section 705: Modifications to the Opinion in the Independent Auditor’s Report.
• DELOITTE. (2023). Understanding Auditor's Reports. Deloitte Insights. https://www2.deloitte.com/
• Institute of Internal Auditors. (2021). International Standards for the Professional Practice of Internal Auditing. IIA.
• Knechel, W. R., Vanstraelen, A., & Zerni, M. (2019). Auditing: Theory and Practice. Routledge.
• Public Company Accounting Oversight Board (PCAOB). (2022). Auditing Standard No. 3101: The Auditor’s Report on an Audit of Financial Statements.
• Rezaee, Z. (2018). Financial Statement Fraud: Prevention and Detection. Wiley.
• Spencer Pickett, K. (2019). Auditing & Assurance Services: An Integrated Approach. McGraw-Hill Education.
• Watts, R. L., & Zimmerman, J. L. (2020). Positive Accounting Theory. Prentice Hall.
• Canadian Institute of Chartered Accountants (CICA). (2018). Handbook of Audit Standards and Guidelines.