Reports on Audited Financial Statements

1
Reports on Audited Financial Statements

• Chapter 3

2
Homework

• Chapter 3
• Multiple choice
• Memorize Standard Unqualified Audit Report (p. 32
  or 51)

3
Standard Unqualified Audit Report

• Title
• Address
• Introductory paragraph
• Scope paragraph
• Opinion paragraph
• Date
• Signature

4
Introductory Paragraph

• We have audited the accompanying balance sheet
  of Anycompany as of December 31, 2002, and the
  related statements of income, retained earnings,
  and cash flows for the year then ended . These
  financial statements are the responsibility of
  the companys management. Our responsibility is
  to express an opinion on these financial
  statements based on our audits.

5
Scope Paragraph

• We conducted our audit in accordance with
  auditing standards generally accepted in the
  United States. Those standards require that we
  plan and perform the audit to obtain reasonable
  assurance about whether the financial statements
  are free of material misstatement. An audit
  includes examining, on a test basis, evidence
  supporting the amounts and disclosures in the
  financial statements. An audit also includes
  assessing the accounting principles used and
  significant estimates made by management, as well
  as evaluating the overall financial statement
  presentation. We believe that our audit provides
  a reasonable basis for our opinion.

6
Opinion Paragraph

• In our opinion, the financial statements
  referred to above present fairly, in all material
  respects, the financial position of Anycompany as
  of December 31, 2002, and the results of its
  operations and its cash flows for the year then
  ended in conformity with accounting principles
  generally accepted in the United States.

7
Types of Audit Reports

• Unqualified or Clean
• Not materially misstated
• Qualified opinion
• departure from GAAP (p. 54)
• Scope limitation (p. 57)

8
Types of Audit Reports (cont.)

• Adverse
• departure from GAAP (55)
• Disclaimer
• Unaudited (p. 58)
• Independence (p. 59)
• uncertainty

9
Miscellaneous Reporting Issues

• Rule 203 report (p. 56)
• Emphasis paragraph, clean opinion
• Uncertainties
• Going-concern problem (p. 62)
• Reference to another auditor (p. 61)

10
Significance of Audit Report

• In 1968 a senior partner, a junior partner, and
  a senior associate in the national accounting
  firm of Lybrand, Ross Bros. Montgomery were
  convicted, after jury trial, of conspiracy, mail
  fraud and securities fraud in knowingly
  certifying a false and misleading financial
  statement for Continental Vending Corporation for
  1962.

11
Significance of Audit Report (cont)

• Their sentences were limited to fines and
  probation. In 1972 they were given full and
  complete pardons by former President Richard M.
  Nixon. This criminal case especially alarmed the
  accounting profession, because the court held
  that

12
Significance of Audit Report (cont)

• (1) compliance with generally accepted
  accounting principles was not a complete defense
  against charges of certifying a false and
  misleading financial statement and
• (2) auditors had a duty to report corporate
  looting by the CEO.
• From Duties and Liabilities of Public
  Accountants, Seventh Edition by
• Denzil Y. Causey, Jr., published by Accountants
  Press (2001) pp.17-18.

13
Summary

• The audit report is the culmination of the
  engagement.
• The report includes an opinion based on the
  diligence, competence and professionalism of the
  auditor.
• One of four basic reports should be issued.
• Integrity is critical to the success of the
  profession.