REVIEW CHAPTER 6: AUDIT REPORT (PSP_DAT5CJune2020)
GROUP 6: AUDIT REPORT
INTRODUCTION.
The auditor's report is a written letter from the auditor containing the opinion of whether a company's financial statements comply with generally accepted accounting principles (GAAP). The independent and external audit report is typically published with the company's annual report. The auditor's report is important because banks and creditors require an audit of a company's financial statements before lending to them. In this article, we explain what goes into an auditor's report as well as review an example of an audit report.
An auditor's report is a written letter attached to a company's financial statements that express its opinion on a company's compliance with standard accounting practices. The auditor's report is required to be filed with a public company's financial statements when reporting earnings to the Securities and Exchange Commission (SEC). However, an auditor's report is not an evaluation of whether a company is a good investment. Also, the audit report is not an analysis of the company's earnings performance for the period. Instead, the report is merely a measure of the reliability of the financial statements ♥️
1) Please refer to the Conceptboard we have prepared for you :
QUESTIONS.
Group 2. Factors changes an auditor's report to qualified audit reports.
Group 3. State importance of audit report.
Group 4. Explain unmodified audit report with an example.
Group 5. Explain modified audit report with an example.
Group 7. Explain the definition of a disclaimer of opinion.
Group 8. Explain the definition of an adverse opinion.
Comments
An adverse opinion is a professional opinion made by an auditor indicating that a company's financial statements are misrepresented, misstated, and do not accurately reflect its financial performance and health. Averse opinion due to a disagreement with a directors provision for foreseeable looses.
1) Report title
2) Introductory paragraph
3) Scope paragraph
4) Executive summary
5) Opinion paragraph
6) Auditor's name
7) Auditor's paragraph
unmodified opinion is expressed to the financial statements that prepared in all material respect and complying with the applicable framework.This opinion is issued once auditors obtain sufficient and appropriate audit evidence to the financial statements as the result of their testing.All material respect here means there is no material misstatement in the financial statements, but there might be an immaterial misstatement.example,report title,audit report address
Disclaimer of opinion is basically a statement provided by the auditor that doesn’t lay down any sort of opinion with regard to the financial position and condition of the company. Disclaimer of opinion is provided by certified public accountant wherein he clarifies that an audit related opinion/statement cannot be provided owing to limitations of the examinations conducted.
An auditor's report is qualified when there is either a limitation of scope in the auditor's work, or when there is a disagreement with management regarding application, acceptability or adequacy of accounting policies. For auditors an issue must be material or financially worth consideration to qualify a report.
Importance of an Audit Report
The importance of audit report can be emphasized in the following points :
1) Getting detailed review
2) Receiving additional perspective
3) Evaluating internal controls
4) improving credit rating
Modified opinions are the types of audit opinions that issue to entity’s financial statements when auditors found that those statements are not prepared and present fairly in all material respect in accordance with the accounting framework that they are using.
There are three sub audit opinions belong to Modified Opinion.
The level of modification classifies into three different types based on the level of misstatements, pervasiveness, and sufficiency of audit evidence according to ISA 705.
As per ISA 705, auditors need to modify their opinion (qualified report) according to the detailed guideline in ISA 705 if the misstatements are found by auditors in the financial statements.