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Unformatted text preview: Chapter 17 - Auditors Reports CHAPTER 17 Auditors' Reports Review Questions 17-1 The three paragraphs of the standard audit report for a nonpublic company are (1) introductory paragraph, (2) scope paragraph, and (3) opinion paragraph. 17-2 The function of notes to financial statements is to provide adequate disclosure when information in the financial statements is insufficient to attain this objective. 17-3 Auditors may issue unqualified reports when the following conditions have been met: (1) The financial statements are presented in conformity with generally accepted accounting principles, including adequate disclosure. (2) The audit was performed in accordance with generally accepted auditing standards, including no significant scope limitations preventing the auditors from gathering the evidence necessary to support their opinion. 17-4 The audit report for a public company differs from the audit report of a nonpublic company in the following ways: The title of the public company report includes a reference to the registered audit firm. The public company report references standards of the PCAOB rather than generally accepted auditing standards. The public company report must include the city and stateor city and country in the case of non-U.S. auditorswhere the auditors' report has been issued. There is no similar requirement for nonpublic reports. The public company report includes an additional paragraph indicating that the auditors have also issued a report on the clients internal control over financial reporting. 17-5 (1) Unqualified opinionstandard report . This report represents a "clean bill of health" and may be issued when there are no material departures from generally accepted accounting principles, no significant scope limitations preventing the gathering of necessary evidence, and when no conditions requiring explanatory language exist. 17-1 Chapter 17 - Auditors Reports (2) Unqualified opinionwith explanatory language added to report . This is an audit report with an unqualified opinion, but with circumstances that result in the auditors adding certain explanatory language to the report. Examples of such circumstances are those in which other auditors have performed a portion of the audit, or when a question concerning an entitys ability to continue as a going concern exist. (3) Qualified opinion . A qualified opinion is issued when the auditors' examination is restricted as to its scope or the financial statements depart from generally accepted accounting principles. A qualified opinion is still a positive opinion; it asserts that the presentation in the financial statements, viewed as a whole, is fair....
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- Spring '11