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Unformatted text preview: 3-1 Chapter 3 Audit Reports Review Questions3-1Auditor's reports are important to users of financial statements because they inform users of the auditor's opinion as to whether or not the statements are fairly stated or whether no conclusion can be made with regard to the fairness of their presentation. Users especially look for any deviation from the wording of the standard unqualified report and the reasons and implications of such deviations. Having standard wording improves communications for the benefit of users of the auditor’s report. When there are departures from the standard wording, users are more likely to recognize and consider situations requiring a modification or qualification to the auditor’s report or opinion. 3-2The unqualified audit report consists of: 1. Report titleAuditing standards require that the report be titled and that the title includes the word independent. 2. Audit report addressThe report is usually addressed to the company, its stockholders, or the board of directors. 3. Introductory paragraphThe first paragraph of the report does three things: first, it makes the simple statement that the CPA firm has done 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. Third, it states that the statements are the responsibility of management and that the auditor's responsibility is to express an opinion on the statements based on an audit. 4. Scope paragraph. The scope paragraph is a factual statement about what the auditor did in the audit. The remainder briefly describes important aspects of an audit. 5. Opinion paragraph. The final paragraph in the standard report states the auditor's conclusions based on the results of the audit. 6. Name of CPA firm. The name identifies the CPA firm or practitioner who performed the audit. 7. Audit report date. The appropriate date for the report is the end of fieldwork, when the auditor has gathered sufficient appropriate evidence to support the opinion. The same seven parts are found in a qualified report as in an unqualified report. There are also often one or more additional paragraphs explaining reasons for the qualifications. 3-2 3-3The purposes of the scope paragraph in the auditor's report are to inform the financial statement users that the audit was conducted in accordance with generally accepted auditing standards, in general terms what those standards mean, and whether the audit provides a reasonable basis for an opinion. The information in the scope paragraph includes: 1. The auditor followed generally accepted auditing standards. 2. The audit is designed to obtain reasonable assuranceabout whether the statements are free of materialmisstatement....
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This note was uploaded on 06/07/2011 for the course ECON 101 taught by Professor Gbright during the Spring '11 term at Burlington CC.
- Spring '11