Rittenberg/Schwieger/Johnstone
Auditing: A Business Risk Approach
Sixth Edition
Chapter 17
Communicating Audit
and Attestation Results
Copyright © 2008 Thomson South-Western, a part of the Thomson Corporation. Thomson, the Star logo,
and South-Western are trademarks used herein under license.
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Audit Reports
Designed to promote clear communication between auditor
and financial statement reader by clearly stating
 What was audited and the division of responsibility: management
for the financial statements and the auditor for expressing an
opinion (introductory paragraph)
 The nature of the audit process (scope paragraph)
 Auditor's opinion on the fair presentation of the financial
statements (opinion paragraph)
 If an unqualified opinion cannot be expressed, reasons why
(explanatory paragraph)
The fourth reporting standard requires auditors to either
express an opinion or state why an opinion cannot be
expressed
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What are the types of audit
reports?
Standard unqualified
 Unqualified opinion with modified
wording
 Qualified
 Adverse
 Disclaimer
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The Standard Unqualified Report
Statements present fairly
No material departures from GAAP
Disclosures are adequate
All necessary audit procedures performed
(no scope limitation)
No change in GAAP with material impact
Auditor is independent
No going concern problems
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The Unqualified Report with
Modified Wording
Statements present fairly, but auditor wishes to
disclose additional information
Substantial doubt about client being a going concern
Change in accounting principles
Justified departure from GAAP
Auditor wishes to emphasize particular event,
transaction, or subsequent occurrence
Reference to other auditors
Changes in comparative statements, such as
differences in the level of audit report or a change in
auditors where the predecessor's opinion will not be
reissued
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The Qualified Report
Statements present fairly except for....
Material unjustified departure from
GAAP
Inadequate disclosure
Scope limitation
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The Adverse Report
Statements, as a whole, do NOT
present fairly
Pervasive and material unjustified
departure from GAAP
Lack of important disclosure
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The Disclaimer of Opinion
Auditor lacks independence
Scope limitation
Substantial going concern
problem
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Modifications Affecting
the Opinion
Departure from GAAP - whether the departure is justified
or unjustified, amount and pervasiveness of the
misstatement, and potential impact of misstatements on
statement users determines whether an unqualified,
qualified, or adverse opinion is issued.
Scope limitation - imposed by client or circumstance,
materiality of the amounts involved, auditor's ability to
form an opinion on the statements without the evidence
determines whether qualified or disclaimer is issued
Going concern - depending on auditor's assessment of
client's ability to remain a going concern, auditor may
issue unqualified opinion with modified wording, qualified
opinion, or disclaim
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Financial Statement Reviews
Sometimes a client does not need an audit.
Practitioners can perform fewer procedures and
report a lower, or no, level of assurance on the
financial statements. The most common of these
financial statement services are compilations
and reviews.
The standards for compilations and reviews of
financial statements of non-public entities are
called Statements on Standards for Accounting
and Review Services (SSARS)
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Financial Statement Reviews
(continued)
Inquiry and analytical procedures are
performed for each significant account
balance
Accountant does NOT assess internal control
or perform substantive tests
Provides limited assurance that accountant is
not aware of any reporting problems
Accountant must be independent
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Compilation
Presents management information in financial
statement form without any form of assurance
The accountant must have general knowledge of
client accounting records, accounting methods,
and form and content of statements
The accountant is not required to perform
procedures to verify, corroborate, or review client
information
The accountant must read the statements to
make sure they are free from obvious material
misstatement
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Compilation (continued)
If the accountant believes the statements are
incorrect, incomplete, or misleading, s/he must
obtain any additional information necessary to
prepare accurate statements
Compiled statements may omit disclosures if the
accountant believes the omission is not done to
mislead, and it is noted in the compilation report
If the accountant is not independent of client, a
separate paragraph is added to the compilation
report stating lack of independence
Compiled statements may only be prepared for
nonpublic entities.
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Reports on Other Financial
Information: Special Reports
Statements prepared on a comprehensive basis
other than GAAP (OCBOA)
Reporting on specified elements, accounts, or
items of financial statements
Reporting on compliance with aspects of
contractual agreements or regulatory
requirements related to audited financial
statements
Reporting on special-purpose financial
presentations to comply with contractual
agreements or regulatory provisions
Reporting on financial information presented in
prescribed forms or schedules
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Interim Financial Information
The SEC requires publicly traded companies
to have their quarterly financial information
reviewed by their independent auditors
Review procedures much the same as
required by SSARS
Reporting on interim statements presented
separately
Reporting on interim information
accompanying audited annual financial
statements
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Reports on Other Financial and
Non-Financial Information
Prospective Financial Statements
Forecasts and projections
May compile (no assurance) or examine (positive
assurance)
Pro forma financial information
Historical information adjusted for proposed or actual
transactions
Compliance with laws and regulations
Compliance with requirements of specified laws,
regulations, rules, contracts, or grants
Effectiveness of entity's internal control over
compliance with specified requirements
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Evolving Assurance Services
In 1994, the AICPA established the Special
Committee on Assurance Services to
identify new assurance services. The
SCAS identified six services:
Electronic Commerce
Business Performance Management
Health Care Performance Management
Risk Assessment
Information Systems Reliability
Elder Care Assurance
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