Chapter 12
Reports on Audited
Financial Statements
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1. Association with Financial
Statements
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AU-C § 200.03
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An auditor is associated with financial
information when the auditor has applied
procedures sufficient to permit the auditor
to report in accordance with GAAS.
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2. Unmodified Audit Report
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AU-C § 700
Meaning of “Unmodified”
Client vs. Auditee
Title
Addressee
Date (audit completion date; audit report date;
audit report release date)
Signature
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2. Unmodified Report (con’t)
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[Report on the Financial Statements]
Introductory Paragraph
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We have audited the accompanying
financial statements of ABC Company,
which comprise the balance sheet as of
December 31, 20X1, and the related
statements of income, changes in
stockholders’ equity, and cash flows for the
year then ended, and the related notes to
the financial statements.
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2. Unmodified Report (con’t)
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Management’s Responsibility for the Financial
Statements
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Management is responsible for the preparation and fair
presentation of these financial statements in
accordance with accounting principles generally
accepted in the United States of America; this includes
the design, implementation, and maintenance of
internal control relevant to the preparation and fair
presentation of financial statements that are free from
material misstatement, whether due to fraud or error.
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2. Unmodified Report (con’t)
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Auditor’s Responsibility
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Our responsibility is to express an opinion on these
financial statements based on our audit. We
conducted our audit in accordance with auditing
standards generally accepted in the United States
of America. Those standards require that we plan
and perform the audit to obtain reasonable
assurance about whether the financial statements
are free from material misstatement.
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2. Unmodified Report (con’t)
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An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the financial statements. The procedures selected
depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant
to the entity’s preparation and fair presentation of the financial statements in
order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well
as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
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2. Unmodified Report (con’t)
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Opinion
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In our opinion, the financial statements referred
to above present fairly, in all material respects,
the financial position of ABC Company as of
December 31, 20X1, and the results of its
operations and its cash flows for the year then
ended in accordance with accounting principles
generally accepted in the United States of
America.
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2. Unmodified Report (con’t)
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[Report on Other Legal and Regulatory
Requirements]
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Auditor’s signature
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Auditor’s city and state
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Date of the auditor’s report
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2. Unmodified Report (con’t)
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Audits of issuers
Responsibility of Auditor
 opinion on financial statements
 opinion on internal control over financial reporting
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can be separate reports on F/S and IC
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each of reports references other report
can be combined report on F/S and IC
Responsibility of Management regarding IC
 establish & maintain effective IC system over fin reporting
 identify IC framework used
 document IC and test it so can form an opinion
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give opinion on internal control over financial reporting
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3.
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Unmodified with Emphasis-of-matter
Paragraph (explanatory paragraph)
Group financial statements (shared responsibility report)
(principle auditor=group auditor; other
auditor=component auditor)
Lack of consistency
Justified departure from GAAP
Emphasis of a matter
Going concern
Audit report under AS 5
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3.
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Unmodified Reports’ Additional
Paragraphs
Emphasis-of-matter paragraph
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A paragraph included in the auditor’s report refers to a matter appropriately presented
or disclosed in the financial statements that, in the auditor’s professional judgment, is
of such importance that it is fundamental to users’ understanding of the financial
statements.
Examples: uncertainty, major catastrophe, significant transaction with related parties
Other-matter paragraph
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A paragraph included in the auditor’s report that refers to a matter other than those
presented or disclosed in the financial statements that, in the auditor’s professional
judgment, is relevant to users’ understanding of the audit, the auditor’s
responsibilities, or the auditor’s report
Examples: auditor unable to withdraw from engagement, something relevant to the
users’ understanding of the auditor’s responsibilities, reporting on more than one set
of financial statements, supplementary information
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4. Modified Opinions
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Accounting problems (GAAP violation)
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qualified opinion
adverse opinion
Auditing problems (scope limitation)
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qualified opinion
disclaimer of opinion
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4. Modified Opinions
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Disclaimer of opinion
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If management of an entity that is not required by law or
regulation to have an audit impose a limitation on the scope
of the auditor’s work, such that the auditor believes the
limitation will result in the auditor disclaiming an opinion on
the financial statements as a whole,
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the auditor should not accept such a limited engagement as an
audit engagement.
If the entity is required by law or regulation to have an audit and
imposes such a scope limitation, and a disclaimer of opinion is
acceptable under the applicable law or to the regulator, the auditor
is permitted, but not required, to accept the engagement.
AU-C 210.07
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6. Other Issues
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Comparatives
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corresponding figures
comparative financial statements
Other information in documents containing
audited financial statements
Condensed financial statements
Supplementary Information
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6. Other Issues (continued)
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Change in auditors
Change in level of service
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audit to review or compilation
acceptable reasons (AR 80.56)
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Updated report
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misunderstanding regarding nature of service, change in
circumstances, or restriction on scope
opinion
date
Reissued report
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date
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6. Other Issues (continued)
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Reports on IC under AS 5
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management’s report
auditor’s report
opinions
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Unqualified
Adverse
Disclaimer
(withdraw)
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8. Reporting Summary
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Review Questions for Discussion
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12.2
12.3
12.4
12.5
12.6
12.9
12.10
12.12
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12.15
12.16
12.17
12.19
12.21
12.22
12.25
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