CHAPTER 17 – REPORTING LEARNING OBJECTIVES: 1. Describe the nature of the reports on audited financial statements 2. Give examples of the reports on audited financial statements 3. Understand when and how to modify the reports on audited financial statements INTRODUCTION: In the world of finance and accounting, the integrity and transparency of financial information are paramount. This chapter delves into a critical aspect of financial reporting: Chapter 17 - Reporting. In this chapter, we will explore the intricacies of audited financial statements and the reports that accompany them. AUDITED FINANCIAL STATEMENTS is a company's document that a registered certified public accountant (CPA) has reviewed and determined is free from error. are more well scrutinized and verified than the unaudited ones which acts as a confirming and reliability factor for the investors and shareholders. REPORTS ON AUDITED FINANCIAL STATEMENTS refer to the official documents produced by an independent auditor after conducting an audit of a company's financial statements. offer valuable insights into the quality and reliability of the financial information presented by the company. THE NATURE OF THESE REPORTS IS CHARACTERIZED BY: Independence and Objectivity Professional Standards Disclosure of Material Misstatements Transparency and Accountability Communication to Stakeholders Audit Report Examples An audit reportcontains the opinion of independent auditors about the company’s financial statements such as Income Statement, Balance Sheet, Cashflows, and Shareholders’ equity statement. Auditor reports can be found in companies’ annual reports just before the financial page. ACCO 20163 GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT, AND INTERNAL CONTROL PREPARED BY: ATIENZA, CAUSAPIN, VILLAMOR. There can be following variations in an auditor report opinion examples: #1 – Clean Opinion: If the auditor is satisfied with the financials and as per him/her, these are of fair presentation. #2 – Qualified Opinion: In this type of report, the auditor will state limitations faced while auditing. #3 – Adverse Opinion: If the statements are not correctly stated. Below are some practical examples and samples of the Audit Report to understand it better. These reports have taken from annual reports of companies: Audit Report Example of Facebook Below is the auditor report example for Facebook, which is a U.S company, so it should be compliant with GAAP rules. This report has been taken from the Facebook annual report for 2018. Auditor for Facebook is Ernest &Young. It has provided its audit report in 5 points which have been mentioned below: #1 – Opinion on the Financial Statements ACCO 20163 GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT, AND INTERNAL CONTROL PREPARED BY: ATIENZA, CAUSAPIN, VILLAMOR. In the first paragraph, the auditor has indicated they have an audited balance sheet, Income Statement Shareholder’s Equity, and Cashflow Statement of the company for the last 3 years. Also, they have checked all the related notes, which explain the basis for the numbers and some accounting guidelines. Based on the audit, EY is confirming that financials are in accordance with GAAP (Generally Accepted Accounting Principles) standards. Based on the report, they have provided an unqualified clean opinion; it means the auditor is satisfied with the financials provided. #2 – A Basis for Opinion on Financial Statements: In this part, the auditor mentioned that in their audit, they check to see any error, misrepresentation, or fraud in the data provided. They have taken some test cases to check the amounts that are provided in the financial. Also, they have tested the accounting principles which was used by management. #3 – Opinion on Internal Control Over Financial Reporting In this part, an auditor has checked whether the company is having control over its finances as regulated by COSCO (Committee of Sponsoring Organization) and PCAOB (Public Company Accounting Oversight Board). E.Y. has audited Income Statement, Balance Sheet, Cash Flow, and Shareholder’s Equity for this purpose. #4 – The Casis for Opinion: ACCO 20163 GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT, AND INTERNAL CONTROL PREPARED BY: ATIENZA, CAUSAPIN, VILLAMOR. Here auditor mentioned their process for forming the opinion. They have mentioned that formally audit has been done to confirm whether the control mentioned by management over the financial are reasonable. #5 – Definition and Limitation of Internal Control Over Financial Reporting: Here the auditor tells about the procedures which can be used for internal control such as “provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,” etc. Because of some limitations, there can be cases that, even after adequate internal control, there can be some misstatements. Auditor has also mentioned the same in this report. MODIFYING REPORTS ON AUDITED FINANCIAL STATEMENTS WHEN? 1. 2. 3. 4. 5. Material Misstatements Scope Limitations Departure from Accounting Standards Going Concern Issues Non-compliance with Regulations ACCO 20163 GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT, AND INTERNAL CONTROL PREPARED BY: ATIENZA, CAUSAPIN, VILLAMOR. HOW? 1. 2. 3. 4. 5. Emphasis of matter paragraph Explanatory paragraph Compliance with standards Consultation Communication with stakeholders REFERENCES: https://www.business.com/articles/audited-financial-statement/ https://pcaobus.org/oversight/standards/auditing-standards/details/AS3101 https://www.wallstreetmojo.com/audit-report-examples/ https://pcaobus.org/oversight/standards/auditing-standards/details/AS3101 https://us.aicpa.org/content/dam/aicpa/research/standards/auditattest/downloadabledoc uments/au-00508.pdf PREPARED BY: ATIENZA, GHENEVIEVE CAUSAPIN, SHANNE VILLAMOR, MERRILYN ACCO 20163 GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT, AND INTERNAL CONTROL PREPARED BY: ATIENZA, CAUSAPIN, VILLAMOR.
