Auditor's report
Encyclopedia
The auditor's report is a formal opinion
Opinion
In general, an opinion is a subjective belief, and is the result of emotion or interpretation of facts. An opinion may be supported by an argument, although people may draw opposing opinions from the same set of facts. Opinions rarely change without new arguments being presented...

, or disclaimer
Disclaimer
A disclaimer is generally any statement intended to specify or delimit the scope of rights and obligations that may be exercised and enforced by parties in a legally recognized relationship...

 thereof, issued by either an internal auditor or an independent external auditor as a result of an internal or external audit
Audit
The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product. The term most commonly refers to audits in accounting, but similar concepts also exist in project management, quality management, and energy conservation.- Accounting...

 or evaluation
Evaluation
Evaluation is systematic determination of merit, worth, and significance of something or someone using criteria against a set of standards.Evaluation often is used to characterize and appraise subjects of interest in a wide range of human enterprises, including the arts, criminal justice,...

 performed on a legal entity or subdivision thereof (called an “auditee”). The report is subsequently provided to a “user” (such as an individual, a group of persons, a company
Company
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...

, a government
Government
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...

, or even the general public
General Public
General Public were a band formed by The Beat vocalists, Dave Wakeling and Ranking Roger, and which included former members of Dexy's Midnight Runners, The Specials and The Clash...

, among others) as an assurance
Assurance
Assurance may refer to:* Assurance services, offered by accountancy firms to improve the quality of information* Assurance , a Protestant Christian doctrine...

 service in order for the user to make decisions based on the results of the audit.

An auditor’s report is considered an essential tool when reporting financial information to users, particularly in business. Since many third-party users prefer, or even require financial information to be certified by an independent external auditor, many auditees rely on auditor reports to certify their information in order to attract investors, obtain loans, and improve public appearance. Some have even stated that financial information without an auditor’s report is “essentially worthless” for investing purposes.

Auditor’s report on financial statements

It is important to note that auditor's reports on financial statements are neither evaluations nor any other similar determination used to evaluate entities in order to make a decision. The report is only an opinion on whether the information presented is correct and free from material misstatements, whereas all other determinations are left for the user to decide.

There are four common types of auditor’s reports, each one presenting a different situation encountered during the auditor’s work. The four reports are as follows:

Unqualified Opinion

An opinion is said to be unqualified when the Auditor concludes that the Financial Statements give a true and fair view in accordance with the financial reporting framework used for the preparation and presentation of the Financial Statements. An Auditor gives a Clean opinion of Unqualified Opinion when he or she does not have any significant reservation in respect of matters contained in the Financial Statements. The most frequent type of report is referred to as the Unqualified Opinion, and is regarded by many as the equivalent of a “clean bill of health” to a patient, which has led many to call it the Clean Opinion, but in reality it is not a clean bill of health. This type of report is issued by an auditor when the financial statements presented are free of material misstatements and are represented fairly in accordance with the Generally Accepted Accounting Principles (GAAP), which in other words means that the company’s financial condition, position, and operations are fairly presented in the financial statements. It is the best type of report an auditee may receive from an external auditor.

An Unqualified Opinion indicates the following --

(1) The Financial Statements have been prepared using the Generally Accepted Accounting Principles which have been consistently applied;

(2) The Financial Statements comply with relevant statutory requirements and regulations;

(3) There is adequate disclosure of all material matters relevant to the proper presentation of the financial information subject to statutory requirements, where applicable;

(4) Any changes in the accounting principles or in the method of their application and the effects thereof have been properly determined and disclosed in the Financial Statements.

The report consists of a title and header, a main body, the auditor’s signature and address, and the report’s issuance date. US auditing standards require that the title includes "independent" to convey to the user that the report was unbiased in all respects. Traditionally, the main body of the unqualified report consists of three main paragraphs, each with distinct standard wording and individual purpose, however certain auditors (including PricewaterhouseCoopers
PricewaterhouseCoopers
PricewaterhouseCoopers is a global professional services firm headquartered in London, United Kingdom. It is the world's largest professional services firm measured by revenues and one of the "Big Four" accountancy firms....

http://www.ibm.com/annualreport/2004/annual/roia.shtml) have since modified the arrangement of the main body (but not the wording) in order to differentiate themselves from other audit firms.

The first paragraph (commonly referred to as the introductory paragraph) states the audit work performed and identifies the responsibilities of the auditor and the auditee in relation to the financial statements. The second paragraph (commonly referred to as the scope paragraph) details the scope of audit work, provides a general description of the nature of the work, examples of procedures performed, and any limitations the audit faced based on the nature of the work. This paragraph also states that the audit was performed in accordance with the country’s prevailing generally accepted auditing standards and regulations. The third paragraph (commonly referred to as the opinion paragraph) simply states the auditor’s opinion on the financial statements and whether they are in accordance with generally accepted accounting principles.

The following is an example of a standard unqualified auditor’s report on financial statements as it is used in most countries, using the name ABC Company as an auditee’s name:
123 Main St.

Anytown, Any Country



We have audited the accompanying balance sheet of ABC Company, Inc. (the “Company”) as of December 31, 20XX and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. 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 country where the report is issued). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20XX, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in (the country where the report is issued).



AUDITOR’S SIGNATURE

Auditor’s name and address



Date = Last day of any significant field work


This date should not be dated earlier than when the auditor has sufficient audit evidence to support the opinion.

Qualified Opinion report

A Qualified Opinion report is issued when the auditor encountered one of two types of situations which do not comply with generally accepted accounting principles, however the rest of the financial statements are fairly presented. This type of opinion is very similar to an unqualified or “clean opinion”, but the report states that the financial statements are fairly presented with a certain exception which is otherwise misstated. The two types of situations which would cause an auditor to issue this opinion over the Unqualified opinion are:
  • Single deviation from GAAP – this type of qualification occurs when one or more areas of the financial statements do not conform with GAAP (e.g. are misstated), but do not affect the rest of the financial statements from being fairly presented when taken as a whole. Examples of this include a company dedicated to a retail business that did not correctly calculate the depreciation expense of its building. Even if this expense is considered material, since the rest of the financial statements do conform with GAAP, then the auditor qualifies the opinion by describing the depreciation misstatement in the report and continues to issue a clean opinion on the rest of the financial statements.

  • Limitation of scope - this type of qualification occurs when the auditor could not audit one or more areas of the financial statements, and although they could not be verified, the rest of the financial statements were audited and they conform GAAP. Examples of this include an auditor not being able to observe and test a company’s inventory of goods. If the auditor audited the rest of the financial statements and is reasonably sure that they conform with GAAP, then the auditor simply states that the financial statements are fairly presented, with the exception of the inventory which could not be audited.


The wording of the qualified report is very similar to the Unqualified opinion, but an explanatory paragraph is added to explain the reasons for the qualification after the scope paragraph but before the opinion paragraph. The introductory paragraph is left exactly the same as in the unqualified opinion, while the scope and the opinion paragraphs receive a slight modification in line with the qualification in the explanatory paragraph.

The scope paragraph is edited to include the following phrase in the first sentence, so that the user may be immediately aware of the qualification. This placement also informs the user that, except for the qualification, the rest of the audit was performed without qualifications:
Except as discussed in the following paragraph, we conducted our audit...”


The opinion paragraph is also edited to include an additional phrase in the first sentence, so that the user is reminded that the auditor’s opinion explicitly excludes the qualification expressed. Depending on the type of qualification, the phrase is edited to either state the qualification and the adjustments needed to correct it, or state the scope limitation and that adjustments could have but not necessarily been required in order to correct it.

For a qualification arising from a deviation from GAAP, the following phrase is added to the opinion paragraph, using the depreciation example mentioned above:
“In our opinion, except for the effects of the Company’s incorrect determination of depreciation expense, the financial statement referred to in the first paragraph presents fairly, in all material respects, the financial position of…”


For a qualification arising from a scope of limitation, the following phrase is added to the opinion paragraph, using the inventory example mentioned above:
“In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to perform proper tests and procedures on the Company’s inventory, the financial statement referred to in the first paragraph presents fairly, in all material respects, the financial position of…”


Due to the phrases added to the scope and opinion paragraphs, many refer to this report as the Except-For Opinion.

Adverse Opinion report

An Adverse Opinion is issued when the auditor determines that the financial statements of an auditee are materially misstated and, when considered as a whole, do not conform with GAAP. It is considered the opposite of an unqualified or clean opinion, essentially stating that the information contained is materially incorrect, unreliable, and inaccurate in order to assess the auditee’s financial position and results of operations. Investors, lending institutions, and governments very rarely accept an auditee’s financial statements if the auditor issued an adverse opinion, and usually request the auditee to correct the financial statements and obtain another audit report.

Generally, an adverse opinion is only given if the financial statements pervasively differ from GAAP. An example of such a situation would be failure of a company to consolidate a material subsidiary.

The wording of the adverse report is similar to the qualified report. The scope paragraph is modified accordingly and an explanatory paragraph is added to explain the reason for the adverse opinion after the scope paragraph but before the opinion paragraph. However, the most significant change in the adverse report from the qualified report is in the opinion paragraph, where the auditor clearly states that the financial statements are not in accordance with GAAP, which means that they, as a whole, are unreliable, inaccurate, and do not present a fair view of the auditee’s position and operations.
“In our opinion, because of the situations mentioned above (in the explanatory paragraph), the financial statements referred to in the first paragraph do not present fairly, in all material respects, the financial position of…”

Disclaimer of Opinion report

A Disclaimer of Opinion, commonly referred to simply as a Disclaimer, is issued when the auditor could not form, and consequently refuses to present, an opinion on the financial statements. This type of report is issued when the auditor tried to audit an entity but could not complete the work due to various reasons and does not issue an opinion. The disclaimer of opinion report can be traced back to 1949, when the Statement on Auditing Procedure No. 23: Recommendation Made To Clarify Accountant’s Representations When Opinion Is Not Expressed was published in order to provide guidance to auditors in presenting a disclaimer.

Statements on Auditing Standards
Statements on Auditing Standards
In the United States, Statements on Auditing Standards provide guidance to external auditors on generally accepted auditing standards in regards to auditing a non-public entity and issuing a report. They are promulgated by the Auditing Standards Board of the American Institute of Certified Public...

 (SAS) provide certain situations where a disclaimer of opinion may be appropriate:
  • A lack of independence, or material conflict(s) of interest, exist between the auditor and the auditee (SAS No. 26)
  • There are significant scope limitations, whether intentional or not, which hinder the auditor’s work in obtaining evidence and performing procedures (SAS No. 58);
  • There is a substantial doubt about the auditee’s ability to continue as a going concern
    Going concern
    A going concern is a business that functions without the threat of liquidation for the foreseeable future, usually regarded as at least within 12 months.-Definition of the 'going concern' concept:...

     or, in other words, continue operating (SAS No. 59)
  • There are significant uncertainties within the auditee (SAS No. 79).


Although this type of opinion is rarely used, the most common examples where disclaimers are issued include audits where the auditee willfully hides or refuses to provide evidence and information to the auditor in significant areas of the financial statements, where the auditee is facing significant legal and litigation issues in which the outcome is uncertain (usually government investigations), and where the auditee has going concern
Going concern
A going concern is a business that functions without the threat of liquidation for the foreseeable future, usually regarded as at least within 12 months.-Definition of the 'going concern' concept:...

 issues (the auditee may not continue operating in the near future). Investors, lending institutions, and governments typically reject an auditee’s financial statements if the auditor disclaimed an opinion, and will request the auditee to correct the situations the auditor mentioned and obtain another audit report.

A disclaimer of opinion differs substantially from the rest of the auditor’s reports because it provides very little information regarding the audit itself, and includes an explanatory paragraph stating the reasons for the disclaimer. Although the report still contains the letterhead, the auditee’s name and address, the auditor’s signature and address, and the report’s issuance date, every other paragraph is modified extensively, and the scope paragraph is entirely omitted since the auditor is basically stating that an audit could not be realized.

In the introductory paragraph, the first phrase changes from “We have audited” to “We were engaged to audit” in order to let the user know that the auditee commissioned an audit, but does not mention that the auditor necessarily completed the audit. Additionally, since the audit was not completely and/or adequately performed, the auditor refuses to accept any responsibility by omitting the last sentence of the paragraph. The scope paragraph is omitted in its entirety since, effectively, no audit was performed. Similar to the qualified and the adverse opinions, the auditor must briefly discuss the situations for the disclaimer in an explanatory paragraph. Finally, the opinion paragraph changes completely, stating that an opinion could not be formed and is not expressed because of the situations mentioned in the previous paragraphs.

The following is a draft of the three main paragraphs of a disclaimer of opinion because of inadequate accounting records
Accounting records
Accounting records are all sources of information and evidence that are used in preparing, verifying and or auditing financial statements. Accounting records also includes documentation to prove ownership of assets creation of liabilities and evidence of monetary and non monetary...

 of an auditee, which is considered a significant scope of limitation:
The Company does not maintain adequate accounting records to provide sufficient information for the preparation of the basic financial statements. The Company’s accounting records do not constitute a double-entry system
Double-entry bookkeeping system
A double-entry bookkeeping system is a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different nominal ledger accounts....

 which can produce financial statements.




Because of the significance of the matters discussed in the preceding paragraphs, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion of the financial statements referred to in the first paragraph.

Auditor’s report on internal controls of public companies

Following the enactment of the Sarbanes-Oxley Act of 2002, the Public Company Accounting Oversight Board
Public Company Accounting Oversight Board
The Public Company Accounting Oversight Board is a private-sector, non-profit corporation created by the Sarbanes–Oxley Act, a 2002 United States federal law, to oversee the auditors of public companies. Its stated purpose is to 'protect the interests of investors and further the public interest...

 (PCAOB) was established in order to monitor, regulate, inspect, and discipline audit and public accounting firms of public companies. The PCAOB Auditing Standards No. 2 now requires auditors of public companies to include an additional disclosures in the opinion report regarding the auditee’s internal controls, and to opine about the company’s and auditor’s assessment on the company’s internal controls over financial reporting. These new requirements are commonly referred to as the COSO Opinion.

The auditor’s report is modified to include all necessary disclosures by either presenting the report subsequent to the report on the financial statements, or combining both reports into one auditor’s report. The following is an example of the former version of adding a separate report immediately after the auditor’s report on financial statements.
Internal control over financial reporting



We have also audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 20XX, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
Committee of Sponsoring Organizations of the Treadway Commission
The Committee of Sponsoring Organizations of the Treadway Commission is a voluntary private-sector organization, established in the United States, dedicated to providing guidance to executive management and governance entities on critical aspects of organizational governance, business ethics,...

 (“COSO”).The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.



A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



In our opinion, management’s assessment that ABC Company maintained effective internal control over financial reporting as of December 31, 20XX, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by COSO. Furthermore, in our opinion, ABC Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 20XX, based on criteria established in Internal Control—Integrated Framework issued by COSO.

Going concern

Going concern
Going concern
A going concern is a business that functions without the threat of liquidation for the foreseeable future, usually regarded as at least within 12 months.-Definition of the 'going concern' concept:...

 is a term http://www.investopedia.com/terms/g/goingconcern.asp which means that an entity will continue to operate in the near future which is generally more than next 12 months, so long as it generates or obtains enough resources to operate. If the auditee is not a going concern, it means that it is either dissolved, bankrupt, shutdown, etc. Auditors are required to consider the going concern of an auditee before issuing a report. If the auditee is a going concern, the auditor does not modify his/her report in any way. However, if the auditor considers that the auditee is not a going concern, or will not be a going concern in the near future, then the auditor is required to include an explanatory paragraph before the opinion paragraph or following the opinion papragraph, in the audit report explaining the situation, which is commonly referred to as the going concern disclosure. Such as opinion is called an "unqualified modified opinion".

Unfortunately, many auditors are increasingly reluctant to include this disclosure in their opinions, since it is considered a “self-fulfilling prophesy” by some. This is because a disclosure for a lack of going concern is viewed negatively by investors, lending institutions, and credit agencies, and therefore reduces the chance that the auditee may obtain the capital or borrowing it needs to survive once the disclosure is made. If this situation occurs, the auditee is more likely to stop being a going concern while the auditor loses potential future audit engagements, and so the auditor may be pressured to avoid including a going concern disclosure. In a study performed on 2001 bankruptcies, nearly half (48%) of selected public companies who faced bankruptcy in 2001 did not have a “going concern disclosure” in the previous auditor’s reports. Additionally, 12 of the 20 largest bankruptcies in U.S. history occurred between 2001 and 2002 and none of them had a “going concern disclosure” in their previous auditor’s report.

As for the actual wording of the auditor’s report, when a lack of going concern is determined by the auditor, the disclosure paragraph should state the situation, state the auditor’s determination, and state the auditee’s plan to correct the situation. The disclosure paragraph should immediately follow the opinion paragraph.

The following is the most widely used format of the paragraph which, in this case, deals with a company that has recurring losses:

Other explanatory information and paragraphs

Although the auditor reports mentioned above are the standard reports for financial statement audits, the auditor may add additional information to the report if it is deemed necessary without changing the overall opinion of the report. Usually, this additional information is included after the opinion paragraph, although some situations require that the additional information be included in paragraphs before the opinion paragraph. The most frequent paragraphs include:
  • Limiting distribution of the report – In some occasions, the audit report is restricted to a specified user and the auditor includes this restriction in the report, such as a report for financial statements made in cash basis which are prepared for tax purposes only, financial statements for a wholly owned subsidiary whose sole user of its financial statements is its parent company, etc.

  • Additional or supplemental information – Certain auditees include additional and/or supplemental information with their financial statements which is not directly related to the financial statements. Examples include governments that incorporate health, crime, and education statistics along with the financial statement reports for the general public to read and use. Since it is not directly related to the audit of the financial statements, the auditor includes a brief disclaimer paragraph to state that the auditor’s report only applies to the financial statements and its respective notes.

  • Certain audit work performed by another auditor – Sometimes an auditee requires that two or more auditors perform audits on its operations in order to obtain a more effective audit. This usually occurs in large governments and corporations who have certain dependencies, subsidiaries, or other similar components which require an auditor different from its main auditor to perform an audit on the original auditee’s component due to size, time, location, and/or technical constraints. When the main auditor has to rely on another auditor’s work, the main auditor may either accept responsibility for the component’s information and not modify the audit report, or may chose to disclaim the audit on the specific component, stating that the main auditor did not audit the component, that another auditor audited the component, that the component’s audited information is therefore the responsibility of another auditor, and that the main auditor is simply including it in the original auditee’s information. If used, this disclaimer is usually included in the introductory paragraph.

Auditor’s reports on financial statements in different countries

The auditor’s report usually does not vary from country to country, although some countries do require either additional or less wording. In the United States, auditors are required to include in the scope paragraphs a phrase stating that they conducted their audit “in accordance with generally accepted auditing standards in the United States of America”, and, in the opinion paragraph, state whether the financial statements are presented “in conformity with generally accepted accounting principles in the United States of America”. Some countries, such as the Philippines
Philippines
The Philippines , officially known as the Republic of the Philippines , is a country in Southeast Asia in the western Pacific Ocean. To its north across the Luzon Strait lies Taiwan. West across the South China Sea sits Vietnam...

, use similar reports to those issued in the United States, with the exception that second paragraph would state that the audit was conducted in accordance with Philippine Standards on Auditing, and that the financial statements are in accordance with Philippine Financial Reporting Standards.

Opinion shopping

Opinion shopping is a term used by external auditors and, after the Enron
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...

 and Arthur Andersen
Arthur Andersen
Arthur Andersen LLP, based in Chicago, was once one of the "Big Five" accounting firms among PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG, providing auditing, tax, and consulting services to large corporations...

 accounting scandals
Accounting scandals
Accounting scandals, or corporate accounting scandals, are political and business scandals which arise with the disclosure of misdeeds by trusted executives of large public corporations...

, the media and general public refer to auditees who contract or reject auditors based on the type of opinion report they will issue on the auditee. The underlying principles of this concept are that auditees determine the compensation to auditors for their work (called “audit fees”) as well as awarding future audit engagements; that such fees are the auditor’s main source of income; that certain auditees may try to contract auditors that will issue audit opinions based on the auditees’ needs; and that certain auditors are willing to comply with such demands so long as they are assured future audit engagements.

The most common example is an auditee that knows that the current auditor is going to issue a qualified, adverse, or disclaimer of opinion report, who then rescinds the audit engagement before the opinion is issued, and subsequently “shops” for another auditor who is willing to issue an “unqualified” opinion, regardless of any qualifying situations mentioned in the previous sections. However, opinion shopping is not limited to auditees contracting auditors based on issuing opinions. It also includes auditors who are over-pleasing to auditees by issuing unqualified reports without properly auditing, or by simply overlooking material issues affecting the audit. These auditors’ objective is to appear much more attractive and easy-going than other auditors in order to secure future audit engagements and fees.

Experts agree that, although the great majority of auditors are not willing to jeopardize their profession and reputation for guaranteed audit fees, there are some that will issue opinions solely based on obtaining or maintaining audit engagements. This includes auditors who knowingly emit unmodified unqualified opinions for auditees who are engaged in illegal activities, auditees who have caused a material scope of limitation, auditees that have a lack of going concern, or auditees who present fraudulent financial statements (e.g. Enron and Arthur Andersen). This situation is a clear conflict of interest which should hinder an auditor’s independence and the ability to audit (AICPA Code of Ethics), but some auditors willingly ignore this statute.

Recent laws and industry standards have been implemented in order to correct this situation, which include the Sarbanes-Oxley Act and the AICPA’s Peer Review Program.

Auditor’s reports for a Single Audit

In the United States, Single Audit
Single Audit
In the United States, the Single Audit, also known as the OMB A-133 audit, is a rigorous, organization-wide audit or examination of an entity that expends $500,000 or more of Federal assistance received for its operations...

s are performed on various entities who receives federal aid from the U.S. federal government. Auditors who perform these Single Audits are required to emit three auditor’s reports. The first report is a report on the entity’s financial statements as discussed in the previous sections. The other two reports are compliance-oriented reports related to specific requirements of the OMB Circular A-133 and of Government Auditing Standards (otherwise known as the “Yellow Book” standards). The American Institute of Certified Public Accountants
American Institute of Certified Public Accountants
Founded in 1887, the American Institute of Certified Public Accountants is the national professional organization of Certified Public Accountants in the United States, with more than 370,000 CPA members in 128 countries in business and industry, public practice, government, education, student...

 (AICPA) provides illustrative audit reports http://gaqc.aicpa.org/Resources/Illustrative+Auditors+Reports/ of the OMB A-133 and the Yellow Book reports for auditors who are performing Single Audits.

Other engagements and reports

There are various other audits and evaluations which an external auditor performs in addition to the engagements mentioned in the previous sections, each with their respective standard report(s):
  • Certification audit reports (for example, an ISO 9000 audit report)
  • Compilations (not an audit, but requires a report)
  • Due Diligence
  • Environmental audit report
  • Financial forecasts
  • Filing of a public company’s Form 10-Q and Form 10-K
  • Agreed Upon Procedures
  • Internal audit reports
  • Regulatory inspection reports
  • Review of financial statements (an overview with very limited auditing procedures)
  • Fraud & Materiality Memo
  • Second opinion
  • XBRL assurance
    XBRL assurance
    XBRL assurance is the auditor’s opinion on whether a financial statement or other business report published in XBRL, is relevant, accurate, complete, and fairly presented. An XBRL report is an electronic file and called instance in XBRL terminology....


See also

  • Financial audit
    Financial audit
    A financial audit, or more accurately, an audit of financial statements, is the verification of the financial statements of a legal entity, with a view to express an audit opinion...

  • Internal audit
    Internal audit
    Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk...

  • Generally Accepted Auditing Standards
    Generally Accepted Auditing Standards
    Generally Accepted Auditing Standards, or GAAS are sets of standards against which the quality of audits are performed and may be judged...

  • International Standards on Auditing
    International Standards on Auditing
    International Standards on Auditing are professional standards for the performance of financial audit of financial information. These standards are issued by International Federation of Accountants through the International Auditing and Assurance Standards Board .-Respective responsibilities:*ISA...

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