Reports on Audited FinancialStatementsMcGraw-Hill/IrwinCopyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

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Reporting on the Financial Statement Audit: The Standard Unqualified ReportThe standard unqualified (unmodified) report is issued when the auditor is satisfied regarding the factors summarized in AU 700.13-18 related to the audit evidence gathered including any misstatements identified, the methods employed by management in preparing the financial statements, and the form and content of the financial statements including the notes thereto.See 700.22-.41 for the content of the unqualified opinion and Illustration 2 of 700.A58 for an example LO# 1

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Reporting by the Auditor

Independent Auditors Report [Appropriate Addressee]Report on the Financial StatementsWe 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.Managements Responsibility for the Financial Statements 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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Reporting by the AuditorAuditors Responsibility 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.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors 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 entitys 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 entitys 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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Reporting by the AuditorOpinion 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.[Auditors signature][Auditors city and state][Date of the auditors report]

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Reporting by the AuditorDating and addressing the audit report (700.41, 560.12 -.18 and 700.A19)

Changes in the Auditors Opinion (705) (Modified Opinions) A. Scope limitation (circumstantial or management imposed) (705.A8-.A12) - Qualified (material but not pervasive) See 705.A32 Illustration 4 - Disclaimer (material and pervasive) See 705.A32 Illustration 5 and 705.11-.14

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Reporting by the AuditorII. Changes in the Auditors Opinion (705) (Modified Opinions) (Continued) B. GAAP Departures - Qualified (material but not pervasive) See 705.A32 Illustration 1 - Adverse (material and pervasive) See 705.A32 Illustration 3 and 705.15

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Reporting by the AuditorIII. Changes in the wording of the audit report without changing the opinion1. Group Audits-What is a group audit (600) - Who is in charge and what does that mean .to reference or not reference (.08) - Group auditor must always approve overall strategy and audit plan (.18 -.19) - Communications with the component auditors (.41-.42) - Additional control over performance materiality and the type of work to be performed when not referencing the component auditor (.50-.64) - Reference to the work of a component auditor (.24 - .30 and .A97 Illustration 2)

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Reporting by the Auditor 2. Emphasis of- a-Matter paragraph versus Other-Matter Paragraph (706.05) 3. Emphasis-of- a-Matter Paragraphs - General format issues (706.06 -.07) - Subsequently discovered facts (560.16c) - Going concern issues (570.A6) - Consistency issues (708.07 - .14) - Special purpose framework (800.07 and forward) - Other circumstances (800.22-.23 and 706.A2)

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Reporting by the Auditor 4. Other-Matter Paragraphs - General (706.08 and .A11) - When the auditor is unable to withdraw (706.A6) - When required by law (706.A7) - Reporting on multiple sets of financial statements using a different basis (706.A9) - Change in previously issued opinion (706.A13, Illus. #2, pages 2123-2124)

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Reporting by the Auditor 4. Other-Matter Paragraphs (Continued) - Predecessor auditor s report not presented (700.54 - .55) - Prior period financial statements not audited (700.56 - .57) - Other information in documents containing the audited financial statements (720.06 - .18)

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Reporting by the Auditor 4. Other-Matter Paragraphs (Continued) - Supplemental information (725.09 -.13)- When auditor is not engaged to report- Presented with or separately from the financial statements(.09 - .10)- Opinion on the F/S is qualified (.09f)- Opinion on the F/S is an adverse or disclaimer of opinion (.11)- When the auditor has issues with the supplemental data (.13)

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Reporting by the Auditor 4. Other-Matter Paragraphs (Continued) - Required supplemental information (730.04 and forward)- Some limited procedures must be applied (.05) - The auditor must report (see illustrations in 730.A3 for examples including for issues discussed in .07)- The auditor could be engaged to do an AU 725.07 type of engagement

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Reporting by the Auditor 4. Other-Matter Paragraphs (Continued) - Restricting the use of the auditors report (just know that it is appropriate or required in some situations where the measurement or disclose criteria is understood by or available to a limited number of parties. See 905)

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Reporting by the AuditorIV. Other reporting issues we will not address1. AU 805 9. AU 9352. AU 806 3. AU 810 4. AU 9105. AU 915 6. AU 9207. AU 9258. AU 930

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Which of the following is a true statement regarding the auditors report?It must include at least 6 paragraphsIt must include titles for each of the major sectionsIt must include the auditors addressAll of the aboveBoth 1 and 2

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Generally the auditors report is datedAs of the end of audit field workAs of the end of the fiscal year endAs of the report release dateBetween the end of field work and the report release date

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In a group audit, if the group auditor decides to reference the component auditor in a report that is otherwise unqualified The opinion would be other than unqualifiedThe opinion would still be unqualifiedEither of the above could be true depending on the readers interpretation

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When a group auditors report references a component auditorThe items audited by the component auditor should be quantifiedThe component auditor is referenced in the auditors responsibility paragraph onlyBoth of the above are true

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If referenced in the group auditors report, the component auditor should be namedIn all such reportsOnly with the permission of the component auditorOnly if the report of the component auditor is also presentedOnly if both 2 and 3 are true

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If the clients financial statements include a departure from GAAP, the auditor should issueA qualified opinionA disclaimer An adverse opinionAny of the above depending on the GAAP issueEither 1 or 3

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If the scope of the auditors work has been restricted, the auditor should issueA qualified opinionA disclaimer An adverse opinionEither 1 or 2Either 2 or 3

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If a predecessor auditor is asked to reissue a previously issued audit report, he shouldNormally refuseDo so only after consulting with the successor auditor and managementDo so, but change the date of the report to the reissue date

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If a predecessor auditors report on statements presented in comparative format is not presented, the successor auditor shouldQualify her opinionReference the predecessors report in the introductory paragraphReference the predecessors report in a paragraph after the opinion paragraph

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If the financial statements and the auditors report thereon are included in a document containing other information , the auditor should Report on the other informationWithhold the use of the audit reportRead the other information and report on it only if the information does not agree with the financial statements

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If a client has included information in the financial statements that is not required by GAAP the auditor shouldIssue a qualified opinion on the financial statementsAdd a paragraph after the opinion paragraph that references such informationDo nothing unless the client engages the auditor to audit the info

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If financial statements include supplementary information required by an authoritative body, the auditor shouldAudit the information and opine on itApply limited procedures to the information but disclaim an opinion on itNot apply any procedures or report on the information unless engaged to do so by the client