Issuing Audit Reports Simulation

Issuing Audit Reports Simulation

Stakeholders in companies rely on the auditors for confirmation that financial information is accurate. The auditor's opinions and observations are presented to interested parties in the form of the audit report. Any reservations the auditor may have to the fairness of the financial statements is stated in the audit report. Also included is a summary of any justified departures from generally accepted accounting principles (GAAP) and their effects.

There are five basic types of financial audit reports. A standard unqualified report is issued when there are no material violations with GAAP, all proper disclosures are included, and the auditor is independent and received all information necessary to proceed with the audit. There can also be no changes in accounting principles that had material affect on the financial statements and the auditor should have reason to believe that the client will not be a going concern. This is the most common and sought after type of audit report. Another type of audit report is the unqualified report with an explanatory paragraph. Similar to the standard unqualified report it would be used when an explanatory paragraph is added to report any justified changes. This can include a change in accounting principles that better represents the financial condition of the company or a justified departure from GAAP. An auditor may use this type of report if there is a doubt regarding the going concern of the client that should be reported.

A qualified report is issued when the auditor feels that the financial statements do not reflect the current state of the company. This could be because of a material departure of GAAP, inadequate disclosures, or a scope limitation issue. An adverse report may be issued if there is a material, encompassing, or intentional violation of GAAP or the lack of material disclosures. Occasionally the auditor will not have