What to Include in an Unqualified Audit Report
Auditors issue an unqualified report after they gather sufficient competent evidence and conduct the audit according to generally accepted auditing standards (GAAS) using financial statements that the client prepares using GAAP.
An unqualified report for a private company follows a standard format with three paragraphs: introduction, scope, and opinion.
Introduction: This paragraph indicates what financial statements you audited and includes a statement that the financial statements are the responsibility of management.
Scope: This paragraph contains the nature of the audit, covering such matters as the standards in use and the fact that you didn’t look at 100 percent of the records — rather, you sampled and tested. It also notes that your audit included an assessment of management’s accounting policies and any significant estimates management made.
Opinion: Here you go! This paragraph contains your assessment that the financial statements are presented fairly in all material respects.
In addition, Statement on Auditing Standards (SAS) No. 58 lays out these other basic elements of an unqualified report:
Title: The title must include the word independent, such as “Report of Independent Public Accounting Firm.”
Addressee: This line identifies the people who will receive the report.
Auditor’s name: The name of the auditor that appears on the report is the name of the CPA firm.
Date: The report is normally dated based on when you believe you have sufficient competent audit evidence to support your opinion; for example, the date can reflect the last day of fieldwork at the client’s office.
If you identify a subsequent event that requires disclosure, your audit firm will consider dual-dating the report.
If the unqualified report is for a publicly traded company, you must be aware of three major differences:
Title: The title should include the word registered: “Report of Independent Registered Public Accounting Firm.” That’s because the audit firm is required to be registered with the Public Company Accounting Oversight Board (PCAOB).
Scope: The scope paragraph references conducting the audit in accordance with PCAOB standards.
Explanatory paragraph: You add an extra paragraph addressing the audit of internal controls.
Accounting Glossary
accounting equation
The equation Assets = Liabilities + Equity, which demonstrates the two-sided nature of accounting and is useful for explaining the concept of double-entry accounting (or double-entry bookkeeping).
Accounting Glossary
accounting period
The time period for which financial information is being tracked in a business, such as monthly, quarterly, or annually.
Accounting Glossary
accounts receivable
An account that records the amounts that customers owe to a business.
Accounting Glossary
adjusting entry
A correction made to a bookkeeping account that adjusts for accounting errors or other necessary changes at the end of the accounting period.
Accounting Glossary
cash flows
Used to describe the source or sources of cash or how cash is used.
Accounting Glossary
Chart of Accounts
A list of all the accounts used by a business, including what types of transactions go into each account.
Accounting Glossary
debit
An accounting entry that increases an asset or expense account, and decreases a liability or income account.
Accounting Glossary
dividends
A portion of a company’s profits paid by share of common stock on a quarterly or annual basis.
Accounting Glossary
FASB
Financial Accounting Standards Board. FASB is the highest-ranking authority in the private (non-government) sector of the U.S. for making pronouncements on GAAP and for keeping accounting standards up-to-date.
Accounting Glossary
Federal Unemployment Tax
In the U.S., the fund that used to be known simply as Unemployment. Employers contribute to the fund, and states also collect taxes to fill their unemployment fund reserves. (The acronym FUTA means Federal Unemployment Tax Act.)
Accounting Glossary
fidelity bonds
A type of insurance — typically carried by employers for their employees — that helps guard against theft and reduce the risk of loss.
Accounting Glossary
FIFO
First-in, first-out. A method for costs of goods sold in which a business charges out product costs to cost of goods sold expense in the chronological order in which the goods were acquired.
Accounting Glossary
fungible
Describes a product that is interchangeable and virtually indistinguishable from another product.
Accounting Glossary
General Ledger
A summary of all of a business’s accounts and transactions.
Accounting Glossary
IASB
International Accounting Standards Board. The IASB (based in London) is the main authoritative accounting standards setter outside the U.S.
Accounting Glossary
Journals
The location in which bookkeepers keep records (in chronological order) of daily company transactions.
Accounting Glossary
LIFO
Last-in, first-out. A method for costs of goods sold that selects the last item you purchased first, and then works backward until you have the total cost for the total number of units sold during the period.
Accounting Glossary
LLP
Limited liability partnership. A legal structure that state laws offer to qualified professionals in which all the partners have limited liability.
Accounting Glossary
PC
Professional corporation. A legal structure that state laws offer to qualified professionals who otherwise would have to operate as an unlimited partnership liability.
Accounting Glossary
petty cash
A cash account that businesses keep on hand for unexpected expenses.
Accounting Glossary
revenue
Monies that are collected in the process of selling a company’s goods and services.
Accounting Glossary
salvage value
The amount that an asset is worth after it has been fully depreciated.
Accounting Glossary
statement of cash flows
A financial statement that summarizes a business’s cash inflows and outflows during an accounting period.
Accounting Glossary
transactions
Economic exchanges between a business or other entity and the parties with which the entity interacts and makes deals.
Accounting Glossary
worker’s compensation insurance
A type of insurance carried by employers that covers its employees in case they are injured on the job.
