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.