LESSON NUMBER 5

AUDITOR'S REPORT

The auditor's report is a disclaimer thereof, issued by either an internal auditor or an independent
external auditor as a result of an internal or external audit, as an assurance 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 audiotapes 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

It is important to note that auditor 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 (1.- Unqualified Opinion; 2.- Qualified Opinion
report; 3.-Adverse Opinion report y Disclaimer of Opinion) each one presenting a different situation
encountered during the auditor's work.

UNQUALIFIED OPINION

An opinion is said to be unqualified 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, because the Auditor can only provide reasonable assurance regarding the Financial
Statements, not the health of the company itself, or the integrity of company records not part of the
foundation of the Financial Statements. This type of report is issued by an auditor when the financial
statements are free of material misstatements and are presented 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
there of 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. Nonetheless, certain auditors (including
Pricewaterhouse Coopers) have since modified the arrangement of the main body (but not the
wording) in order to differentiate themselves from other audit firms, even though such modification is
contrary to the clarified US AICPA standards on auditing.

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.
INDEPENDENT AUDITOR'S REPORT

Board of Directors, Stockholders, Owners, and/or Management of

ABC Company, Inc.
123 Main St.
Anytown, Any Country

We have audited the accompanying financial statements of ABC Company, Inc. (a California
corporation), which comprise the balance sheet as of December 31, 20XX, and the related
statements of income, retained earnings, and cash flows for the year then ended, and the related
notes to the financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with U.S. generally accepted accounting principles; this includes the
design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of consolidated financial statements that are free from material misstatement, whether
due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our
audit. We conducted our audit in accordance with U.S. generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on the auditors' judgment,
including the assessment of the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the entity's preparation and fair presentation of the consolidated 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 entity's 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 consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of ABC Company, Inc. as of December 31, 20XX, and the results of its operations
and its cash flows for the year then ended in accordance with U.S. generally accepted accounting
principles.

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
CUESTIONNAIRE
1 Describe what is an audit report.
Reply:

2. Can the audit report serve as an opinion to assess the quality of a business in
order to make decisions?
True or False

3. A report is said to be of unqualified opinion when it has no significant reservation

with respect to the matters contained in the Financial Statements.
True or False

4. An unqualified opinion indicates that the financial statements comply with the
relevant legal and regulatory requirements
True or False

5. The following expression corresponds to the opinion of a Qualified Opinion

Report: “The financial statements have been prepared using the IFRS and
generally accepted accounting principles, which have been consistently applied”
True or False

6. The United States audit standards require that the title include "independent" to
convey to the user that the report was impartial in all aspects.
True or False

7. How many paragraphs does the main body of the unqualified report contain?
 Reply: It consists of three main paragraphs,

8. The administration is responsible for the fair preparation and presentation of the
financial statements subject to audit.
True or False
9. Financial accounting and cost accounting, in conjunction with other tools, are
important for financial projections, which are support for economic studies analysts.
True or False

10. The paragraph on auditor responsibility describes the following: "Our

responsibility is not to express an opinion on these financial statements"
True or False