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Running head: WEEK 5 ISSUING AUDIT REPORTS SIMULATION

Week 5 Issuing Audit Reports Simulation ACC-492

WEEK 5 ISSUING AUDIT REPORTS SIMULATION

Week 5 Issuing Audit Reports Simulation What are the different types of audit reports and when should each be used? In what types of situations would an auditor be allowed to issue an unqualified audit report? To what extent is the auditor liable for misstatements in the financial statements of the audited company?

There are different types of auditing reports and each serve a particular purpose. The standard unqualified report is used when sufficient evidence has been provided to show that the reports are fairly presented and in accordance to GAAP. A non Standard unqualified report is issued when there is an explanatory paragraph or some modified wording. This usually occurs when the auditors engagement and examination of records has been restricted, the financial statements are not prepared in accordance with GAAP and the auditor is not independent. Other reports that can be issued are an adverse, disclaimer or a qualified opinion. A qualified opinion is an opinion that states that the audited entitys financial statements are in general accurate but an unresolved issue remains. An adverse opinion is issued when the financial reports inaccurately reflect the audited companys financial/operation position. This can generally prevent a company from both selling stocks and borrowing monies. A disclaimer of opinion is better than an adverse one but still not a positive opinion. This type of opinion indicates that the auditor did not have sufficient information in order to formulate a proper or full opinion of the entities financial statements. Misstatements that are immaterial for both current and future periods can allow the issuance of an unqualified report. Auditors are liable for misstatements that are material or omitted in the financial statements of the audited company. Upon discovery, auditors are required to

WEEK 5 ISSUING AUDIT REPORTS SIMULATION

disclose and report any fraud or illegal acts. The auditor can be considered primarily liable if they make a knowingly or recklessly fails to disclose the information that a plaintiff relies on for investment or sale of a security with the audited entity. Auditors have a duty of professional care to both internal and external users. They can be sued for breach of contract, negligence or even fraud. Auditors must ensure that their work papers are complete and that all services have been completed per their engagement letter. If they should discover after issuance of an opinion an item that is material they should review the workpapers and contact the client to ensure all items were documented appropriately per the engagement letter. If the client should refuse to provide restated accurate financials then the auditor has no choice but to disassociate himself or herself with the client.