Auditor Report Types and Opinion Standards

Auditor Report Types and Responsibilities

This chapter explains the different types of reports that auditors issue to indicate the nature of their audit and the degree of responsibility they accept.

The Audit Report: A Structured Communication

The audit report should be considered a carefully structured technical communication, expressed in specialized terminology.

Structure of a Standard Unqualified Report

The standard unqualified report of the auditors includes:

• An introductory paragraph, which clarifies the responsibilities of management and auditors.
• A scope paragraph, which describes the nature of the audit.
• An opinion paragraph, which summarizes the audit opinion based on the audit findings.

The report has a title that includes the word "independent" and is directed to the company whose financial statements are being audited, to its board of directors, or to its shareholders. It is signed with the name of the firm of chartered accountants.

Types of Audit Opinions

The auditors' alternatives for expressing an opinion are:

1. A standard unqualified opinion
2. An unqualified opinion with explanatory notes
3. A qualified opinion
4. An adverse opinion
5. A disclaimer of opinion

Figure 18-2 provides details on appropriate modifications required for each of these types of reports.

Reporting on Comparative Financial Statements

When a client presents comparative financial statements for one or more prior periods with the financial statements of the current period, auditors should ensure that all periods are covered by an audit report. Audit reports on prior periods should be updated based on new information that may affect the audit opinion.

Considerations for Predecessor Auditors

When predecessor auditors audited the financial statements of the previous period, the current auditor may summarize the previous audit opinion on the audit report for the current year. Alternatively, the client can make arrangements for the previous auditors to re-issue their audit report.

Regulatory Reporting Requirements

Securities and Exchange Commission (SEC) Filings

The auditors of publicly held corporations must understand the various reporting requirements of the Securities and Exchange Commission. Reports filed with the SEC should be in accordance with the Capital Market Law, which governs the form and content of the corporation's financial statements.

Superintendency of Foreign Investments (SIEX) Compliance

If a corporation also has foreign capital, it must also comply with the regulations of the Superintendency of Foreign Investments (SIEX).