Audit Report

Definition: An audit report is a written opinion of an auditor regarding whether an

entity's financial statements present fairly its financial position. This is written in a
standard format, as mandated by generally accepted auditing standards (GAAS).
GAAS requires or allows certain variations in the report, depending upon the
circumstances of the audit work that the auditor engaged in. For example, the
report may include a qualified opinion, depending upon the existence of any scope
limitations that were imposed upon the auditor's work.
Unqualified Opinion
Often called a clean opinion, an unqualified opinion is an audit report that is issued
when an auditor determines that each of the financial records provided by the small
business is free of any misrepresentations. In addition, an unqualified opinion
indicates that the financial records have been maintained in accordance with the
standards known as Generally Accepted Accounting Principles (GAAP). This is the
best type of report a business can receive.

Typically, an unqualified report consists of a title that includes the word

independent. This is done to illustrate that it was prepared by an unbiased third
party. The title is followed by the main body. Made up of three paragraphs, the main
body highlights the responsibilities of the auditor, the purpose of the audit and the
auditors findings. The auditor signs and dates the document, including his address.
Qualified Opinion
In situations when a companys financial records have not been maintained in
accordance with GAAP but no misrepresentations are identified, an auditor will issue
a qualified opinion. The writing of a qualified opinion is extremely similar to that of
an unqualified opinion. A qualified opinion, however, will include an additional
paragraph that highlights the reason why the audit report is not unqualified.
Adverse Opinion
The worst type of financial report that can be issued to a business is an adverse
opinion. This indicates that the firms financial records do not conform to GAAP. In
addition, the financial records provided by the business have been grossly
misrepresented. Although this may occur by error, it is often an indication of fraud.
When this type of report is issued, a company must correct its financial statement
and have it re-audited, as investors, lenders and other requesting parties will
generally not accept it.

Disclaimer of Opinion
On some occasions, an auditor is unable to complete an accurate audit report. This
may occur for a variety of reasons, such as an absence of appropriate financial
records. When this happens, the auditor issues a disclaimer of opinion, stating that
an opinion of the firms financial status could not be determined.

ConditionsConditions 1 of Standard Unqualified Report All four required statements are

included.
Condition 2 of Standard Unqualified Report .The three general standards have been
followed in all respects on the engagement.
Condition 3 of Standard Unqualified Report Sufficient evidence has been
accumulated and the auditor has conducted the engagement in a manner that
enables the conclusion that the 3 standards of field work have been met.
Condition 4 of Standard Unqualified Report .The financial statements are presented
in accordance with GAAP (including adequate disclosures).
Conditions 5 of Standard Unqualified Report There are no circumstances requiring
the addition of an explanatory paragraph or modification of the report wording.
Materiality = quantity and quality
Both the amount (quantity) and nature (quality) of misstatements are relevant to
deciding what is material.
Materiality is a concept or convention within auditing and accounting relating to the
importance/significance of an amount, transaction, or discrepancy. The objective of
an audit of financial statements is to enable the auditor to express an opinion
whether the financial statements are prepared, in all material respects, in
conformity with an identified financial reporting framework such as Generally
Accepted Accounting Principles (GAAP). The assessment of what is material is a
matter of professional judgment. The concepts of materiality included in SAS No.
107 provide a framework for audit quality.

AICPA's Code of Professional Conduct

The Preamble and Articles I through VI of the American
Institute of Certified Public Accountants (AICPA) Code of

Professional Conduct provide general guidance on

professional responsibilities, the public interest, integrity,
objectivity and independence, due care, and the scope and
nature of services without establishing specific standards.
Nevertheless, they should be read by every practitioner. An
understanding of the difference between independence and
objectivity is important particularly when consulting services
are being provided to attest service clients. The AICPA
standards for independence relate only to the performance of
attestation services. The standards for objectivity apply to all
services. It is important, however, that the practitioner
adhere to all the rules that are appropriate for the particular
service being provided.

Independence
A group sailing represent independenceInterpretation 101-3
of the Code provides guidance to auditors when their firms
provide nonattest services to the attest client. This
Interpretation was revised in 2003.

General Standards
A stack of books represent the general standards of the
AICPA's Code of Professional Conduct Practitioners of
consulting services who are members of the AICPA are
subject to the Code of Professional Conduct. Rule 201 of the
Code sets forth four general standards for all professional

services. These standards are repeated in the Statement on

Standards for Consulting Services (SSCS) as four of the seven
consulting services standards. The authority to issue
standards for consulting services is derived from the Code.
Members need to review the Code to determine the
behavioral standards that apply to consulting services.

Integrity and Objectivity

A compass points the way toward integrity and objectivity
with respect to the code of professional conductRule 102 and
Interpretation 102-2 of the Code are important to a consulting
services practice. Interpretation 102-2, dealing with conflicts
of interest, is referred to in the SSCS. Among other things,
integrity requires a member to be honest and candid within
the constraints of client confidentiality. Objectivity is a state
of mind, a quality that lends value to a member's services. It
is the distinguishing feature of the profession.

Confidential Client Information

Two people discuss confidential client informationRule 301 of
the Code of Professional Conduct is particularly applicable
when consulting services are provided to a client. The rule is
that a practitioner will not disclose any confidential client
information without the specific consent of the client.

Contingent Fees, Commissions, and Referral Fees

Calculator and money represent contingent fees,
commissions and referral feesThe recently revised Rule 302
on contingent fees and Rule 503 on commissions and referral
fees are significant for consulting services because they do
not restrict the acceptance of such compensation when
providing consulting services for non-attest clients. Under
certain circumstances, these types of practitioner fee
arrangements are permissible. One requirement is that
commissions and referral fees be disclosed to the client.
Practitioners who choose to accept fees and commissions as
defined in these rules should be aware that state or other
regulatory bodies may not permit such practices.
Audits

Types of Audits and Reviews:

Financial Audits or Reviews

Operational Audits
Department Reviews
Information Systems Audits
Integrated Audits
Investigative Audits or Reviews
Follow-up Audits

Financial Audit
A historically oriented, independent evaluation performed for
the purpose of attesting to the fairness, accuracy, and
reliability of financial data. CSULB's external auditors, KPMG,
perform this type of review. CSULB's Director of Financial
Reporting coordinates the work of these auditors on our
campus.

Operational Audit
A future-oriented, systematic, and independent evaluation of
organizational activities. Financial data may be used, but the
primary sources of evidence are the operational policies and
achievements related to organizational objectives. Internal
controls and efficiencies may be evaluated during this type of
review.

Department Review
A current period analysis of administrative functions, to
evaluate the adequacy of controls, safeguarding of assets,
efficient use of resources, compliance with related laws,
regulations and University policy and integrity of financial
information.

Information Systems (IS) Audit

There are three basic kinds of IS Audits that may be
performed:

General Controls Review

A review of the controls which govern the development,
operation, maintenance, and security of application systems
in a particular environment. This type of audit might involve
reviewing a data center, an operating system, a security
software tool, or processes and procedures (such as the
procedure for controlling production program changes), etc.

Application Controls Review

A review of controls for a specific application system. This
would involve an examination of the controls over the input,
processing, and output of system data. Data communications
issues, program and data security, system change control,
and data quality issues are also considered.

System Development Review

A review of the development of a new application system.
This involves an evaluation of the development process as
well as the product. Consideration is also given to the general
controls over a new application, particularly if a new
operating environment or technical platform will be used.

Integrated Audit
This is a combination of an operational audit, department
review, and IS audit application controls review. This type of

review allows for a very comprehensive examination of a

functional operation within the University.

Investigative Audit
This is an audit that takes place as a result of a report of
unusual or suspicious activity on the part of an individual or a
department. It is usually focused on specific aspects of the
work of a department or individual. All members of the
campus community are invited to report suspicions of
improper activity to the Director of Internal Auditing Services
on a confidential basis. Her direct number is 562-985-4818.

Follow-up Audit
These are audits conducted approximately six months after
an internal or external audit report has been issued. They are
designed to evaluate corrective action that has been taken on
the audit issues reported in the original report. When these
follow-up audits are done on external auditors' reports, the
results of the follow-up may be reported to those external
auditors.

#Classification of auditorsInternal Auditors

Internal auditors are employed by the organizations they
audit. These auditors may review employee performance,
compliance with company regulations and financial and
accounting systems. Internal auditors allow company leaders

to be informed of what is happening within the company and

to address issues or concerns early.

Government Auditors
Government auditors review the finances and practices of
federal agencies. These auditors work for the U.S.
Government Accountability Office. Auditors in this office
report their findings to Congress, which uses them to create
and manage policies and budgets. In addition, most state
governments have similar departments to audit state and
municipal agencies.
Independent Auditors
Independent auditors do not work for the government or the
organization being audited. These auditors review the
financial statements of a company, municipality, agency or
district to determine if the statements and reports are
accurate and fair. Independent auditors help prevent
organizations from releasing misleading financial information.
Forensic Auditors: They are employed by the corporation,
governmentAgencies public accounting firms, and consulting
and investigative services firms.They are trained in detecting,
investigating, and deterring fraud and whitecollarcrime.Generally accepted Auditing Practice:Auditing is a
process by which a competent independent person
accumulates andevaluates evidence about various assertions
contained in financial statement of an entityfor the purpose
of determining and reporting the e quality of disclosure of
financial

Definition of 'Audit'

1. An unbiased examination and evaluation of the financial

statements of an organization. It can be done internally (by
employees of the organization) or externally (by an outside
firm).
GAAS- A set of systematic guidelines used by auditors when
conducting audits on companies' finances, ensuring the
accuracy, consistency and verifiability of auditors' actions
and reports. AU[1] Section 150 states that there are 10
standards:[2] 3 general standards, 3 fieldwork standards, and
4 reporting standards. These standards are issued and
clarified Statements of Accounting Standards, with the first
issued in 1972 to replace previous guidance. Typically, the
first number of the AU section refers to which standard
applies. However, in 2012 the Clarity Project significantly
revised the standards and replaced AU Section 150 with AU
Section 200, which does not explicitly discuss the 10
standards.[3][4]

In the United States, the Public Company Accounting

Oversight Board develops standards (Auditing Standards or
AS) for publicly traded companies since the 2002 passage of
the Sarbanes-Oxley Act; however, it adopted many of the
GAAS initially. The GAAS continues to apply to non-public
companies.