Bill’s grandparents have been buying shares of stock for his college education fund since the day he was born. Yesterday, Bill received the annual report of Thompson Consolidated Shoulderpads, Inc., and is telling you about it. Bill says:

“I feel really good about the company because its financial statements were prepared and audited by a well-known national accounting firm. Not only that, but the firm received an unqualified audit report. This means that the auditor checked out all the company’s transactions and that the company is healthy. Since the auditors think the company is doing well, I think I’ll invest some of my summer job savings in it.”

How would you respond to your friend? Do you believe he has a good understanding of what information is conveyed by an auditors’ report? Discuss.