The following is an example of the standard unqualified auditor’s report:
To the Shareholders of ABC Ltd.
We have audited the balance sheet of ABC Ltd. as at X date, and the statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material respects, the financial position of the company as at X date, and the results of its operations and cash flows for the year then ended are in accordance with generally accepted accounting principles.
EFG,
Chartered Accountants
There are many standard practices auditors follow. For example, auditors are not responsible for detecting management fraud unless they ignore “red flags” warning them of improper activities. They may test on a sampling basis. Do you think that the report they issue could be written in such a way as to make it clearer to users the extent of their responsibilities?