115 CFA
File: Financial Analysis - Reading 19 - 4. Auditor's Reports

4. Auditor's Reports

d. describe the objective of audits of financial statements, the types of audit reports, and the importance of effective internal controls;

What is an auditor's report, and what three items does it tell us?
An auditor's report (also called the auditor's opinion) is issued as part of a company's audited financial report. It tells the end-user the following:
1. Whether the financial statements are presented in accordance with generally accepted accounting principles.
2. It identifies those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.
3. Informative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report.

What are the four types of audit reports?
1. Unqualified opinion report - when the financial statements presented are free of material misstatements and are in accordance with GAAP
2. Qualified opinion report - when the auditor encountered one or two situations that did not comply with generally accepted accounting principles; however, the rest of the financial statements are fairly presented.
3. Adverse opinion - the financial statements of an auditee are materially misstated and generally do not comply with GAAP
4. Disclaimer of opinion - when the auditor could not form, and consequently refuses to present, an opinion on the financial statements

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