Given this fact, explain the circumstance under which a standard unqualified audit report is issued.
1. Report Title- Auditing standards require that the report be titled and that the title includes the word independent.
2. Audit Report Address- The report is usually addressed to the company, its stockholders, or the board of directors.
3. Introductory Paragraph- The first paragraph of the report indicates that the CPA fir has performed an audit, which distinguishes the report from a compilation or review report. The first paragraph also lists the financial statements that were audited, including the notes to the financial statements as well as the balance sheet dates and the accounting periods for the income statement and statement of cash flows.
4. Management’s Responsibility- This heading and paragraph state that the statements are the responsibility of management. This responsibility includes selecting the appropriate accounting principles and maintaining internal controls over financial reporting sufficient for preparation of financial statements that are free of material misstatements due to fraud and error.
5. Auditor’s Responsibility- The section on the auditor’s responsibility contains three paragraphs. The first paragraph states that the audit was conducted in accordance with auditing standards generally accepted in the United States of America. This paragraph also notes that the audit is designed to obtain reasonable assurance about whether the financial statements are free of material misstatements. The second paragraph describes the scope of the audit and the evidence accumulated. This paragraph indicates that the procedures depend on the auditor’s judgment and include assessment of the risk of material misstatements in the financial statements. It also indicates that the auditor considers internal control relevant to the preparation and fair presentation of the financial statements in designing the audit procedure performed, but this assessment of internal control is not for the purpose and is not sufficient to express an opinion on the effectiveness of the entity’s internal control. The third paragraph indicates the auditor believes that sufficient appropriate evidence has been obtained to support the auditor’s opinion.
6. Opinion Paragraph- The final paragraph in the standard report states the auditor’s conclusions bases on the results of the audit.
7. Name and Address of the CPA firm- The name identifies the CPA firm or practitioner who performed the audit.
8. Audit Report Date- The appropriate date for the report is