Question

• To whom is the auditors' report addressed? • Identify the major sections of the auditors' standard unqualified report for a nonpublic entity and public entity. • What does the date shown at the bottom of auditor's report indicate? Why are they different from those shown at the first paragraph of the report? • What are the major differences in the auditors' report for nonpublic and public entities? • What alternatives are available to auditors for reporting on the financial statements and internal control over financial reporting in the audit of public! entities? CONTROL of ADMINI

Audit report

Answer 1

• To the Board of Directors.

• Major sections of the auditor's Standard unqualified report for a nonpublic and public entity:

• Introduction

• Objectives

• The Auditor's Unqualified Report

• Basic Elements

  • Title

  • Addressee

  • Opinion on the Financial Statements

  • Basis for Opinion

  • Signature, Tenure, Location, and Date

• Critical Audit Matters

• Explanatory Language Added to the Auditor's Report

• Emphasis of a Matter

• Information about Certain Audit Participants

• The date shown at the bottom of the auditor's report indicates the date of the completion of the audit, which is the date on which the auditor has obtained sufficient appropriate audit evidence to be able to draw conclusions on which to base the auditor's opinion on the financial statements. They are different from those shown at the first paragraph of the report because in first paragraph the date is of the period (Fiscal Year) for which the audit was taken place, which means the report is prepared for that period mentioned in the first paragraph.

• Difference in audit's report of nonpublic & public entities are as follows:-
• In the US, Public companies are required by Sarbanes–Oxley Section 404 ("SOX") to have management and the external auditor report on the adequacy of the company's internal control on financial reporting ("ICFR"). This is a costly and time consuming requirement, as documenting and testing important financial manual and automated controls requires enormous effort. However nonpublic entities there is a choice, If a company has well documented and properly designed controls, then auditors will often chose to test controls because it actually makes an audit more efficient. Other than this, there is no difference between an auditors consideration of internal controls on an audit engagement for a nonpublic vs public entity. Once you decide to test controls the process of identifying controls relevant to the audit, determining an audit strategy, performing a walkthrough and control testing is essentially the same. The facts and circumstances are generally client/transaction-class/location specific but the assessment process is generally the same. In short, the auditor asks the same questions and adjusts their strategy based on the answers. Public vs. private does not much matter once the decision has been made to test controls.
• Publicly held companies are required to file reports with the Securities and Exchange Commission (SEC) and they often have financial information reported on financial websites. However it is not so in case of nonpublic entities.

• Alternatives available to auditors for reporting on the financial statement and internal control over financial reporting in the audit of public companies are as follows:-
• Auditors evaluating financial statements routinely ask audited companies to confirm the truth of items in the statement. If the auditor can't get an answer, then alternative confirmation methods -- such as comparing accounts receivable to shipping documents -- reduce the audit risk.
• A company's balance sheet lists inventory as a company asset. To keep the balance sheet accurate, the company should make a physical count of inventory at least once a year, with the auditor in attendance. Attending confirms the inventory exists and that a proper count took place. If the auditor cannot attend, he must use an alternative procedure to check the count, such as inspecting records showing the sale of inventory items. If it's possible to attend the count, the auditor must do so, even if it's more convenient to use the alternatives.
• Part of the auditor's job is to identify litigation or claims against the business that could render the financial statements inaccurate, such as the potential for a big court settlement. If the auditor believes there's a risk of such litigation, the standard procedure is to write to the audited company's legal representatives for information. If company management refuses to allow the auditor to meet with the lawyers, or the lawyers don't respond to the letter, the auditor should adopt alternative procedures, such as obtaining statements from management about the litigation. If the alternative approaches don't provide satisfactory confirmation, the auditor must note this in his report.