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What the 4 Categories of Audit Report? Briefly Explain

What the 4 Categories of Audit Report? Briefly Explain

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Four Categories of Audit Reports:

There are four categories of audit reports issued by auditors on financial statements.

Those audit reports included the Unqualified Audit Report (Clean Audit Report), Qualified Audit Report, Disclaimer Audit Report, and Adverse Audit Report. The following are the detail of audit reports.

#1 Unqualified Audit Report (Clean Audit Report):

Unqualified Audit Report issued by the auditor to financial statements when auditors concludes that financial statements are prepared in all material respects in accordance with applicable financial reporting framework. This report contains an unqualified opinion from an independent auditor. The report showed that the entity financial statements are prepared and present true and fair and complying with the accounting framework being used. Unqualified Audit report not only apparently shown to the shareholders that financial statements are a true and fair presentation, and free from all material misstatements. But also imply that the management team has high integrity to the shareholders.

#2 Qualified Audit Report:

The qualified Audit report is the report that issue by auditors to the financial statements having obtained sufficient appropriate audit evidence concluded that misstatements individually or in aggregate are material but not pervasive to the financial statements or auditors are unable to obtain sufficient appropriate audit evidence on which to base opinion, but concludes that possible effects on financial statements of undetected misstatements if any could be material bit not pervasive.

For example, the opening balance of the entity contains a large number of inventories that could not verify.

In this case, the auditor issue a qualified audit opinion on the qualified audit report. However, if the auditor thinks that the misstatement is pervasive, they will issue the adverse opinion in their report. Other information in the financial statements is true and fair.

The term of seriousness, the qualified audit report is more serious than unqualified due to material misstatements on the mention items or accounts in the financial statements.

#3 Adverse Audit Report:

Adverse Audit Report is a type of audit report issued to the financial statements when auditors having obtained sufficient appropriate audit evidence concludes that misstatements individually or in aggregate are both material and pervasive to the financial statements.

The misstatements found here are different from the material misstatements found in qualified audit reports.

They are not only material misstated for themselves but also affect others accounts and items in the whole financial statements. These are called pervasive.

That means all the items and accounts in the whole financial statements could not be trusted by shareholders, investors, and other stakeholders.

In this report, auditors will list down the client name, financial statements that they were audited and the period the financial statements covered.

Auditor will also state all misstatements found and how they are affected the financial statements and as well as the users of financial statements.

#4 Disclaimer Audit Report:

The auditor shall disclaim an opinion when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion and the auditor concludes that possible effects on financial statements of undetected misstatements if any could be both material and pervasive. And in extremely rare circumstances involving multiple uncertainties auditor concludes that notwithstanding having obtained sufficient appropriate audit evidence regarding each of the individual uncertainties it is not possible to form an opinion on financial statements due to potential interaction of the uncertainties and their possible cumulative effect on financial statements

For example a case of major fire accident occurred and got destroyed all accounting records or when auditors are prevented to access to certain information related to items or accounts in financial statements while those items or accounts are believed to be materially misstated and pervasive.

Auditors might not issue the disclaimer opinion if the restrictions are made only the items or accounts that material misstated but not pervasive.

Thank you.

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