Audit Reports
The audit report is the auditor's formal communication of the opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.
Explanation
An unmodified (clean) opinion states that the financial statements are fairly presented. Modified opinions include qualified (material but not pervasive misstatement or scope limitation), adverse (material and pervasive misstatement), and disclaimer (material and pervasive scope limitation). The report includes sections on opinion, basis for opinion, management responsibilities, auditor responsibilities, and — for public companies — critical audit matters (CAMs).
Key Points
- •Four opinion types: unmodified, qualified, adverse, disclaimer
- •Qualified = material but not pervasive; adverse = material and pervasive
- •Critical audit matters (CAMs) are required for PCAOB audits of public companies
Exam Tip
Know the difference between a scope limitation and a misstatement — and how each leads to different modified opinions depending on pervasiveness.
Frequently Asked Questions
Related Topics
Going Concern
Going concern is the assumption that an entity will continue to operate for the foreseeable future; the auditor evaluates whether substantial doubt exists about the entity's ability to continue as a going concern.
Materiality
Materiality is the magnitude of an omission or misstatement that, individually or in aggregate, could reasonably influence the economic decisions of financial statement users.
Test your knowledge
Practice scenario-based questions on this topic with detailed explanations.