The standard audit report is the most common report issued by an independent auditor. It contains an unqualified opinion stating that the financial statements ‘present fairly, in all material respects’ or ‘give a true and fair view’ (depending on the use of US practices and/or International Standards on Auditing-ISA) of the financial position, results of operations, and cash flows of the entity in conformity with generally accepted accounting principles. A careful reading of an unqualified audit report indicates several important phrases. Explain why each of the following phrases or clauses is used rather than the alternative provided:
(a) ‘In conformity with International Financial Reporting Standards (IFRSs) or Generally Accepted Accounting Principles in the US’ rather than ‘are properly stated to represent the company’s financial performance and true economic conditions’.
(b) ‘The financial statements referred to above present fairly in all material respects the financial position’ rather than ‘The financial statements mentioned above are correctly stated.’
(c) ‘We conducted our audit in accordance with generally accepted auditing standards (or International Standards on Auditing)’ rather than ‘Our audit was performed to detect material misstatements in the company’s financial statements.’
(d) ‘We believe that our audit provides a reasonable basis for our opinion’ rather than ‘Our audit provides sufficient assurance for our opinion.’
(e) ‘In our opinion, the financial statements ‘present fairly’ or ‘give a true and fair view’ rather than ‘We attest to the accuracy of the financial statements.’