Magazine article The CPA Journal
The Audit Opinion
Choosing Our Words Carefully
Over the past few years, auditors have been criticized for a variety of meltdowns in the financial sector. They have been blamed for failing to detect fraud, allowing inadequate disclosure in the financial statements, and compromising their independence in dealing with management. Recently, a CPA Journal reader asked why, in the interest of full disclosure, the audit opinion doesn't clearly state that the management of the audited company paid for the cost of the audit One of my colleagues argued that everyone knows who pays for the audit. But do they? Certainly, all CPAs know who pays for the audit; but many users, including creditors, vendors, or others seeking to make economic decisions based on the information provided in the financial statements, may not be aware of mis simple fact Perhaps it's time for the profession to revisit the audit opinion-not only for what it says, but also for what's left unsaid.
The audit opinion is generally addressed to the board of directors and the shareholders, and for years the standard template has used CYA (cover your ass-ets) terminology in place of real communication. The first paragraph explains the scope of the audit and the auditor's responsibility in the audit process; the second paragraph refers to the procedures performed "in accordance with GAAS" used to provide a "reasonable basis" for the opinion; and the final paragraph expresses the auditor's opinion of whether the financial statements "present fairly, in all material respects" and are in conformity with GAAP.
Some might argue, "If it ain't broke, don't fix it" After all, the wording used in the standard opinion has passed the test of time and has been vetted by legal gurus to make it bulletproof, right? But does it still work in today's environment and for today's users?
Err on the Side of Disclosure
While much has been discussed about full disclosure in the financial statements, the topic as it relates to the audit opinion has received little attention. In addition to the technical changes that reflect the everchanging professional landscape, such as complying with PCAOB's AS1 by reference to "the standards of the Public Company Accounting Oversight Board (United States)," the profession has been remiss in addressing two important issues. …