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The key financial statements and the auditor￡§s report
?? üaü2D?2?ê? Dr Jennifer Mao??A company's annual report must contain three key financial
statements -- the Balance Sheet (BS), the Income Statement
(IS), and the Statement of Changes in Financial Positions
(SCFP). An unqualified audit opinion from the auditor will
not be possible if any of the three statements is absent.
In an unqualified audit report, the auditor certifies that the
audited financial statements are prepared in accordance with
of the Generally Accepted Accounting Principles (GAAP) and
are able to fairly presentthe company's financial position
at the end of the financial year and its performance as
well as the changes in financial positions for the financial
year. An unqualified audit report is also known as a "clean"
report.
??The BS is the statement that presents the company's
financial position at the year-end. The company's performance
and changes in financial positions for the year are respectively
presented by the IS and the SCFP.
??For a financial year, the company has a BS at the start,
another at the end. They are like two pictures of the company,
one taken at the start of the year, the other at the end of the
year. How the company changed from the first picture to the
second picture is captured by the IS and SCFP of the year.
??According to the opinion expressed by the auditor, there
are essentially three types of audit reports, the unqualified
or clean report mentioned above, the qualified report, and the
disclaimer. When an auditor cannot certify the fair-presentation
quality of the financial statements, he will issue a qualified
opinion or a disclaimer depending on the seriousness of the
matter. If in his opinion the financial statements are
so misleading that they are not able to fairly present the
company's year-end financial position, the performance and
financial position changes for the year, he should issue a
disclaimer.
??If he has problem with some (but material) part(s) of the
financial statements, a qualified opinion is in order. A
qualified opinion does not necessarily imply that the accounting
figure in question is false. As long as the auditor is not
satisfied with the fair-presentation quality of any material
financial, he should qualify his audit opinion with respect to
that financial. For example, if the audit work on a subsidiary
of the company, due to war, natural disaster, or some other
reasons, cannot be carried out to the satisfaction of the auditor,
the auditor may have to qualify his opinion on the consolidated
financial statements.
(The writer is a resource panellist of SPH's Chinese Newspapers.)
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