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.The higher the levelof assurance by the auditor indicates the greater amount of work per-formed.The greater the amount of work required is directly propor-tionate to the cost.For a small company the cost to do an audit is180C08 03/29/2011 12:6:46 Page 181Risk Assessmentapproximately ten times the cost to prepare a compilation.The costto perform a review is about half the cost of an audit.The larger the entity the greater the increase in the multiple ofcosts relative between the three classes of letters.It is also importantto note that if an accounting firm performs an audit, review, or compi-lation for an entity on identical reporting periods, then the accountingfirm must issue the report with the highest level of assurance.All pub-licly traded companies (i.e., those traded on the NYSE or NASDAQ)must have annual audited financial statements or face being delistedfrom their respective stock exchanges.In many circumstances, lend-ers require their customers to have their financials prepared at one ofthe three levels and often require interim financials prepared at a cer-tain level as a covenant of the loan or mortgage documents.Many foundations require non-profit organizations seeking sup-port to have audited financial statements.In addition, entities seekinggovernment funding are required to have an audit performed on theirfinancials.Independent certified public accounting firms rank as oneof the most trusted professions in our society.As a result of this publictrust and the plethora of regulations and guidelines, an audited finan-cial statement is accepted as presented.Earlier we mentioned that there were three classes of letters at-tached to financial statements.As indicated, the audit is the highestlevel of assurance, the review is second best, and the compilation isthe least.Within those individual classes there is a hierarchy as well.We will not go through every possible permutation of letter, but wewill go through the more prevalent ones.The thought to hold on to isthat typically (not always) a company who has their financial state-ments audited annually will tend to have better accounting systemsand policies.In order for the accountants to issue unqualified opin-ions on their audits, the policies, procedures, internal controls, andaccuracy have to be there.Companies with adequate accounting poli-cies, procedures, internal controls, and accuracy generate timely andaccurate financial information.Timely and accurate financial informa-tion leads to good financial decisions.Good financial decisions lead181C08 03/29/2011 12:6:47 Page 182Project Management Accountingto financial success.In addition, the companies that get unqualifiedopinions on their financial statements tend to be more ethical.A typical Independent Auditors Report will be titled as such.Itwill be addressed to the Board of Directors/Stockholders of thecompany.The report will have three paragraphs.Those paragraphsare known as the introductory paragraph, the scope paragraph, andthe opinion paragraph.These paragraphs will appear in that order.The report will be signed and dated by the firm who performed theaudit.The introductory paragraph will include the following: astatement that the financial statements were audited, name of theentity being audited, type of legal entity (i.e., corporation, partner-ship, limited liability Company, or sole proprietorship), date ofthe financial statements, identification of the financial statements(i.e., balance sheet, statement of income, retained earnings, andcash flows), statement of management responsibility, and statementof auditor responsibility.The scope paragraph will discuss how Generally Accepted Audit-ing Standards (GAAS) was used, a statement about reasonable assur-ance, description of the audit process, and a reasonable basis foropinion.The opinion paragraph will delineate the identification ofthe financial statements, whether they present fairly in all material re-spects, financial position (balance sheet), results of operations (state-ment of income), cash flows, company name, dates, and whether inconformity with Generally Accepted Accounting Principles (GAAP).Exhibit 8.2 is an example of an unqualified opinion expressed onPontrelli Recycling, Inc.by Bean and Counter, P.C.certified publicaccountants (see online exhibits).In Exhibit 8.3, there is a fourth paragraph added and an except forreferenceintheopinionletter.Unless youhavehadtheproper trainingand a full understanding of the issue causing the Qualified Opinion,it will be difficult to determine the effect of the issue on your potentialclient s finances.You should inquire as to why the position thatcaused the Qualified Opinion was taken by management.It should182C08 03/29/2011 12:6:47 Page 183Risk AssessmentEXHIBIT 8.2 An Unqualified Opinion/Independent Auditors ReportINDEPENDENT AUDITORS REPORTTo the Board of Directors and Stockholders of Pontrelli Recycling, Inc.We have audited the accompanying balance sheet of PontrelliRecycling, Inc.(a New Jersey corporation) as of December 31, 2010, and therelated statements of income, retained earnings, and cash flows for the yearthen ended.These financial statements are the responsibility of theCompany s management.Our responsibility is to express an opinion onthese financial statements based on our audit.We conducted our audit in accordance with auditing standardsgenerally accepted in the United States of America.Those standards requirethat we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements.An audit also includes assessing theaccounting principles used and significant estimates made by management,as well as evaluating the overall financial statement presentation.We believethat our audit provides a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly,in all material respects, the financial position of Pontrelli Recycling, Inc.as ofDecember 31, 2010, and the results of its operations and its cash flows forthe year then ended in conformity with accounting principles generallyaccepted in the United States of America.Bean and Counter, P.C.Newark, NJMarch 15, 2011be abundantly clear that your potential client has demonstrated thatthey are capable of ignoring the advice of their professionals in a verypublic way and with consequences.That prospective client may havegood reason to, but be guided accordingly.183C08 03/29/2011 12:6:47 Page 184Project Management AccountingEXHIBIT 8.3 Qualified Opinion/Independent Auditors ReportINDEPENDENT AUDITORS REPORTTo the Board of Directors and Stockholders of Pontrelli Recycling, Inc [ Pobierz całość w formacie PDF ]