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American Law Institute
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Logo of the American Law Institute.
The American Law Institute (ALI) was established in 1923 to promote the clarification and simplification of United States common law and its adaptation to changing social needs.[1] Members of ALI include law professors, attorneys, judges and other professionals in the legal industry. ALI writes documents known as "treatises", which are summaries of state common law (legal principles that come out of state court decisions.) Many courts and legislatures look to ALI's treatises as authoritative reference material concerning many legal issues. However, some legal experts such as Professor Michael Risch of Villanova Law School and the late Supreme Court Justice Antonin Scalia have voiced concern about ALI rewriting the law as they want it to be instead of as it is.[2]
The ALI drafts, approves, and publishes Restatements of the Law, Principles of the Law, model codes, and other proposals for law reform. The ALI is headquartered in Philadelphia, Pennsylvania.
At any time, ALI is engaged in up to 20 projects examining the law. Some current projects have been watched closely by the media, particularly the revision of the Model Penal Code Sexual Assault provisions.[3][4][5]
Contents
[hide]
1 History
2 Membership
3 Governance
3.1 Presidents
3.2 Directors
4 Restatements of the Law
5 Principles of the Law
6 Model Codes
7 Young Scholars Medal
8 Other work
9 How the Institute works
10 Continuing legal education with ALI CLE (formerly ALI-ABA)
11 Criticisms
12 See also
13 References
14 External links
History[edit]
The American Law Institute was founded in 1923 on the initiative of William Draper Lewis, Dean of the University of Pennsylvania Law School, following a study by a group of prominent American judges, lawyers, and teachers who sought to address the uncertain and complex nature of early 20th century American law. According to the "Committee on the Establishment of a Permanent Organization for the Improvement of the Law," part of the law's uncertainty stemmed from the lack of agreement on fundamental principles of the common-law system, while the law's complexity was attributed to the numerous variations within different jurisdictions. The Committee recommended that a perpetual society be formed to improve the law and the administration of justice in a scholarly and scientific manner.
The organization was incorporated on February 23, 1923, at a meeting called by the Committee in the auditorium of Memorial Continental Hall in Washington, D.C. According to ALI's Certificate of Incorporation, its purpose is "to promote the clarification and simplification of the law and its better adaptation to social needs, to secure the better administration of justice, and to encourage and carry on scholarly and scientific legal work".
Membership[edit]
Headquarters of The American Law Institute, Philadelphia, PA
Membership in the American Law Institute is limited to 3,000 elected members who are judges, lawyers, and legal scholars from a wide range of practice areas,[6] from all areas of the United States and from many foreign countries. The total membership of more than 4,200 includes ex officio members and life members who, after 25 years as an elected member, are no longer required to pay dues. New members must be proposed by an existing member, who writes a letter of recommendation, and seconded by two others. Proposals are evaluated by a Membership Committee that selects members based on several factors, including professional achievement, personal character, and demonstrated interest in improving the law.
ALI members actively support the work of the Institute, including attending Annual Meetings and other project conferences, joining Members Consultative Groups for Institute projects, and submitting comments on project drafts. Members are asked to write, speak, and vote on the basis of their own personal and professional convictions, without regard to client interests, so as to maintain ALI's respected reputation for thoughtful and impartial analysis.
Governance[edit]
The Institute is governed by its Council, a volunteer board of directors that oversees the management of ALI's business and projects. Having no fewer than 42 and no more than 65 members, the Council consists of lawyers, judges, and academics, and reflects a broad range of specialties and experiences.[7]
Presidents[edit]
George W. Wickersham (1923–1936)
George Wharton Pepper (1936–1947)
Harrison Tweed (1947–1961)
Norris Darrell (1961–1976)
R. Ammi Cutter (1976–1980)
Roswell B. Perkins (1980–1993)
Charles Alan Wright (1993–2000)
Michael Traynor (2000–2008)
Roberta Cooper Ramo (2008–2017)
David F. Levi (2017-present)[8]
Directors[edit]
William Draper Lewis (1923–1947)
Herbert Funk Goodrich (1947–1962)
Herbert Wechsler (1963–1984)
Geoffrey C. Hazard, Jr. (1984–1999)
Lance Liebman (1999–2014)
Richard Revesz (2014–present)
Restatements of the Law[edit]
Main article: Restatement of the Law
Restatements are essentially codifications of case law, common law judge-made doctrines that develop gradually over time because of the principle of stare decisis. Although Restatements are not binding authority in and of themselves, they are highly persuasive because they are formulated over several years with extensive input from law professors, practicing attorneys, and judges. They are meant to reflect the consensus of the American legal community as to what the law is (and in some areas, what it should become). All told, the Restatement of the Law is one of the most respected and well-used sources of secondary authority, covering nearly every area of common law.
Restatements[9] are primarily addressed to courts and aim at clear formulations of common law and its statutory elements, and reflect the law as it presently stands or might appropriately be stated by a court. Although Restatements aspire toward the precision of statutory language, they are also intended to reflect the flexibility and capacity for development and growth of the common law. That is why they are phrased in the descriptive terms of a judge announcing the law to be applied in a given case rather than in the mandatory terms of a statute.[10]
ALI recently completed the Fourth Restatement of U.S. Foreign Relations Law[11] and the Principles of Election Administration.[12]
Principles of the Law[edit]
Beginning with the Principles of Corporate Governance (issued in 1994), the American Law Institute has more recently undertaken intensive studies of areas of law thought to need reform. This type of analysis typically results in a publication that recommends changes in the law. Principles of the Law issued so far include volumes on Aggregate Litigation (2010), Family Dissolution (2002), Intellectual Property (2008), Software Contracts (2010), Transnational Civil Procedure (2006; cosponsored by UNIDROIT), and Transnational Insolvency: Cooperation Among the NAFTA Countries (2003). Work in the Principles of the Law series continues with projects covering Corporate Compliance, Data Privacy, Election Law, and Government Ethics.[10]
Model Codes[edit]
Another important area of the Institute's work is model statutory codification. ALI code projects have included model acts dealing with air flight, criminal procedure, evidence, federal securities law, land development, pre-arraignment procedure, and property. Some of these projects were undertaken jointly with the National Conference of Commissioners on Uniform State Laws (NCCUSL).
The chief joint ALI-NCCUSL project is the Uniform Commercial Code (UCC), which the Institute has been developing and revising with the National Conference since the 1940s. First published in 1952, the UCC is one of a number of uniform acts that have been promulgated in conjunction with efforts to harmonize the law of sales and other commercial transactions in all 50 states within the United States of America. The Uniform Commercial Code is generally viewed as one of the most important developments in American law, having been enacted (with local adaptations) in almost every jurisdiction.
The Model Penal Code (MPC) is another ALI statutory formulation that has been widely accepted throughout the United States. Adopted by the Institute membership in 1962 after twelve years of drafting and development, the Code's purpose was to stimulate and assist legislatures in making an effort to update and standardize the penal law of the United States. Primary responsibility for criminal law lies with the individual states, and such national efforts work to produce similar laws in different jurisdictions. The standard they used to make a determination of what the penal code should be was one of "contemporary reasoned judgment" — meaning what a reasoned person at the time of the development of the MPC would judge the penal law to do. The Chief Reporter for this undertaking was Herbert Wechsler, who later became a Director of the Institute.
ALI recently completed the Sentencing revision [13][14], and is still working on the sexual assault and related offenses project that is re-examining Article 213 of the Model Penal Code. [15]
Young Scholars Medal[edit]
Every other year, ALI awards the Young Scholars Medal to one or two outstanding early-career law professors whose work is relevant to the real world and has the potential to influence improvements in the law. The purpose of the award is to encourage practical scholarly work and to publicize the work of the honorees by sponsoring conferences on issues related to their work. Honorees are also asked to speak at an ALI Annual Meeting.
2015 Recipients[16][17]
Elizabeth Chamblee Burch, University of Georgia School of Law[18] Professor Burch's research focuses on class actions and large-scale, non-class aggregation, often drawing from fields beyond law including social psychology, behavioral law, and economics.
Michael Simkovic, Seton Hall University School of Law Professor Simkovic was recognized for scholarship that centers on bankruptcy, corporate finance, secured transactions, and taxation. Professor Simkovic was subsequently elected to the American Law Institute.[19][20][21]
2013 Recipients
Adam J. Levitin, Georgetown Law Center[22] Professor Levitin was recognized for his work on financial regulation and the recent crisis in mortgage foreclosures.
Amy B. Monahan, University of Minnesota Law School Professor Monahan was recognized for scholarship that centers on the intersection of health care reform and public-sector pensions.
2011 Recipients
Oren Bar-Gill, Harvard Law School[23] Professor Bar-Gill's medal recognizes his insights into consumer psychology, which are the basis for his proposal of specific legal solutions to match specific problems in the markets for cell phones, subprime mortgages, and credit cards. Professor Bar-Gill subsequently became a reporter on the Restatement of Consumer Contracts.[24]
Jeanne C. Fromer, New York University School of Law[25] Professor Fromer was honored for her work exploring the claiming systems of patent and copyright law, as well as forum shopping in patent litigation.
Other work[edit]
The American Law Institute has also worked over the years on studies and other proposals dealing with complex litigation, criminal law, enterprise responsibility, federal estate and gift taxation, federal income taxation, federal judicial code revision, and the division of jurisdiction between federal and state courts.
One particularly interesting ALI project was the Statement of Essential Human Rights. In response to reports of human rights atrocities during World War II, the Institute in 1942 appointed a committee of lawyers and political scientists, supposedly representing the principal cultures of the world, to compile a list of agreed-upon individual rights: an international bill of rights. The committee reported to the ALI Council in February 1944. Although the project was never presented for a vote by the ALI membership, the Statement of Essential Human Rights was published in 1945 by the Americans United for World Organizations, Inc., independently of the Institute. Along with other sources, the Statement was then used to prepare the United Nations’ Universal Declaration of Human Rights, which the General Assembly adopted on December 10, 1948.
How the Institute works[edit]
The basic approach and format of all American Law Institute publications is similar.[10]
An expert in the field of law, usually a legal scholar, is designated as Reporter. With the help of assistants, the Reporter does the basic research and prepares material.
An initial draft is submitted for suggestions and revisions to a small group of Advisers—judges, lawyers, and law teachers—with special knowledge of the subject. In most projects, the draft is also reviewed by a group of ALI members with a particular interest in the topic.
The revised draft is next submitted for additional analysis and consideration to the ALI Council, a body of some 70 prominent judges, practicing lawyers, and law teachers. The draft can then be referred either to the Reporter and Advisers for further review or to the general ALI membership.
When approved by the Council, the draft is presented as a Tentative Draft to an Annual Meeting of the entire membership for debate and discussion. The membership may approve the draft, subject to revisions, or refer it back to the Reporter and Advisers. A series of Tentative Drafts is produced in this way over a number of years.
A Proposed Final Draft consisting of all prior Tentative Drafts as modified by membership action may then be submitted to the Council and the membership. When the project has been approved by both, an official text is published.
The final product thus reflects the review and criticism of experienced members of the bench, bar, and academia. The process may take many years, and it is not unusual for a single Restatement of the law project to take over twenty years to complete.[26]
Continuing legal education with ALI CLE (formerly ALI-ABA)[edit]
The need to establish a permanent entity devoted to the continuing training of lawyers became apparent after the end of World War II, as young lawyers returning from years of military service overseas found that they needed refresher courses in the law. Furthermore, the huge complex of government regulations that had begun with the New Deal and had greatly expanded during the war years provided another impetus for the post-admission education of all lawyers, whether or not they were veterans. Therefore, in 1947, the American Bar Association (ABA) asked the American Law Institute to undertake the first national program of post-admission continuing legal education (CLE) for practicing attorneys.
The governing bodies of ALI and ABA approved a Memorandum of Understanding in 1947 that created a "Committee on Continuing Education of the Bar of the American Law Institute Collaborating with the American Bar Association", comprising representatives from both organizations. Initial work focused on producing a series of CLE publications for a national audience and on encouraging and assisting state and local bar groups to establish and conduct their own programs of continuing legal education.
On April 30, 2012, by mutual agreement, the American Bar Association and the American Law Institute chose to move forward separately in their CLE efforts, with the abundant intellectual content and cutting-edge technology of ALI-ABA being absorbed into the CLE group of ALI, now known as The American Law Institute Continuing Legal Education Group (ALI CLE.)
Today, the thousands of prominent lawyers, judges, and legal academics in the United States and abroad who taught and wrote for ALI-ABA continue to do so for ALI CLE.[27]
Criticisms[edit]
The experts at ALI who are working on a project to restate federal copyright laws have strongly held but different views on copyright legal principles. The task of restatement could easily change from restating the law to rewriting the law; meaning a shift could occur from restating what the law is to what the law should be.[2]
The late Supreme Court Justice Antonin Scalia offered a criticism of ALI's approach to restatement:[2]
"I write separately to note that modern Restatements—such as the Restatement (Third) of Restitution and Unjust Enrichment (2010), which both opinions address in their discussions of the disgorgement remedy—are of questionable value, and must be used with caution. The object of the original Restatements was "to present an orderly statement of the general common law." Restatement of Conflict of Laws, Introduction, p. viii (1934). Over time, the Restatements’ authors have abandoned the mission of describing the law, and have chosen instead to set forth their aspirations for what the law ought to be . . . Restatement sections such as that should be given no weight whatever as to the current state of the law, and no more weight regarding what the law ought to be than the recommendations of any respected lawyer or scholar." — Justice Antonin Scalia, dissenting opinion, Kansas v. Nebraska, February 25, 2015
See also[edit]
Arthur Linton Corbin
Model Penal Code
Uniform Commercial Code
References[edit]
Jump up ^ Institute, The American Law. "About ALI | American Law Institute". American Law Institute. Retrieved 2017-08-23.
^ Jump up to: a b c Lammi, Glenn G. (2015-04-28). "Will The American Law Institute 'Restate' Or Try To Rewrite U.S. Copyright Law?". Forbes. Retrieved 2016-03-24.
Jump up ^ Bazelon, Emily (2015-08-26). "The St. Paul's Rape Case Shows Why Sexual-Assault Laws Must Change". The New York Times. ISSN 0362-4331. Retrieved 2016-11-18.
Jump up ^ "Behind the Scenes of the Legal Group That Could Change America's Definition of Sexual Consent | VICE | Canada". VICE. 2016-10-22. Retrieved 2016-11-18.
Jump up ^ http://www.washingtontimes.com, The Washington Times. "American Law Institute rejects affirmative consent standard in defining sexual assault". The Washington Times. Retrieved 2016-11-18.
Jump up ^ Institute, The American Law. "Members | American Law Institute". American Law Institute. Retrieved 2016-11-18.
Jump up ^ American Law Institute - Governance
Jump up ^ https://law.duke.edu/news/levi-elected-american-law-institute-president/
Jump up ^ http://www.thealiadviser.org/projects/
^ Jump up to: a b c "How ALI Works - The ALI Adviser". The ALI Adviser. Retrieved 2016-11-18.
Jump up ^ https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2972612
Jump up ^ http://www.thealiadviser.org/election-administration/election-administration-principles-approved/
Jump up ^ http://robinainstitute.umn.edu/news/american-law-institute-approves-model-penal-code-sentencing
Jump up ^ http://robinainstitute.umn.edu/publications/model-penal-code-sentencing-proposed-final-draft-approved-may-2017
Jump up ^ http://www.thealiadviser.org/sexual-assault/
Jump up ^ https://www.ali.org/about-ali/awards/young-scholars-medal/
Jump up ^ http://taxprof.typepad.com/taxprof_blog/2015/03/elizabeth-chamblee-burch-.html
Jump up ^ http://law.uga.edu/news/45656
Jump up ^ http://taxprof.typepad.com/taxprof_blog/2015/10/simkovic-sugin-elected-to-ali.html
Jump up ^ https://www.ali.org/news/articles/american-law-institute-elects-75-new-members/
Jump up ^ http://www.thefacultylounge.org/2015/10/new-ali-members.html
Jump up ^ https://www.law.georgetown.edu/news/professor-adam-levitin-honored-by-american-law-institute.cfm
Jump up ^ http://www.law.nyu.edu/news/bar-gill_ali_medal
Jump up ^ http://www.law.nyu.edu/news/american_law_institute_names_oren_bar-gill_a_reporter
Jump up ^ http://news.fordham.edu/inside-fordham-category/professor-receives-american-law-institute-medal/
Jump up ^ http://www.greenbag.org/v12n3/v12n3_boskey.pdf
Jump up ^ "CLE | Continuing Legal Education | MCLE | ALI-CLE.org". www.ali-cle.org. Retrieved 2016-11-18.
External links[edit]
ALI CLE American Law Institute Continuing Legal Education
"ALI's Proposed Insurance Law Restatement: A Trojan Horse?", Law360, Feb. 9, 2017
American Bar Association
The American Law Institute
The American Law Institute Archives at the University of Pennsylvania Law School
Congressional Record (Senate) from July 29, 2003
"Insurance officials, business defense urge delay in vote of liability insurance Restatement", Legal NewsLine, May 22, 2017
"Legal experts battle over proposal to clarify law covering liability insurance for ALI", Legal NewsLine, March 9, 2017
National Conference of Commissioners on Uniform State Laws
"Proposed Restatement of consumer contract law could give trial bar new weapon", Legal NewsLine, Feb. 23, 2017
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Auditor's report
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The examples and perspective in this article may not represent a worldwide view of the subject. You may improve this article, discuss the issue on the talk page, or create a new article, as appropriate. (June 2011) (Learn how and when to remove this template message)
The auditor's report is a disclaimer thereof, issued by either an internal auditor or an independent external auditor as a result of an internal or external audit, as an assurance service in order for the user to make decisions based on the results of the audit.
An auditor's report is considered an essential tool when reporting financial information to users, particularly in business. Since many third-party users prefer, or even require financial information to be certified by an independent external auditor, many auditees rely on auditor reports to certify their information in order to attract investors, obtain loans, and improve public appearance. Some have even stated that financial information without an auditor's report is "essentially worthless" for investing purposes.[1]
Contents
[hide]
1 Auditor's report on financial statements
1.1 Unqualified Opinion
1.2 Qualified Opinion report
1.3 Adverse Opinion report
1.4 Disclaimer of Opinion report
1.5 Auditor's report on internal controls of public companies
1.6 Going concern
1.7 Other explanatory information and paragraphs
1.8 Auditor's reports on financial statements in different countries
2 Opinion shopping
3 Other engagements and reports
3.1 Report to the audit committee or board
4 See also
5 References
Auditor's report on financial statements[edit]
See also: Financial audit
It is important to note that auditor reports on financial statements are neither evaluations nor any other similar determination used to evaluate entities in order to make a decision. The report is only an opinion on whether the information presented is correct and free from material misstatements, whereas all other determinations are left for the user to decide.
There are four common types of auditor's reports, each one presenting a different situation encountered during the auditor's work. The four reports are as follows:
Unqualified Opinion[edit]
An opinion is said to be unqualified when he or she does not have any significant reservation in respect of matters contained in the Financial Statements. The most frequent type of report is referred to as the "Unqualified Opinion", and is regarded by many as the equivalent of a "clean bill of health" to a patient, which has led many to call it the "Clean Opinion", but in reality it is not a clean bill of health, because the Auditor can only provide reasonable assurance regarding the Financial Statements, not the health of the company itself, or the integrity of company records not part of the foundation of the Financial Statements.[2] This type of report is issued by an auditor when the financial statements are free of material misstatements and are presented fairly in accordance with the Generally Accepted Accounting Principles (GAAP), which in other words means that the company's financial condition, position, and operations are fairly presented in the financial statements. It is the best type of report an auditee may receive from an external auditor.
An Unqualified Opinion indicates the following –
(1) The Financial Statements have been prepared using the Generally Accepted Accounting Principles which have been consistently applied;
(2) The Financial Statements comply with relevant statutory requirements and regulations;
(3) There is adequate disclosure of all material matters relevant to the proper presentation of the financial information subject to statutory requirements, where applicable;
(4) Any changes in the accounting principles or in the method of their application and the effects thereof have been properly determined and disclosed in the Financial Statements.
The report consists of a title and header, a main body, the auditor's signature and address, and the report's issuance date. US auditing standards require that the title includes "independent" to convey to the user that the report was unbiased in all respects. Traditionally, the main body of the unqualified report consists of three main paragraphs, each with distinct standard wording and individual purpose. Nonetheless, certain auditors (including PricewaterhouseCoopers[1]) have since modified the arrangement of the main body (but not the wording) in order to differentiate themselves from other audit firms, even though such modification is contrary to the clarified US AICPA standards on auditing.
The first paragraph (commonly referred to as the introductory paragraph) states the audit work performed and identifies the responsibilities of the auditor and the auditee in relation to the financial statements. The second paragraph (commonly referred to as the scope paragraph) details the scope of audit work, provides a general description of the nature of the work, examples of procedures performed, and any limitations the audit faced based on the nature of the work. This paragraph also states that the audit was performed in accordance with the country's prevailing generally accepted auditing standards and regulations. The third paragraph (commonly referred to as the opinion paragraph) simply states the auditor's opinion on the financial statements and whether they are in accordance with generally accepted accounting principles.[1]
The following is an example of a standard unqualified auditor's report on financial statements as it is used in most countries, using the name ABC Company as an auditee's name. Note that this report is acceptable only for periods ending before December 15, 2012:
INDEPENDENT AUDITOR'S REPORT
Board of Directors, Stockholders, Owners, and/or Management of
ABC Company, Inc.
123 Main St.
Anytown, Any Country

We have audited the accompanying balance sheet of ABC Company, Inc. (the "Company") as of December 31, 20XX and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in (the country where the report is issued). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 the Company as of December 31, 20XX, and the results of its operations and its cash flows for the year then ended in accordance with generally accepted accounting principles in (the country where the report is issued).

AUDITOR'S SIGNATURE
Auditor's name and address

Date = Last day of any significant field work
This date should not be dated earlier than when the auditor has sufficient audit evidence to support the opinion.
Recently modifications have been made by the PCAOB to the opinion in the independent auditors report. These changes can be attributed to the introduction of SAS No. 122 and SAS No. 123.[3] For periods ending after December 15, 2012, the following is an example of a standard unqualified auditor's report on financial statements as it is used in most countries, using the name ABC Company, which was incorporated in California, as an auditee's name:
INDEPENDENT AUDITOR'S REPORT
Board of Directors, Stockholders, Owners, and/or Management of
ABC Company, Inc.
123 Main St.
Anytown, Any Country

We have audited the accompanying financial statements of ABC Company, Inc. (a California corporation), which comprise the balance sheet as of December 31, 20XX, and the related statements of income, retained earnings, and cash flows for the year then ended, and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Company, Inc. as of December 31, 20XX, and the results of its operations and its cash flows for the year then ended in accordance with U.S. generally accepted accounting principles.

AUDITOR'S SIGNATURE
Auditor's name and address

Date = Last day of any significant field work
This date should not be dated earlier than when the auditor has sufficient audit evidence to support the opinion.
Qualified Opinion report[edit]
Qualified report is given by the auditor in either of these two cases:
When the financial statements are materially misstated due to misstatement in one particular account balance, class of transaction or disclosure that does not have pervasive effect on the financial statements.
When the auditor is unable to obtain audit evidence regarding particular account balance, class of transaction or disclosure that does not have pervasive effect on the financial statements.
The report is mostly like a Clear Opinion Report and only includes a paragraph viz. Basis for Qualification after Scope paragraph and before Opinion paragraph. Opinion paragraph in addition to its standard wording includes “except for the matter described in Basis for Qualification paragraph the financial statements give true and fair view.”
Detailed below:
A Qualified Opinion report is issued when the auditor encountered one of the two types of situations which do not comply with generally accepted accounting principles, however the rest of the financial statements are fairly presented. This type of opinion is very similar to an unqualified or "clean opinion", but the report states that the financial statements are fairly presented with a certain exception which is otherwise misstated. The two types of situations which would cause an auditor to issue this opinion over the Unqualified opinion are:
Single deviation from GAAP – this type of qualification occurs when one or more areas of the financial statements do not conform with GAAP (e.g. are misstated), but do not affect the rest of the financial statements from being fairly presented when taken as a whole. Examples of this include a company dedicated to a retail business that did not correctly calculate the depreciation expense of its building. Even if this expense is considered material, since the rest of the financial statements do conform with gaap, then the auditor qualifies the opinion by describing the depreciation misstatement in the report and continues to issue a clean opinion on the rest of the financial statements.
Limitation of scope – this type of qualification occurs when the auditor could not audit one or more areas of the financial statements, and although they could not be verified, the rest of the financial statements were audited and they conform to GAAP. Examples of this include an auditor not being able to observe and test a company's inventory of goods. If the auditor audited the rest of the financial statements and is reasonably sure that they conform with GAAP, then the auditor simply states that the financial statements are fairly presented, with the exception of the inventory which could not be audited.
The wording of the qualified report is very similar to the Unqualified opinion, but an explanatory paragraph is added to explain the reasons for the qualification after the scope paragraph but before the opinion paragraph. The introductory paragraph is left exactly the same as in the unqualified opinion, while the scope and the opinion paragraphs receive a slight modification in line with the qualification in the explanatory paragraph.
The scope paragraph is edited to include the following phrase in the first sentence, so that the user may be immediately aware of the qualification. This placement also informs the user that, except for the qualification, the rest of the audit was performed without qualifications:
"Except as discussed in the following paragraph, we conducted our audit..."
The opinion paragraph is also edited to include an additional phrase in the first sentence, so that the user is reminded that the auditor's opinion explicitly excludes the qualification expressed. Depending on the type of qualification, the phrase is edited to either state the qualification and the adjustments needed to correct it, or state the scope limitation and that adjustments could have but not necessarily been required in order to correct it.
For a qualification arising from a deviation from GAAP, the following phrase is added to the opinion paragraph, using the depreciation example mentioned above:
"In our opinion, except for the effects of the Company's incorrect determination of depreciation expense, the financial statement referred to in the first paragraph presents fairly, in all material respects, the financial position of…"
For a qualification arising from a scope of limitation, the following phrase is added to the opinion paragraph, using the inventory example mentioned above:
"In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to perform proper tests and procedures on the Company's inventory, the financial statement referred to in the first paragraph presents fairly, in all material respects, the financial position of…
Adverse Opinion report[edit]
An Adverse Opinion Report is issued on the financial statements of a company when the financial statements are materially misstated and such misstatements have pervasive effect on the financial statements.
In Audit Report after Scope paragraph but before Opinion paragraph, Basis for Adverse Opinion paragraph is added. In Opinion paragraph the wording changes to, "Because of situations mentioned in Basis for Adverse Opinion paragraph, in our opinion the financial statements of XYZ Co. Ltd. as mentioned in first paragraph does not give true and fair view/are not free from material misstatements."
An Adverse Opinion is issued when the auditor determines that the financial statements of an auditee are materially misstated and, when considered as a whole, do not conform with GAAP. It is considered the opposite of an unqualified or clean opinion, essentially stating that the information contained is materially incorrect, unreliable, and inaccurate in order to assess the auditee's financial position and results of operations. Investors, lending institutions, and governments very rarely accept an auditee's financial statements if the auditor issued an adverse opinion, and usually request the auditee to correct the financial statements and obtain another audit report.
Generally, an adverse opinion is only given if the financial statements pervasively differ from GAAP.[4] An example of such a situation would be failure of a company to consolidate a material subsidiary.
The wording of the adverse report is similar to the qualified report. The scope paragraph is modified accordingly and an explanatory paragraph is added to explain the reason for the adverse opinion after the scope paragraph but before the opinion paragraph. However, the most significant change in the adverse report from the qualified report is in the opinion paragraph, where the auditor clearly states that the financial statements are not in accordance with GAAP, which means that they, as a whole, are unreliable, inaccurate, and do not present a fair view of the auditee's position and operations.
"In our opinion, because of the situations mentioned above (in the explanatory paragraph), the financial statements referred to in the first paragraph do not present fairly, in all material respects, the financial position of…"
Disclaimer of Opinion report[edit]
A Disclaimer of Opinion is issued in either of the following cases:
When the auditor is not independent or when there is conflict of interest.
When the limitation on scope is imposed by client, as a result the auditor is unable to obtain sufficient appropriate audit evidence.
When there are significant uncertainties in the business of client.
The audit report changes significantly when there is Disclaimer of opinion. An additional paragraph "Basis for Disclaimer" is added in audit report which is placed after Scope paragraph and before Opinion paragraph. In Scope paragraph the wording changes to "We were engaged to audit the financial statements of XYZ Co. Ltd." from "We have audited the financial statements of XYZ Co. Ltd." In Opinion paragraph wording changes to "We do not express an opinion on the financial statements of XYZ Co. Ltd. due to situations explained in Basis for Disclaimer paragraph"
A Disclaimer of Opinion, commonly referred to simply as a Disclaimer, is issued when the auditor could not form and consequently refuses to present an opinion on the financial statements. This type of report is issued when the auditor tried to audit an entity but could not complete the work due to various reasons and does not issue an opinion. The disclaimer of opinion report can be traced back to 1949, when the Statement on Auditing Procedure No. 23: Recommendation Made To Clarify Accountant's Representations When Opinion Is Not Expressed was published in order to provide guidance to auditors in presenting a disclaimer.[5]
Statements on Auditing Standards (SAS) provide certain situations where a disclaimer of opinion may be appropriate:
A lack of independence, or material conflict(s) of interest, exist between the auditor and the auditee (SAS No. 26)
There are significant scope limitations, whether intentional or not, which hinder the auditor's work in obtaining evidence and performing procedures (SAS No. 58);
There is a substantial doubt about the auditee's ability to continue as a going concern or, in other words, continue operating (SAS No. 59)
There are significant uncertainties within the auditee (SAS No. 79).
Although this type of opinion is rarely used,[5] the most common examples where disclaimers are issued include audits where the auditee willfully hides or refuses to provide evidence and information to the auditor in significant areas of the financial statements, where the auditee is facing significant legal and litigation issues in which the outcome is uncertain (usually government investigations), and where the auditee has going concern issues (the auditee may not continue operating in the near future).[5] Investors, lending institutions, and governments typically reject an auditee's financial statements if the auditor disclaimed an opinion, and will request the auditee to correct the situations the auditor mentioned and obtain another audit report.
A disclaimer of opinion differs substantially from the rest of the auditor's reports because it provides very little information regarding the audit itself, and includes an explanatory paragraph stating the reasons for the disclaimer. Although the report still contains the letterhead, the auditee's name and address, the auditor's signature and address, and the report's issuance date, every other paragraph is modified extensively, and the scope paragraph is entirely omitted since the auditor is basically stating that an audit could not be realized.
In the introductory paragraph, the first phrase changes from "We have audited" to "We were engaged to audit" in order to let the user know that the auditee commissioned an audit, but does not mention that the auditor necessarily completed the audit. Additionally, since the audit was not completely and/or adequately performed, the auditor refuses to accept any responsibility by omitting the last sentence of the paragraph. The scope paragraph is omitted in its entirety since, effectively, no audit was performed. Similar to the qualified and the adverse opinions, the auditor must briefly discuss the situations for the disclaimer in an explanatory paragraph. Finally, the opinion paragraph changes completely, stating that an opinion could not be formed and is not expressed because of the situations mentioned in the previous paragraphs.
The following is a draft of the three main paragraphs of a disclaimer of opinion because of inadequate accounting records of an auditee, which is considered a significant scope of limitation:
We were engaged to audit the accompanying balance sheet of ABC Company, Inc. (the "Company") as of December 31, 20XX and the related statements of income and cash flows for the year then ended. These financial statements are the responsibility of the Company's management.

The Company does not maintain adequate accounting records to provide sufficient information for the preparation of the basic financial statements. The Company's accounting records do not constitute a double-entry system which can produce financial statements.

Because of the significance of the matters discussed in the preceding paragraphs, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion of the financial statements referred to in the first paragraph.
Auditor's report on internal controls of public companies[edit]
See also: Sarbanes-Oxley Act
Following the enactment of the Sarbanes-Oxley Act of 2002, the Public Company Accounting Oversight Board (PCAOB) was established in order to monitor, regulate, inspect, and discipline audit and public accounting firms of public companies. The PCAOB Auditing Standards No. 2 now requires auditors of public companies to include an additional disclosure in the opinion report regarding the auditee's internal controls, and to opine about the company's and auditor's assessment on the company's internal controls over financial reporting. These new requirements are commonly referred to as the COSO Opinion.
The auditor's report is modified to include all necessary disclosures by either presenting the report subsequent to the report on the financial statements, or combining both reports into one auditor's report. The following is an example of the former version of adding a separate report immediately after the auditor's report on financial statements.

Internal control over financial reporting

We have also audited management's assessment, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 20XX, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that ABC Company maintained effective internal control over financial reporting as of December 31, 20XX, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by COSO. Furthermore, in our opinion, ABC Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 20XX, based on criteria established in Internal Control—Integrated Framework issued by COSO.
Going concern[edit]
Going concern is a term [2] which means that an entity will continue to operate in the near future which is generally more than next 12 months, so long as it generates or obtains enough resources to operate. If the auditee is not a going concern, it means that the entity might not be able to sustain itself within the next twelve months. Auditors are required to consider the going concern of an auditee before issuing a report.[6] If the auditee is a going concern, the auditor does not modify his/her report in any way. However, if the auditor considers that the auditee is not a going concern, or will not be a going concern in the near future, then the auditor is required to include an explanatory paragraph before the opinion paragraph or following the opinion papragraph, in the audit report explaining the situation,[6][7] which is commonly referred to as the going concern disclosure. Such an opinion is called an "unqualified modified opinion".
Unfortunately, many auditors are increasingly reluctant to include this disclosure in their opinions, since it is considered a "self-fulfilling prophecy" by some.[6] This is because a disclosure for a lack of going concern is viewed negatively by investors, lending institutions, and credit agencies, and therefore reduces the chance that the auditee may obtain the capital or borrowing it needs to survive once the disclosure is made. If this situation occurs, the auditee is more likely to stop being a going concern while the auditor loses potential future audit engagements, and so the auditor may be pressured to avoid including a going concern disclosure. In a study performed on 2001 bankruptcies, nearly half (48%) of selected public companies who faced bankruptcy in 2001 did not have a "going concern disclosure" in the previous auditor's reports.[6] Additionally, 12 of the 20 largest bankruptcies in U.S. history occurred between 2001 and 2002 and none of them had a "going concern disclosure" in their previous auditor's report.[6]
As for the actual wording of the auditor's report, when a lack of going concern is determined by the auditor, the disclosure paragraph should state the situation, state the auditor's determination, and state the auditee's plan to correct the situation. The disclosure paragraph should immediately follow the opinion paragraph.
The following is the most widely used format of the paragraph which, in this case, deals with a company that has recurring losses:[8]
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note (X) to the financial statements, the Company has suffered recurring losses and has a net capital deficiency. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note (X). The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
Other explanatory information and paragraphs[edit]
Although the auditor reports mentioned above are the standard reports for financial statement audits, the auditor may add additional information to the report if it is deemed necessary without changing the overall opinion of the report. Usually, this additional information is included after the opinion paragraph, although some situations require that the additional information be included in paragraphs before the opinion paragraph. The most frequent paragraphs include:
Limiting distribution of the report – In some occasions, the audit report is restricted to a specified user and the auditor includes this restriction in the report, such as a report for financial statements made in cash basis which are prepared for tax purposes only, financial statements for a wholly owned subsidiary whose sole user of its financial statements is its parent company, etc.
Additional or supplemental information – Certain auditees include additional and/or supplemental information with their financial statements which is not directly related to the financial statements. Examples due to size, time, location, and/or technical constraints. When the main auditor has to rely on another auditor's work, the main auditor may either accept responsibility for the component's information and not modify the audit report, or may chose to disclaim the audit on the specific component, stating that the main auditor did not audit the component, that another auditor audited the component, that the component's audited information is therefore the responsibility of another auditor, and that the main auditor is simply including it in the original auditee's information. If used, this disclaimer is usually included in the introductory paragraph.
Auditor's reports on financial statements in different countries[edit]
See also: International Standards on Auditing
The auditor's report usually does not vary from country to country, although some countries do require either additional or less wording. In the United States, auditors are required to include in the scope paragraphs a phrase stating that they conducted their audit "in accordance with generally accepted auditing standards in the United States of America", and, in the opinion paragraph, state whether the financial statements are presented "in conformity with generally accepted accounting principles in the United States of America". Some countries, such as the Philippines, use similar reports to those issued in the United States, with the exception that second paragraph would state that the audit was conducted in accordance with Philippine Standards on Auditing, and that the financial statements are in accordance with Philippine Financial Reporting Standards.
Opinion shopping[edit]
Opinion shopping is a term used by external auditors and, after the Enron and Arthur Andersen accounting scandals, the media and general public refer to auditees who contract or reject auditors based on the type of opinion report they will issue on the auditee.[6] The underlying principles of this concept are that auditees determine the compensation to auditors for their work (called "audit fees") as well as awarding future audit engagements; that such fees are the auditor's main source of income; that certain auditees may try to contract auditors that will issue audit opinions based on the auditees' needs; and that certain auditors are willing to comply with such demands so long as they are assured future audit engagements.
The most common example is an auditee that knows that the current auditor is going to issue a qualified, adverse, or disclaimer of opinion report, who then rescinds the audit engagement before the opinion is issued, and subsequently "shops" for another auditor who is willing to issue an "unqualified" opinion, regardless of any qualifying situations mentioned in the previous sections. However, opinion shopping is not limited to auditees contracting auditors based on issuing opinions. It also includes auditors who are over-pleasing to auditees by issuing unqualified reports without properly auditing, or by simply overlooking material issues affecting the audit. These auditors' objective is to appear much more attractive and easy-going than other auditors in order to secure future audit engagements and fees.
Although the great majority of auditors are not willing to jeopardize their profession and reputation for guaranteed audit fees, there are some that will issue opinions solely based on obtaining or maintaining audit engagements. This includes auditors who knowingly emit unmodified unqualified opinions for auditees who are engaged in illegal activities, auditees who have caused a material limitation of scope, auditees that have a lack of going concern,[6] or auditees who present fraudulent financial statements (e.g. Enron and Arthur Andersen). This situation is a clear conflict of interest which should hinder an auditor's independence and the ability to audit (AICPA Code of Ethics), but some auditors willingly ignore this statute.
Recent laws and industry standards have been implemented in order to correct this situation, which include the Sarbanes-Oxley Act and the AICPA's practice-monitoring program and Peer Review Program, which are in some cases voluntary, and in other cases, required.[9]
Other engagements and reports[edit]
There are various other audits and evaluations which an external auditor performs in addition to the engagements mentioned in the previous sections, each with their respective standard report(s):
Certification audit reports (for example, an ISO 9000 audit report)
Compilations (not an audit, but requires a report)
Due Diligence
Environmental audit report
Financial forecasts
Filing of a public company's Form 10-Q and Form 10-K
Agreed Upon Procedures
Internal audit reports
Regulatory inspection reports
Review of financial statements (an overview with very limited auditing procedures)
Fraud & Materiality Memo
Second opinion
XBRL assurance
Information security audit information technology audit or information technology security audit
Report to the audit committee or board[edit]
The auditor's report on the financial statements typically provides very limited details on the procedures and findings of the audit. In contrast, auditors provide much more detail to the board of directors or to the audit committee of the board. Beginning in 2002, many countries have tasked the audit committee with primary responsibility over the audit.[10] For example, in the United States, section 204 of the Sarbanes-Oxley Act passed in 2002[11] required auditors to communicate certain information to audit committees, which were required to be entirely independent, and also made the audit committee responsible for the auditor's hiring.[12] In August 2012, the U.S. Public Company Accounting Oversight Board finalized Auditing Standard No. 16,[13] which requires additional communications to the audit committee.[14]
See also[edit]
Financial audit
Internal audit
Generally Accepted Auditing Standards
International Standards on Auditing
References[edit]
The Independent Auditor's Report on a Complete Set of General Purpose Financial Statements [3]
^ Jump up to: a b "Fundamental Analysis: The Auditor's Report" Archived January 27, 2007, at the Wayback Machine. by Investopedia.com
Jump up ^ Accounting What The Numbers Mean, (Marshall, McManus, Viele 2008), Mc Graw Hill
Jump up ^ http://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-C-00705.pdf
Jump up ^ Auditing & Assurance Services: A systematic approach. Messier, W and C. Emby. McGraw-Hill Ryerson Limited, 2005.
^ Jump up to: a b c "Using Disclaimers in Audit Reports: Discerning Between Shades of Opinion" by Robert R. Davis, CPA Journal, 2004, retrieved on January 24, 2007
^ Jump up to: a b c d e f g The Going-Concern Assumption Revisited: Assessing a Company's Future Viability by Elizabeth K. Venuti, CPA, PhD; The CPA Journal; 2004; retrieved January 16, 2007
Jump up ^ Statement on Auditing Standards No. 59: The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern, issued by the Auditing Standards Board
Jump up ^ PPC's Guide to Auditor's Reports, Thomson Publishing Group, Vol. 1, Chapter 6:Uncertainties, Section 606: Going Concern Problems
Jump up ^ http://www.aicpa.org/InterestAreas/PeerReview/Resources/FAQs/DownloadableDocuments/qandaprp.pdf
Jump up ^ Enhancing transparency of the audit committee auditor oversight process Archived June 2, 2013, at the Wayback Machine.. Ernst & Young.
Jump up ^ Section 204 -- Auditor Reports to Audit Committees Archived June 15, 2013, at the Wayback Machine.. Securities Lawyer's Deskbook.
Jump up ^ Audit Committee Reports Before and After Sarbanes-Oxley: A Study of Companies Listed on the NYSE The CPA Journal.
Jump up ^ Auditing Standard No. 16: Communications with Audit Committees. PCAOB.
Jump up ^ Hoffelder K. (2012). New Audit Standard Encourages More Talking. CFO Magazine.
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