Reports on Financial Statements

• Author: Vern Krishna
• Pages: 172-190

172 Understanding Financial Statements

Chapter VII: Reports on

Financial Statements

A. GENERAL COMMENT

Reports on nancial statements are an integral part of the verica-

tion and accountability of nancial statements. Even if not legally

required to produce formal reports and nancial statements, many

companies will prepare such statements for accounting to their

proprietors and creditors. us, such reports are referred to as “as-

surance reports.”

Financial statements may be audited or unaudited. In either

case, the auditor may express an opinion — unrestricted or re-

stricted — on the statements. e degree to which readers of the

statements can assure themselves of the integrity of the nancial

statements depends, in part, upon the nature of the report prepared.

Audits are intended to enhance the degree of condence of users of

the nancial statements. e auditors’ report is a key communica-

tion item that, although brief, contains valuable information. e

report is the foundation on which many legal actions proceed.

An auditor is an independent person called upon to review

the enterprise, its processes, and internal controls, and express an

opinion on the nancial statements. Corporate and securities stat-

utes require publicly held corporations to appoint auditors, and le

 See, generally, Canadian Institute of Chartered Accountants, CICA Hand-

book — Assurance, loose-leaf (Toronto: Canadian Institute of Chartered

Accountants, ), section  [CICA Handbook — Assurance].

Chapter VII: Reports on Financial Statements 173

audited nancial statements with the appropriate regulator y au-

thorities. Section  of the Canada Business Corporations Act, for

example, requires the shareholders of every distributing corpora-

tion to appoint an auditor at their rst annual meeting of share-

holders and at each successive annual meeting thereaer. Section

 allows non-distributing corporations not to appoint an auditor.

Section  of the CBCA allows a court to appoint and x the re-

muneration of an auditor if the corporation does not have one and

a shareholder applies to have one appointed.

Similarly, section  of the Secur ities Act (Ontario) requires every

reporting issuer to le annually audited comparative nancial state-

ments within  days of the end of its nancial year.

e auditor has considerable statutory rights and powers. For

example, he or she is entitled under section  CBCA to receive

notice of every meeting of shareholders and to attend, at the ex-

pense of the corporation, at such meetings and be heard on matters

relating to his or her duties. Any shareholder can give notice to the

corporation and have the auditor attend at a shareholder meeting at

the expense of the corporation.

ere are three types of reports on nancial statements:

) Auditors’ reports;

) Review engagement reports; and

) Notice to reader reports.

In this chapter we describe briey the nature of these reports and

the degree of prudent reliance that one can place on them in ana-

lyzing nancial statements.

B. AUDITORS’ REPORTS

e overall objective of the auditor is to obtain reasonable assur-

ance that the nancial statements as a whole are free from material

misstatement.

e rst point to observe is that the nancial statements belong

to management. e auditor reports on management’s nancial

statements. e auditors’ report belongs to the author/auditor. is