Auditor's Reporting Model

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Historical Perspective on Auditor’s Report The auditor’s reporting model has been evolving and adapting with the accounting profession for over a century. Since the early 1900s when the accounting and audit practice began to develop in the United States, there has been much debate and discussion regarding the language, content, and form of an auditor’s report. Dating back to the early 1990s, there were no authoritative accounting or auditing standards. Auditors’ reports were written in “free-form” with no guidelines as to form or context. The report was an original document created and based solely by the auditor’s discretion and preference. An example of one of the first US companies to publish financial statements accompanied by an audit report was US Steel in 1903. The auditor’s opinion and description of the audit procedures performed were stated in the report as such: “We have verified cash and securities by actual inspection; and, full provision has been made for bad and doubtful accounts receivable and for all ascertainable liabilities.” [ (Public Company Accounting Oversight Board) ] In 1912, the American Institute of Accountants (currently known as the AICPA) issued the earliest form of auditing guidance with a “Memorandum on Balance Sheet Audits”. This memorandum, triggered by pressure from the Federal Trade Commission, provided a description of the suggested but not required form for the auditor’s report. By the 1920s, the auditor’s report had been reduced to one paragraph in length. It was also referred to as an audit of the “accounts and records” with the independent auditor certifying the balance sheet for correctness. [ (Public Company Accounting Oversight Board) ] This development in the auditor’s reporting model during the 1920s was sparked by creditors and stockholders in the market displaying a need for more improved assurance as to the
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