Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

Which statement is true regarding the audit report for an issuer?

1. Reference should mention both PCAOB and generally accepted auditing standards.

2. Reference can be made to either PCAOB or generally accepted auditing standards.

3. PCAOB standards should not be mentioned at all.

4. The report must include references to PCAOB standards and GAAP.

The correct answer is: The report must include references to PCAOB standards and GAAP.

The requirement to reference PCAOB standards and generally accepted accounting principles (GAAP) in the audit report for an issuer reflects the regulatory framework that governs audits of public companies. The Public Company Accounting Oversight Board (PCAOB) sets comprehensive standards for auditing public companies to enhance the quality of audits and protect investors. Including a reference to PCAOB standards in the audit report demonstrates adherence to these regulatory standards, which is crucial for maintaining the trust of stakeholders and fulfilling the auditor's responsibilities. Additionally, GAAP represents the accepted accounting principles that govern the preparation of financial statements. Including a reference to GAAP ensures users of the audit report understand the accounting framework applied during the audit, which is important for evaluating the financial statements' reliability. Overall, incorporating references to both PCAOB standards and GAAP in the audit report helps establish the context of the work performed by the auditor, affirms compliance with relevant standards, and enhances the transparency and credibility of the audit outcome. This multifaceted approach aligns with the overarching goal of providing reliable information to investors and other stakeholders in a public company.