document_title: Auditor's report

question_text: who should an audit report be addressed to

question_tokens: who should an audit report be addressed to

text: Auditor's report

text: Auditor's report on financial statements[edit]

text: 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.

text: 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:

text: Unqualified Opinion[edit]

text: 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.

text: An Unqualified Opinion indicates the following –

text: (1) The Financial Statements have been prepared using the Generally Accepted Accounting Principles which have been consistently applied;

text: (2) The Financial Statements comply with relevant statutory requirements and regulations;

text: (3) There is adequate disclosure of all material matters relevant to the proper presentation of the financial information subject to statutory requirements, where applicable;

text: (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.

text: 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.

text: 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]

text: 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:

text:
Board of Directors, Stockholders, Owners, and/or Management of
ABC Company, Inc.
123 Main St.
Anytown, Any Country

text: 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.

text: 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.

text: 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).

text:
AUDITOR'S SIGNATURE
Auditor's name and address

text:
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.

text: 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:

text: 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.

text: Management's Responsibility for the Financial Statements

text: 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.

text: Auditor's Responsibility

text: 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.

text: 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.

text: We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

text: Opinion

text: 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.

text: Qualified Opinion report[edit]

text: Qualified report is given by the auditor in either of these two cases:

text:
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.

tag: ol

text: 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.”

text: Detailed below:

text: 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:

text:
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.

text: 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.

text: 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:

text: 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.

text: For a qualification arising from a deviation from GAAP, the following phrase is added to the opinion paragraph, using the depreciation example mentioned above:

text: For a qualification arising from a scope of limitation, the following phrase is added to the opinion paragraph, using the inventory example mentioned above:

text: Adverse Opinion report[edit]

text: 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.

text: 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."

text: 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.

text: 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.

text: 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.

text: Disclaimer of Opinion report[edit]

text: A Disclaimer of Opinion is issued in either of the following cases:

text:
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.

text: 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"

text: 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]

text: Statements on Auditing Standards (SAS) provide certain situations where a disclaimer of opinion may be appropriate:

text:
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).

text: 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.

text: 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.

text: 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.

text: 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:

text: 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.

text: 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.

text: 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.

text: Auditor's report on internal controls of public companies[edit]

text: 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.

text: 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.

text: Internal control over financial reporting

text: 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.

text: 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.

text: 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.

text: 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.

text: Going concern[edit]

text: 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".

text: 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]

text: 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.

text: The following is the most widely used format of the paragraph which, in this case, deals with a company that has recurring losses:[8]

text: 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.

text: Other explanatory information and paragraphs[edit]

text: 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:

text:
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.

text: Auditor's reports on financial statements in different countries[edit]

text: 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.

text: Opinion shopping[edit]

text: 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.

text: 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.

text: 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.

text: 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]

text: Other engagements and reports[edit]

text: 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):

text:
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

text: Report to the audit committee or board[edit]

text: 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]


document_title: NBA playoffs

question_text: when did nba playoffs change to 7 game series

root

text: NBA playoffs

text: Format[edit]

text: In September 2015, the NBA announced changes to the formula used to determine the format of the 2016 NBA Playoffs. The top eight teams in each conference (East and West), ranked in order by win-loss records, qualify for the playoffs. The tie-break criteria for playoff seeding and home-court advantage have also changed; head-to-head results between the tied teams is the first tie-breaker, and whether a team won its division championship is the second tie-breaker.[1]

tag: p

text: These seedings are used to create a bracket that determines the match-ups throughout the series. Once the playoffs start, the bracket is fixed; teams are never "reseeded", unlike in the National Football League (NFL) and Major League Soccer (MLS) where the strongest remaining teams face the weakest teams in subsequent rounds. The first round of the NBA playoffs, or conference quarterfinals, consists of four match-ups in each conference based on the seedings (1–8, 2–7, 3–6, and 4–5). The four winners advance to the second round, or conference semifinals, with a match-up between the 1–8 and 4–5 winners and a match-up between the 2–7 and 3–6 winners. The two winners advance to the third round, or conference finals. The winner from each conference will advance to the final round, or the NBA Finals.

text: All rounds are best-of-seven series. Series are played in a 2–2–1–1–1 format, meaning the team with home-court advantage hosts games 1, 2, 5, and 7, while their opponent hosts games 3, 4, and 6, with games 5–7 being played if needed. This format has been used since 2014, after NBA team owners unanimously voted to change from a 2–3–2 format on October 23, 2013.[2]

text: The most common criticism of the current structure is related to parity of conferences. On numerous occasions, Eastern Conference teams with losing records qualified for the playoffs, while Western Conference teams with winning records ended up missing them, including the 2011, 2013 and the 2015 NBA Playoffs.

text: History[edit]

text: The National Basketball Association was established in 1949 by merger of the Basketball Association of America (BAA) and National Basketball League but it recognizes the three BAA seasons as part of its own history. In all of its three years the BAA champion was finally determined in a best-of-seven series but its first two tournaments, the 1947 and 1948 BAA Playoffs, were otherwise quite different from the third, which 21st-century NBA playoffs nearly match. In 1947 and 1948, the Eastern and Western Division champions were matched in a best-of-seven series following the regular season, whose winner advanced to the championship round. Meanwhile, four runners-up played best-of-three series to determine the other finalist: the two second-place teams were matched in one short series and the two third-place teams in another; the winners of those two series played another one. In 1947 the Philadelphia Warriors won the runners-up bracket and beat the Western champion Chicago Stags four games to one, which the NBA recognizes as its first championship; in 1948 Baltimore won the runners-up and beat Eastern champion Philadelphia in the final. Both tournaments generated one finalist from the Eastern and one from the Western Division, but only by chance.[3]

text: In 1949 the third and last BAA tournament matched Eastern teams exclusively and Western teams exclusively, necessarily generating Eastern and Western playoff champions to meet in the final. At the same time, the number of playoff teams was increased from three to four from each Division; two rounds of best-of-three series were played, followed by a best-of-seven championship. The main idea was retained by the NBA. Even the 1950 tournament, following a transitional season with three divisions rather than two, initially determined one playoff champion from each division. The Central champion Minneapolis Lakers became the first league champion under the NBA name by defeating Anderson from the West in a best-of-three, with Syracuse from the East idle, and then knocking off the Syracuse Nationals in six games.[4]

text: The 1951 through 1953 playoffs changed the division finals into a best-of-five playoff. With only nine league members in 1953–54, the NBA cut its postseason tournament field from eight teams to six (from 1954 through 1966, the period of eight to nine league members). Round robins were played in 1954, uniquely in NBA history—a three-team round robin among the three playoff teams in each division. From 1955 to 1966, the first-place team in each division was idle while its two runners-up faced played a best-of-three. Division finals were expanded to best-of-seven in 1958 and division semifinals to best-of-five in 1961.

text: With ten league members again for the 1966–67 season, eight teams were again admitted to the tournament, providing a simple three-round knockout (8-team bracket). A year later, the division semifinals were changed to best-of-seven playoff. Then, in 1975 and 1977, respectively, a fifth and sixth team were added to each Division, necessitating an additional first round of best-of-three series.

text: Finally in 1984, the tournament expanded to its present 16-team, four-round knockout, and the now-complete set of first-round series were expanded to a best-of-five. In 2003 the first round was changed to also be best-of-seven. (Thus all playoff teams from 2003 to present, same as the two Division champions in 1947 and 1948, continue to play at the close of the regular season without idle team ("bye") and may be certain of four playoff games including two at home.)

text: Beginning with the 2004 season, with the addition of the thirtieth NBA franchise, the Charlotte Bobcats, the NBA realigned its divisions. The result was that each conference would have three divisions of five teams each, and the winner of each division was guaranteed a top-three playoff seed. This would change slightly after the 2005–06 season; while division winners still receive automatic playoff berths, they are guaranteed a top-four seed, as described below.

text: 2006 NBA playoffs controversy[edit]

text: The previous playoff format, in place for the 2004–05 and 2005–06 NBA playoffs, after the NBA was re-aligned into six divisions, created controversy during the 2005–06 season and playoffs, and would be changed prior to the 2006–07 NBA season.[5]

text: Prior to 2005, NBA division champions were seeded higher than the other teams in their conference, regardless of their record. Prior to 2004, when the NBA was aligned into two conferences with two divisions each, the division champions were guaranteed the top two seeds. This meant that top two teams in a conference (by record) would be seeded either first and second (if they were in opposite divisions) or first and third (if they were in the same division). Because of the NBA playoffs' preset matchups in the second round, this meant that the top two teams in a conference could never meet until the conference finals, assuming they both made it to that round.

text: After the NBA realigned its two conferences into three divisions each, the seeding rules remained largely unchanged. The top three seeds would now be reserved for division champions. However, this meant that if the top two teams (by record) in a conference were in the same division, they would be seeded first and fourth. Assuming no first-round upsets, this raised the prospect that the top two teams in the conference would face each other in the conference semifinals, instead of the conference finals.

text: In the second year of this format, the 2005–06 NBA season, the two teams with the best records in the Western Conference, the San Antonio Spurs and Dallas Mavericks of the Southwest Division, did just that. The Mavericks had the second-best record in the Western Conference and the third-best record in the entire league, behind the Detroit Pistons and San Antonio. However, they were seeded fourth because they finished second in the Southwest behind the Spurs. This turn of events led to the playoff format being criticized by many. Besides the prospect of a team losing earlier in the playoffs than its regular-season record or seeding would suggest, critics claimed that it also created an unfair advantage for teams in the 2-7/3-6 half of the Western Conference playoff bracket, who could advance to the conference finals without playing either of the two best teams in the conference in an earlier round.

text: The Phoenix Suns, winners of the Pacific Division and possessors of the third best record, were seeded second, while the Denver Nuggets, winners of the Northwest Division and tied for only the seventh-best record in the conference, were seeded third.

text: The Memphis Grizzlies and Los Angeles Clippers met in the second-to-last game of the regular season, after the top four seeds had been clinched. The two teams were already determined to be the fifth and sixth seeds, and had only to determine which rank higher. The fifth seed would likely need to defeat the best two teams in the conference without home-court advantage to advance to the conference finals, as it would face fourth-seeded Dallas in the first round and likely face first-seeded San Antonio if it managed to defeat Dallas. The sixth seed would play third-seeded Denver in the first round, but would have home-court advantage (since the Grizzlies had the fourth-best record in the conference and the Clippers had the fifth-best), and would not have to face either San Antonio or Dallas until the conference finals at the earliest.

text: This led to speculation about whether the Grizzlies or the Clippers would have much commitment to winning their match-up in the second-to-last game of the season, since it was clearly most advantageous to lose the game in order to obtain the 6th seed. The Clippers eventually lost to Memphis without much evidence to support the speculation that the Clippers had lost intentionally.[6] In the first round of the playoffs, the Clippers defeated the Nuggets in five games, while Memphis was swept by Dallas. Ultimately, Dallas and San Antonio did meet in the second round, with Dallas winning in seven games and advancing all the way to the NBA finals.

text: Timeline[edit]

text: 1947: The playoffs were instituted with a three-stage tournament, similar to the Stanley Cup playoffs of the 1930s; the two first-place teams qualified directly to one semifinal where they played each other in a best-of-7 series. Teams finishing second & third qualified for the best-of-3 quarterfinals, where the two second-placed teams were paired in one quarterfinal, as were the two third-placed teams, and the two quarterfinal winners played each other in a best-of-three semifinal. The two semifinal winners played each other in the Basketball Association of America (BAA) best-of-7 final series.

tag: ul

text:
Quarterfinals
Best-of-3

Semifinals
Best-of-3 (one series)
Best-of-7 (one series)

BAA finals
Best-of-7

E3

W3

E3

E2

W2

E2

E2

W1

W1

E1

tag: table

text: There were no byes, or idle time, for the division champions – as there would be for higher-seeded playoff teams 1955–66 and 1975–83. All six 1947 participants played their first tournament games on Wednesday, April 2; in 1948 the two Eastern runners-up (E2, E3 in the figure) were idle for a few days only because there was a three-way Western tie to break. Both winners of the runners-up bracket, Philadelphia in 1947 and Baltimore in 1948, reached the final series having played fewer tournament games than their final opponents, Chicago in 1947 and Philadelphia in 1948, had played in the best-of-7 pairings of division champions. And both winners of the runners-up bracket won the final series. The "postseason" actually comprised 11 games played in a span of 21 days for the 1947 Chicago Stags and 13 games in 30 days for 1948 Philadelphia Warriors, the finalists who emerged from the pairing of division champions.[3]

text: 1949: The playoffs were reorganized to match Eastern Division teams exclusively, and Western Division teams exclusively – in two halves of the bracket, so to speak. Thus the BAA tournament generated a playoff champion in each Division. (So did the NBA in each of three 1950 divisions, and so it has done in each half of the league since then.) The top four teams from each of the two divisions qualified. The quarterfinals and semifinals were renamed division semifinals and division finals, respectively, and both rounds were best-of-3. Thus any playoff team might be eliminated in two games, one home game. The best-of-7 final was unchanged.

text:
Division semifinals
Best-of-3

Division finals
Best-of-3

BAA finals
Best-of-7

E1

E4

E1

Eastern Division

E2

E2

E3

E1

W2

W1

W4

W1

Western Division

W2

W2

W3

text:
1950: The BAA was renamed as the National Basketball Association (NBA). With a three-division setup, 12 teams now qualified for the playoffs, with the top four teams from each division meeting in the best-of-3 division semifinals. The winners met in the best-of-3 division finals. With three teams remaining, the surviving team with the best regular season record qualified directly for the finals while the other two teams met in a best-of-3 NBA semifinals.
1951: With the NBA reverting to a two-division setup; the division semifinals reverted to its original 1949 format with only eight teams qualifying. The division finals was extended to a best-of-5 format.

text:
Division semifinals
Best-of-3

Division finals
Best-of-5

NBA finals
Best-of-7

E1

E4

E4

Eastern Division

E2

E2

E3

E2

W3

W1

W4

W1

Western Division

W3

W2

W3

text:
1954: With only nine league members (soon to be eight), the number of playoff teams was cut down to six. The division semifinals was changed to a double round-robin format within the division, with the top three teams from each division qualifying (each team played four games). Following the round-robin games, the top two teams qualified for the best-of-three division finals, followed by the best-of-seven finals.
1955: The number of playoff teams remained at six, but the initial round-robin was dropped after one year in favor of giving the first-place team in each division a bye to the best-of-five division finals. Teams which placed second and third played a best-of-three division semifinal. In 1955 the byes provided five and six extra days idle for the first-place teams.[7]
1958: The division finals was extended to a best-of-seven format.
1961: The division semifinals were extended to a best-of-five format.

text:
Division semifinals
Best-of-3 (1955–1960),
Best-of-5 (1961–1966)

Division finals
Best-of-5 (1955–1957),
Best-of-7 (1958–1966)

NBA finals
Best-of-7

E1

Eastern Division

E3

E2

E3

E3

W1

W1

Western Division

W2

W2

W3

text: The 1961 to 1966 tournaments alone combined initial byes for seeded teams with best-of-five initial series for unseeded teams. The 1961 byes provided five and seven extra days idle for the first-place teams. By 1966 the schedule provided more rest for the first-round participants with byes of 11 and eight extra days idle.[8]

text:
1967: The number of playoff teams was expanded to eight once more. The division semifinals now included the fourth-best team in each conference. The first-placed teams no longer received a bye. They were matched against the fourth-placed teams in the best-of-5 division semifinals.
1968: The division semifinals was extended to a best-of-seven format.

text:
Division semifinals
Best-of-5 (1967),
Best-of-7 (1968–1970)

Division finals
Best-of-7 (1968–1970)

NBA finals
Best-of-7

E1

E4

Eastern Division

E2

E3

W1

W4

Western Division

W2

W3

text: 1970: With an increased number of teams, the divisions were upgraded into conferences, which were then split into two divisions. Eight teams still qualified, four from each conference. The two division winners were guaranteed at least a #2 seed, and the two best non-division winners from each conference qualified as third and fourth seeds. Hence, the division semifinals and division finals came to be known as conference semifinals and conference finals, respectively.

text:
Conference semifinals
Best-of-7

Conference finals
Best-of-7

NBA finals
Best-of-7

E1*

E4

Eastern Conference

E2*

E3

W1*

W4

Western Conference

W2*

W3

text: 1975: The number of playoff teams was expanded from eight to ten. A first round was introduced which matched the fourth and fifth seeds in each conference in a best-of-3 first round series, while the top three seeds received a bye. This is similar to the system used in the NFL from 1978 to 1989.

text:
First Round
Best-of-3

Conference semifinals
Best-of-7

Conference finals
Best-of-7

NBA finals
Best-of-7

E1*

E4

E4

E5

Eastern Conference

E2*

E3

W1*

W4

W4

W5

Western Conference

W2*

W3

text: 1977: The number of playoff teams was expanded from 10 to 12. The first round now included the sixth best team in each conference, which was matched against the third seed. Only the division winners received byes to the next round. This is similar to the format currently used by the NFL.

text:
First Round
Best-of-3

Conference semifinals
Best-of-7

Conference finals
Best-of-7

NBA finals
Best-of-7

E1*

E4

E5

Eastern Conference

E3

E6

E2*

W1*

W4

W5

Western Conference

W3

W6

W2*

text: The 1983 tournament is the latest to incorporate first-round byes for seeded teams. The first-round best-of-three series tapped off on Tuesday and Wednesday, April 19 and 20; the second-round best-of-sevens on Sunday to the following Wednesday, April 27. Counting from Tuesday the byes provided five to eight extra days idle.[9]

text: 1984: The playoffs were expanded from 12 teams to 16 teams. All teams now participated in the first round, which was extended to a best-of-five series.

text:
Conference quarterfinals
Best-of-5

Conference semifinals
Best-of-7

Conference finals
Best-of-7

NBA finals
Best-of-7

E1*

E8

E4

E5

Eastern Conference

E3

E6

E2*

E7

W1*

W8

W4

W5

Western Conference

W3

W6

W2*

W7

text: 2003: The first round was extended to a best-of-seven series. This change arguably benefitted the higher seeds as it reduced the likelihood of an upset by a lower seed. It also meant that a team that swept their series 4–0 might have to wait up to two weeks to play their next series against a team that had won 4–3.

text:
Conference quarterfinals
Best-of-7

Conference semifinals
Best-of-7

Conference finals
Best-of-7

NBA finals
Best-of-7

E1*

E8

E4

E5

Eastern Conference

E3

E6

E2*

E7

W1*

W8

W4

W5

Western Conference

W3

W6

W2*

W7

text: 2005: Each conference was realigned into three divisions with each division winner qualifying for a top-three seed regardless of record. The next best five teams from each conference also qualify for the playoffs.

text:
Conference quarterfinals
Best-of-7

Conference semifinals
Best-of-7

Conference finals
Best-of-7

NBA finals
Best-of-7

E1*

E8

E4

E5

Eastern Conference

E3*

E6

E2*

E7

W1*

W8

W4

W5

Western Conference

W3*

W6

W2*

W7

text:
2007: To address the criticisms of having each division champion guaranteed a top-three seed, regardless of record, the rules were changed such that the division winners are now only guaranteed a top-four seed. The team with the second-best record in the conference is now guaranteed the second seed, even if it finishes second in its own division. This ensures that the two best teams in the conference cannot meet until the conference finals at the earliest. The previous system raised the prospect of the two best teams in the conference being seeded 1 and 4 if they play in the same division, thus forcing them to play each other in the second round (given no upsets).

Note: In the example below, the East's #2 seed is not a division champion.

text:
Conference quarterfinals
Best-of-7

Conference semifinals
Best-of-7

Conference finals
Best-of-7

NBA finals
Best-of-7

E1*

E8

E5

E4*

Eastern Conference

E3*

E6

E2

E7

W1*

W8

W5

W4

Western Conference

W3*

W6

W2*

W7

text: 2016: While the playoff bracketing did not change, qualification criteria were changed. The teams with the eight best records in each conference receive playoff berths, with no automatic berths nor guaranteed top-four seed placement for division champions.

text: Team roster[edit]

text: Playoff teams must identify their postseason roster before the playoffs begin. They are allowed up to 15 players and can designate two as inactive for each game.[10] Players are eligible to be on a team's playoff roster provided they were on the team for at least one regular season game, and were not on another NBA team's roster after March 1.[11] Previously[when?], playoff rosters were limited to 12 players who were named before the playoffs began.[10]

text: Records and statistics[edit]

text:
Only five 8th seeded teams have managed to win a series versus the number 1 seeded team: The Denver Nuggets eliminated the Seattle SuperSonics 3–2 in 1994. The New York Knicks eliminated the Miami Heat 3–2 in 1999. The Golden State Warriors defeated the Dallas Mavericks 4–2 in the 2007 Western Conference First Round (becoming the first 8 seed to beat a 1 seed in the best of 7 format). In 2011, the Memphis Grizzlies beat the San Antonio Spurs, 4–2 and in 2012, the Philadelphia 76ers beat the Chicago Bulls 4–2.
The 1999 Knicks are the only 8th seeded team ever to reach the NBA finals. No 8th seeded team has won the NBA finals.
The 1956–57 St. Louis Hawks, 1958–59 Minneapolis Lakers and the 1980–81 Houston Rockets are the only teams with losing records (34-38, 33–39 and 40–42, respectively) to make it to the NBA finals. In 1981 the Houston Rockets' opponent in the Western Conference Finals, the Kansas City Kings, also had a losing record (40–42).
The 1994–95 Houston Rockets, a sixth seed with a record of 47–35, were the lowest seeded team to win the NBA finals. In the NBA finals, the Rockets swept the Orlando Magic (57–25) in four games. In doing so, the Rockets defeated four teams that had won 50 or more games during the regular season (Utah Jazz at 60–22, Phoenix Suns at 59–23, San Antonio Spurs at 62–20 and Orlando at 57–25), which had never been done before. They are also the only team to have won an NBA title without having home-court advantage during any round of the playoffs.
The Golden State Warriors own the longest NBA playoff winning streak for a single postseason with 15 straight wins in the 2017 playoffs.
Of all the teams with multiple NBA finals appearances, the Chicago Bulls are the only team to have never lost in the finals, winning 6.
The Boston Celtics possess the most overall NBA finals series wins with an overall record of 17–4. The Los Angeles/Minneapolis Lakers have played in the most NBA finals series (31) with an overall record of 16–15.
The longest active playoff appearance streak currently belongs to the San Antonio Spurs with 21 consecutive appearances in the playoffs, beginning in the 1997–98 NBA season. The longest ever streak of playoffs appearances in a row belongs to the Syracuse Nationals/Philadelphia 76ers, who made the playoffs 22 straight years from the 1949–50 season to the 1970–71 season.
In 1983, under the bye-7-7-7 system, the Philadelphia 76ers attained the best record of 12-1, having only lost in Game 4 of the Eastern Conference Finals against the Milwaukee Bucks.
In 2001, under the best of 5-7-7-7 system, the Los Angeles Lakers attained the best record of 15-1, having only lost in Game 1 of the Finals against the Philadelphia 76ers.
In 2017, under the best of 7-7-7-7 system, the Golden State Warriors attained the best record of 16-1, having only lost in Game 4 of the Finals against the Cleveland Cavaliers. The Warriors and Cavaliers came into the Finals with a combined record of 24-1, with the Cavaliers having only lost in Game 3 of the Eastern Conference Finals against the Boston Celtics.

text: Playoff appearances[edit]

text: Current as of 2018 NBA Playoffs

text: Appearances by active teams[edit]

text:
Team
Appearances[12]

Los Angeles Lakers
60 [A]

Boston Celtics
55

Philadelphia 76ers
48 [B]

Atlanta Hawks
46 [C]

Detroit Pistons
41 [D]

New York Knicks
41

San Antonio Spurs
38 [E]

Chicago Bulls
35

Golden State Warriors
34 [F]

Portland Trail Blazers
34

Houston Rockets
32 [G]

Milwaukee Bucks
30

Oklahoma City Thunder
30 [H]

Phoenix Suns
29

Sacramento Kings
29 [I]

Washington Wizards
29 [J]

Utah Jazz
27 [K]

Indiana Pacers
25 [E]

Denver Nuggets
24 [E]

Cleveland Cavaliers
22

Dallas Mavericks
21

Miami Heat
20

Brooklyn Nets
19 [E][L]

Orlando Magic
14

Los Angeles Clippers
13 [M]

Charlotte Hornets
10 [N]

Memphis Grizzlies
10

Toronto Raptors
10

Minnesota Timberwolves
9

New Orleans Pelicans
7 [N]

text:
Jump up ^ Includes appearances as the Minneapolis Lakers (1947–1960).
Jump up ^ Includes appearances as the Syracuse Nationals (1946–1963).
Jump up ^ Includes appearances as the Tri-Cities Blackhawks (1946–1951), the Milwaukee Hawks (1951–1955), and the St. Louis Hawks (1955–1968).
Jump up ^ Includes appearances as the Fort Wayne Pistons (1949–1957).
^ Jump up to: a b c d Does not include appearances in the American Basketball Association (ABA) playoffs. Per the conditions of the ABA–NBA merger, the NBA does not officially recognize the ABA history, playoffs and records.
Jump up ^ Includes appearances as the Philadelphia Warriors (1946–1962) and the San Francisco Warriors (1962–1971).
Jump up ^ Includes appearances as the San Diego Rockets (1967–1971).
Jump up ^ As part of the 2008 relocation settlement with the City of Seattle, the Thunder officially shares its history with that of the Seattle SuperSonics (1967–2008).[13]
Jump up ^ Includes appearances as the Rochester Royals (1948–1957), the Cincinnati Royals (1957–1972), the Kansas City-Omaha Kings (1972–1975), and the Kansas City Kings (1975–1985).
Jump up ^ Includes appearances as the Chicago Packers (1961–1962), the Chicago Zephyrs (1962–1963), the Baltimore Bullets (1963–1973), the Capital Bullets (1973–1974), and the Washington Bullets (1974–1997).
Jump up ^ Includes appearances as the New Orleans Jazz (1974–1979).
Jump up ^ Includes appearances as the New Jersey Nets (1977–2012).
Jump up ^ Includes appearances as the Buffalo Braves (1970–1978).
^ Jump up to: a b The New Orleans Pelicans were originally named the Charlotte Hornets, and moved to New Orleans in 2002. A new team, the Charlotte Bobcats, was then established in 2004. When the Charlotte team reclaimed the Hornets name in a 2014 agreement, the Charlotte team also reclaimed the history of the original Hornets; as such, the New Orleans Pelicans were established in 2002, and the Bobcats/Hornets rejoined the NBA in 2004.[14]