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What is the independent auditor's report on the financial statements? The independent auditor's report on the financial statements provides the auditor's opinion (or dis- claimer of an opinion) on whether the financial statements are fairly presented. This report has at least three paragraphs. The first or introduc- tory paragraph identifies the subject of the audit and defines management's and the auditor's dif- fering responsibilities (i.e., management is re- sponsible for the financial statements, the auditor is responsible for determining if those statements are fairly presented). The second or scope paragraph provides general information concerning the auditing standards followed, as well as the nature and limitations of a financial statement audit. The third or opinion paragraph sets forth the auditor's considered assessment of whether the financial statements are fairly pre- sented in accordance with GAAP. The auditor's report on the fair presentation of the financial statements also may contain addi- tional paragraphs describing the auditor's re- sponsibility for materials accompanying the audited financial statements and clarifying any special circumstances surrounding the auditor's opinion (e.g., significant unresolved uncertain- ties). In Yellow Book audits (including Single Audits), readers also will be referred to related reports on compliance and internal controls. Fur- thermore, aspecial paragraph sometimes will be inserted immediately preceding the opinion paragraph to explain circumstances that pre- cluded the auditor from issuing an unqualified opinion (see next question). 3Q AN ELECTED OFFICIAL'S GUIDE What is a "material weakness"? Some reportable conditions are more serious than others. Specifically, some reportable condi- tions are of such magnitude that they could po- tentially result in a material (i.e., significant) misstatement of the financial statements. Re- portable conditions of this type are known as material weaknesses. One example of a potential material weakness would be a government's fail- ure to open monthly bank statements to recon- cile the cash balances reported there to the cash balances reported in the accounting records. By definition, all material weaknesses are re- portable conditions. Not all reportable condi- tions, however, are material weaknesses. Auditors generally distinguish reportable condi- tions that are material weaknesses from those that are not. TO AUDITING 1~