Final answer:
Audit reports for nonpublic entities differ from those for public entities in terms of the complexity of the opinion paragraph, the regulatory framework applied (PCAOB standards for public entities versus GAAS for nonpublic), and the requirement for public entities to include an assessment of internal controls.
Step-by-step explanation:
The audit report for nonpublic entities and public entities have several key differences, primarily shaped by different regulatory environments and stakeholder requirements. Here are three primary differences:
- Opinion Paragraph: In a public entity audit report, the opinion paragraph is more detailed, often including references to the Public Company Accounting Oversight Board (PCAOB) standards. For nonpublic entities, references to the PCAOB are not required, and the opinion could be less complex.
- Regulatory Framework: Public entities are required to follow the standards set by the PCAOB, whereas nonpublic entities may follow the Generally Accepted Auditing Standards (GAAS) issued by the American Institute of Certified Public Accountants (AICPA), which can lead to variance in report structure and content.
- Internal Controls: Reports for public companies must include an assessment of the effectiveness of the entity’s internal controls over financial reporting due to Sarbanes-Oxley Act requirements. This is generally not required for nonpublic entities unless specifically requested.
These differences reflect the distinct demands for transparency and control required by investors and regulators of publicly traded companies compared to private or nonpublic entities.