Aud589- INDEPENDENT AUDITOR REPORT ( FINAL STAGE OF AUDIT REPORT PROCESS)

auditor report

1. Independent Auditor’s Report

2. LEARNING
OBJECTIVES
•Able to:
§Explain the contents of auditor’s
report
§Explain the different types of
auditor’s report
§Understand the different
circumstances under which
each type of auditor’s report is
issued
2

3. §Audit report is the final stage in the entire audit process. It is a written communication of audit findings to the shareholders.
§It may also be read by others such as bankers, creditors and other parties who use the information in the financial statements
§Requirement for the auditor to report to the members of the company on the accounts presented at AGM
§To avoid confusion to the readers, it is important for the auditing profession to adopt conventional and uniform wording in auditor’s reports

4. 1.Title
2.Addressee
3.Auditor’s opinion
4.Basis for opinion
5.Key audit matters (KAM)
6.Management’s responsibility for the financial statements
7.Auditor’s responsibility for the audit of the financial statements
8.Other Reporting Responsibilities
9.Name of the engagement partner
10.Signature of the Auditor
11.Auditor’s Address
12.Date of the auditor’s report
Refer ISA700

5. 2. Addressee
1. Report title
Introductory/scope
Paragraph
3. Auditor's
opinion

6. 4. Basis for
opinion
5. KAM
Auditor’s ethical
disclaimer

7. 6. Management’s
responsibilities
7. Auditor’s
responsibilities

8. 8. Other reporting responsibilities

9. 9. Name of the
engagement
partner
10. Signature of
the engagement
partner
Name of the firm
11. Auditor’s
address
12. Date of the
auditor’s report

10. •Thosemattersthat, in theauditor'sprofessional judgment,
were of most significance in theauditof the financial
statements of the current period.
•KAMs are selected frommatterscommunicated with those
charged with governance.
•The overall objective of communicatingKAMsistoprovide
insighttothe users of thefinancial reportastothe most
significant and/or challenging aspects of the audit for the
current period.
•It isexpectedthat the numberof KAMs reported willvary
between entities, even for those entities in the same
industry, and even for the same entity year on year. Since
the concept ofKAMis relative it is envisaged that therewill
alwaysbe atleast onefor eachaudit, except in rare circumstances.Refer ISA701

12. 1.Unmodified - Standard Unqualified Audit Report
1.Modified Unqualified Audit Report – Emphasis of Matter/Other Matter Paragraph
2.When an auditor is not able to issue an unqualified report either due to scope limitation or disagreement, he may issue one of the following three types of modified audit report:
1.Qualified/Except for
2.Disclaimer
3.AdverseRefer ISA705
Refer ISA706
Refer ISA700

13. Standard Unqualified Audit Report
Elements of unqualified report:
-All statements – b/s, income statement, CF statement are included in the f/s
-The ISA have been followed in all respects
-Sufficient evidence accumulated, and auditor has conducted the audit with due care
-The f/s are presented in accordance with approved accounting standards + adequate disclosures
-No circumstances requiring the addition of an explanatory paragraph or modification of the wording of the report
Matters that do not affect auditor’s opinion
and auditor concludes that financial
statements are free of material statements

14. UNQUALIFIED OPINION
§An unqualified opinion should be expressed when
the auditor concludes that the financial statements
give a true and fair view (or are presented fairly, in
all material respects) in accordance with the
applicable financial reporting framework.
§An unqualified opinion also indicates implicitly that
any changes in accounting principles or in the
method of their application, and the effects thereof,
have been properly determined and disclosed in the
financial statements.

15. Modified Unqualified Audit Report – Emphasis of Matter/Other Matter Paragraph
Why auditor issued modified unqualified report?
-Lack of consistent application of approved accounting standards
-Substantial doubt about going concern
-Auditor agrees with departure from promulgated accounting principles
-Emphasis of any matter
-Reports involving other auditor
Matters that do not affect auditor’s opinion
and financial statements show true and fair
view but it is important to provide
additional information

16. MODIFIED REPORT
§The auditor should modify the auditor’s report by
adding a paragraph to highlight a material matter
regarding a going concern problem.
§The auditor should consider modifying the auditor’s
report by adding a paragraph if there is a significant
uncertainty (other than a going concern problem),
the resolution of which is dependent upon future
events and which may affect the financial
statements.
§An uncertainty is a matter whose outcome depends
on future actions or events not under the direct
control of the entity but that may affect the financial
statements.

17. When an auditor is not able to issue an
unqualified report either due to scope
limitation or disagreement, he may issue one
of the following three types of report
1.Qualified
2.Disclaimer
3.Adverse

Matters that do affect auditor’s
opinion

18. §Circumstances:
a)There is a limitation on the scope of the auditor’s work; or
b)There is a disagreement with management regarding
the acceptability of the accounting policies selected,
the method of their application or the adequacy of
financial statement disclosures.
lThe circumstances described in (a) could lead to
a qualified opinion or a disclaimer of opinion.
lThe circumstances described in (b) could lead to
a qualified opinion or an adverse opinion.

19. A QUALIFIED OPINION
§should be expressed when the auditor concludes
that an unqualified opinion cannot be expressed but
that the effect of any disagreement with
management, or limitation on scope is not so
material and pervasive as to require an adverse
opinion or a disclaimer of opinion.
§A qualified opinion should be expressed as being
‘except for’ the effects of the matter to which the
qualification relates.

20. A DISCLAIMER OF OPINION
§should be expressed when the possible effect of a limitation on scope is
so material and pervasive that the auditor has not been able to obtain
sufficient appropriate audit evidence and accordingly is unable to
express an opinion on the financial statements.

21. AN ADVERSE OPINION
§should be expressed when the effect of a disagreement is so material and
pervasive to the financial statements that the auditor concludes that a
qualification of the report is not adequate to disclose the misleading or
incomplete nature of the financial statements.

22. §Whenever the auditor expresses an opinion that is
other than unqualified, a clear description of all the
substantive reasons should be included in the report
and, unless impracticable, a quantification of the
possible effect(s) on the financial statements.
§Ordinarily, this information would be set out in a
separate paragraph preceding the opinion or
disclaimer of opinion and may include a reference to
a more extensive discussion, if any, in a note to the
financial statements.