ACCT 304 AUDITING
Audit Reporting
Audit Reporting
• The auditor’s report should contain a clear expression of the auditor’s opinion on the financial statements.
• The objective of an audit of financial statements is
to enable the auditor to express an opinion
whether the financial statements are prepared, in
all material respects, in accordance with the
applicable financial reporting framework.
Audit Reporting
• Unless required by law or regulation to use different wording, the auditor’s opinion on a complete set of general purpose financial statements prepared in accordance with a financial reporting framework that is designed to achieve fair presentation states whether 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.
Dr. Bedi, Mrs. Welbeck and Mr. Donkor Slide 3
Benefits of Audit Reports
• The audit report provides the reader with the opinion of the auditor on the report.
• It is the major means of communication between the auditor and readers.
• It gives an indication that the financial statement has been audited.
• It provides assurance to readers.
Types of Audit Reports
• There two main categories of types of audit reports:
– Condensed Audit Report – Long Form Audit Report
• An audit report can be
– Unqualified/Unmodified audit report – Qualified/Modified audit report
Unqualified or Unmodified Report
• The unqualified report is the audit report which auditors issue if the financial statement in all respects complies with the applicable reporting framework.
• This report therefore is issued if the auditor’s
evidence shows that the financial statements
gives a true and fair view without any
reservations.
Conditions for Standard Unqualified Audit Report
• All financial statements are included.
• Applicable standards have been followed in all respects on the engagement.
• Sufficient evidence has been accumulated to conclude that the applicable standards of field work have been met.
• The financial statements are presented in accordance with generally accepted accounting principles.
• There are no circumstances requiring the addition of an explanatory paragraph or modification of the wording of the report.
Dr. Bedi, Mrs. Welbeck and Mr. Donkor Slide 7
Kinds of Unqualified Reports
• ‘Normal’ unqualified reports
• Unqualified report but with a paragraph on
‘emphasis of matter’
– Limitation of scope
– Inherent Uncertainty (e.g. Lost of receipt book)
Qualified or Modified Reports
• The qualified report is the audit report which auditors issue if the financial statements do not comply in all respect with the applicable reporting framework.
• Auditors issue such reports if the financial
statements show any other view other than
only true and fair
Kinds of Qualified Reports
Reason Material Perverse
Limitation of Scope
That is inability to carry out audit procedures (perhaps due to lack of accounting records or information and explanations from
management)
‘Except for’ qualified opinion/report.
The auditor will issue an
‘except for’ qualified
report if the matter due to limitation of scope cannot be audited is material.
Disclaimer of opinion
The auditor will issue a ‘disclaimer of opinion’ if the matter due to
limitation of scope cannot be audited is material and pervasive.
Disagreement
The auditor may disagree with the management on several issues such as:
-inappropriate accounting policies
-regarding facts and amounts such as bad debts.
-Regarding the extent of disclosure of facts and amounts.
-regarding compliance with legislation or other requirements.
Except for’ qualified opinion/report.
The auditor will issue an
‘except for’ qualified
report if the matter due to disagreement is material.
Adverse Opinion The auditor will issue an ‘adverse opinion’ if the matter due to disagreement is material and pervasive.
Basis of Opinion
• The auditor must evaluate the conclusions drawn from the audit evidence obtained as the basis for forming an opinion on the financial statements.
• Whether the financial statements taken as a whole are free from material misstatement
• Whether 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
Compliance with Reporting Framework Means
• The accounting policies selected and applied are consistent with the financial reporting framework and are appropriate in the
circumstances.
• The accounting estimates made by management are reasonable in the circumstances.
• The information presented in the financial statements, including accounting policies, is relevant, reliable, comparable and
understandable.
• The financial statements provide sufficient disclosures to enable users to understand the effect of material transactions and events on the information conveyed in the financial statements. For example, in the case of financial statements prepared in accordance with International Financial Reporting Standards (IFRSs), the entity’s financial position, financial performance and cash flows.
Format of the Audit Report
• Companies Code, 1963 (Act 179)-5th Schedule
• ISA’s standard Format
Companies Code, 1963 (Act 179)-5th Schedule
• The fifth Schedule of Act 179 gives certain matters that must expressly be stated in auditors’ report. The matters are as follows:
– Whether they have obtained all the information and explanations which to be the best of their knowledge and belief were necessary for the purpose of their audit.
– Whether, in their opinion, proper books of account have been kept by the company, so far as appears from their examination of those books, and proper returns adequate for the purposes of their audit have been received from branches not visited by them.
– Whether, the company’s balance sheet and, unless it is framed as a consolidated profit and loss account, profit and loss account dealt with by the report are in agreement with the books of accounts and returns.
– Whether, in their opinion and to the best of their information and according to the explanation given them, the said accounts give all the information required by this Code in a manner so required and give a true and fair view,
• in the case of the balance sheet, of the state of the company’s affairs at the end of its financial year, and
• in the case of the profit and loss account, of the profit or loss for its financial year,
In the case of a holding company submitting group accounts, whether in their opinion, the group accounts have been properly prepared in accordance with the provisions of this Code so as to give a true and fair view of the state of affairs and profit or loss of the company and its subsidiaries dealt with hereby so far as concerns the interest of the company or, as the case may be, so as to give a true and fair view thereof subject to the non-disclosure of any matter, to be indicated in the report, which by virtue of Part IV of the Fourth Schedule to this Code are not required to be disclosed
Sections of Standard Audit Report in Accordance with ISA
• Title
• Addressee
• Introductory paragraph
• Management’s responsibility for the financial statements
• Auditor’s responsibility
• Basis of Opinion
• Auditor’s opinion
• Other reporting responsibilities
• Auditor’s signature
• Name and ICAG Membership Number
• Date of the auditor’s report
• Auditor’s address
Sample Audit Reports
• As reported in annual reports
• Dailies
Qualified Reports
• Usually, the reason is discussed as the last paragraph under the basis of opinion
Reports for Financial Statements of Banks
• In expressing an opinion on the bank’s financial statements, the auditor:
– Adheres to any specific formats and terminology specified by the law, the regulatory authorities, professional bodies and industry practice; and
– Determines whether adjustments have been made to the accounts of foreign branches and subsidiaries that are included in the consolidated financial statements of the bank to bring them into conformity with the financial reporting framework under which the bank is reporting.
The Report of Banks
• The sections remains the same
• The section on other reporting requirements must
quote the relevant sections of the Banking Act and the Companies required to be expressly stated in the audit report
Report on Special Audits
• ISA 800 - “The Auditor's Report on Special Purpose Audit
• Usually not a full scale financial statement audit
• Any item in a financial statement
Report on a Statement of Cash Receipts and Disbursements
AUDITOR’S REPORT TO ...
We have audited the accompanying statement of ABC Company’s cash receipts and disbursements for the year ended December 31, 19X1.3 This statement is the responsibility of ABC Company’s management. Our responsibility is to express an opinion on the accompanying statement based on our audit.
We conducted our audit in accordance with International Standards on Auditing (or refer to relevant national standards or practices).
Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The Company’s policy is to prepare the accompanying statement on the cash receipts and disbursements basis. On this basis revenue is recognized when received rather than when earned, and expenses are recognized when paid rather than when incurred.
In our opinion, the accompanying statement gives a true and fair view of (or presents fairly, in all material respects) the revenue collected and expenses paid by the Company during the year ended December 31, 19X1 in accordance with the cash receipts and disbursements basis as described in Note X.
AUDITOR Date Address
Report on Financial Statements Prepared on the Entity’s Income Tax Basis
AUDITOR’S REPORT TO ...
We have audited the accompanying income tax basis financial statements of ABC Company for the year ended December 31, 19X1.4 These statements are the responsibility of ABC Company’s management.
Our responsibility is to express an opinion on the financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing (or refer to relevant national standards or practices). 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.
In our opinion, the financial statements give a true and fair view of (or present fairly, in all material respects) the financial position of the Company as of December 31, 19X1 and its revenues and expenses for the year then ended, in accordance with the basis of accounting used for income tax purposes as described in Note X.
AUDITOR
Report on Accounts Receivables
AUDITOR’S REPORT TO ...
We have audited the accompanying schedule of accounts receivable of ABC Company for the year ended December 31, 19X1.5 This schedule is the responsibility of ABC Company’s management. Our responsibility is to express an opinion on the schedule based on our audit.
We conducted our audit in accordance with International Standards on Auditing (or refer to relevant national standards or practices). Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the schedule is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the schedule. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the schedule of accounts receivable gives a true and fair view of (or presents fairly, in all material respects) the accounts receivable of the Company as of December 31, 19X1 in accordance with ...
AUDITOR
Confirming Compliance with IFRS
• International Auditing Practice Statement 1014 (IAPS 1014)
• Examples have arisen of entities stating that their financial statements have been prepared in accordance with IFRSs when, in fact, they have not complied with all the requirements that IFRSs Impose
• An unqualified opinion may be expressed only when the auditor is able to conclude 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
• In all other circumstances, the auditor is required to disclaim an opinion or to issue a qualified or adverse opinion depending on the nature of the circumstances
Report on Non-compliance
“Note X to the financial statements indicates that the financial statements have been prepared in accordance with [relevant national financial reporting framework] and International Financial Reporting Standards. As discussed in Note Y to the financial statements, the Company has investment properties in the amount of $X that are carried at cost less accumulated depreciation.
This accounting is required by [relevant national financial reporting framework] and permitted by International Financial Reporting Standards. The fair value of these investment properties of $X has not been disclosed. Such disclosure is not required by [relevant national financial reporting framework], but is required by International Financial Reporting Standards.
In our opinion, the financial statements give a true and fair view of (or ‘present fairly, in all material respects’) the financial position of the Company as of December 31, 20X1, and of its financial performance and its cash flows for the year then ended in accordance with [title of national financial reporting framework with reference to the country of origin] (and comply with [refer to relevant statutes or law]), and, except for the effect on the financial statements of the matter referred to in the preceding paragraph, the financial statements give a true and fair view of (or
‘present fairly, in all material respects’) the financial position of the Company as of December 31, 20X1, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.”
Non-Audit Engagements
• Review of Financial Statement
– Presentation and disclosure – Completeness
– Measurement
– Compliance with reporting framework – Analytical procedures
Agreed-Upon Procedures
• Examine the document
• Examine the reporting guidelines
• Assess the extent of compliance
• Report thereon
Compilation of Financial Statements
• Obtain a trial balance
• Obtain adjusting events
• Obtain relevant source data
• Prepare the financial statements
• Submit a draft
• Review the draft
• Submit the final work
Examination of Prospective Information
• Examine reasonableness of information
• Examine if it includes all items
• Examine the assumptions
• Ensure facts are correctly stated
• Check inflationary trends
Design of Accounting Systems
• Obtain current status quo
• Identify risk
• Prescribe procedures to reduce the risk
• Develop flow charts
• Prepare a manual
Reporting Significant Audit Matters
• Requirements of ISA 701 Communicating Key Audit Matters
• Pros and Cons of ISA 701
