AUDIT REPORT
Auditor Report (ISA 700, 701,705,706)
Audit Planning
Ascertaining, Recording and confirming
Accounting System & Internal Control
Test of Control
Substantive Test
Review & Evaluate the Audit Evidence
Audit Report
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AUDIT REPORT
(ISA 700,701, 705 & 706)
○ ISA 700: Forming an opinion & Reporting on FS is for circumstances
when the auditor is able to express an unqualified opinion and no
modification to the auditor’s report is necessary.
○ ISA 701: Communicating Key Audit Matters in the Independent Auditor’s
Report provides the requirement for auditors to include key audit
matters (KAM) that can enhance the communicative value of the
auditor’s report by providing greater transparency regarding the audit
that was performed.
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AUDIT REPORT
(ISA 700,701, 705 & 706)
○ ISA 705: Modifications to the opinion in the independent auditor’s
report establishes standards and provides guidance on the
modifications to this report for an emphasis of matter, a qualified
opinion, a disclaimer of opinion, or an adverse opinion.
○ ISA 706: Emphasis of matter Paragraphs and other matter paragraphs
in the independent auditor’s report draws users’ attention to a
matter or matters presented or disclosed in the FS that are
important/fundamental to users’ understanding.
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Statutory requirement with
regard to Audit Report: (as in Chapter 2)
Sec 261(1): A co that is not required by this Act to lodge FS with the
Registrar shall lodge with the Registrar a statement relating to the FS
of the co required to be circulated to its members, signed by the
auditor of the company –
(a) stating whether the co has in his opinion kept proper
accounting records and other books during the period covered by
those accounts
(b) stating whether the FS have been audited in accordance with
this Act
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(c) stating whether the auditor's report on the FS
was made subject to any qualification or opinion
under any applicable auditing stds, or included
comment made under subsection 266(3) and, if so,
particulars of the qualification or comment, and;
(d) stating whether as at the date to which the
FS has been made up, the company appeared to
have been able to meet its liabilities as and when
the liabilities fall due.
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Sec 266
(1): shall report to the members on the FS and on the co’s
accounting and other records related to the FS.
(2): state whether the FS are properly drawn up in
accordance with the AAS, given a true & fair view, and to
report any defect or irregularities
(3): to form an opinion whether;
- he obtained all the info
- proper accounting and other records have been kept
-return received from branches are adequate
- whether the consolidation methods taken were appropriate.
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TYPES OF AUDIT REPORT
● Standard unqualified/ unmodified audit report
● Unqualified/ unmodified audit report with
modified wording / emphasis of matter
● Qualified/ Modified audit report;
■ Qualified Opinion
■ Adverse opinion
■ Disclaimer opinion
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CONTENTS OF AR (1)
Title of report and addressee
Auditor’s Opinion
Basis for Opinion
Auditor’s independence
Going Concern basis of accounting
Key audit matters
Responsibilities for financial statements
Name of the engagement partner, Auditor’s
signature, Auditor’s address & Date of the report
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CONDITIONS FOR ISSUING STANDARD
UNQUALIFIED AUDIT REPORT (AR)
● The auditors have obtained, without any restriction, all the
information and explanations he required
● The financial info has been prepared in accordance with AAS &
presents a true & fair view of the transactions occurred during
the financial year
● There is adequate disclosure of all matters to present a true &
fair view of all financial information
● All auditors reporting duties under S.266 (1) – (3) have been
satisfied
● There are no circumstances requiring the addition of an
explanatory paragraph/modification of wording of the audit
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UNQUALIFIED with emphasis of Matter.
• Does not affect the auditor’s opinion (i.e. the FS is
true & fair)
• The auditor emphasize specific matters regarding
the FS
• Complete audit of the FS showing a true & fair view
• Auditor highlights a matter which was already
disclosed in the FS.
Eg:
Substantial doubt about going concern – ISA 570
Inconsistency in AAS application
Auditor agrees with a departure from a promulgate
principles (pg 588)
Reports involving other auditors (usually when other
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auditor audits the group’s subsidiary’s accounts)
Modified AUDIT REPORT
● Results from
An inherent uncertainty
A limitation on the scope of the audit
A disagreement with the management
● Issued only when the auditor has not been able
to accumulate all the evidence required by AAS
● Situations whereby the FS are not stated in
accordance with a particular AAS / not in
compliance with certain provisions of the Co.
Act 2016
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Definition of (1)
(for the purpose of preparing audit report)
1. Inherent Uncertainty
Situations which may affect the FS where by nature it means that
their outcome cannot be objectively/ reasonably determined.
Eg:
• Doubts regarding going concern of the client co. (substantial
operating loss, loss of key mgmt, loss of major
mkt/franchise/license, labour difficulties)
• Doubts as to the outcome of Long Term contracts
• Unresolved lawsuits
• Doubts on the ability of the firm to sell its product because of
impending changes in legislation
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Definition of (2)
(for the purpose of preparing audit report)
2. Limitation on the scope of the audit
Auditors unable to obtain all the information & explanations necessary for the
audits/ unable to accumulate sufficient appropriate evidence to determine
whether the FS are stated in accordance with AAS due to:
• Inability to carry an audit procedure considered necessary
• Absence of proper documents & acc records
• Client imposition, eg: the terms of engagement specify that auditor will not
carry out an audit procedure that the auditor believes is necessary
• Limitation imposed by circumstances i.e. beyond the control of the client or
auditor.
Eg :
the timing of the auditor’s appointment is such that auditor is unable to
physically observe the counting of inventories or perform other important
procedures
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Definition of (3)
(for the purpose of preparing audit report)
3. Disagreement
The auditor is able to form an opinion but this opinion differs
from the view expressed by management in the FS due to:
• Non-compliance with provisions of Co. Act 2016
• Non-conformity with AAS & other GAAP
• Disagreement with the facts/amounts included in the FS
• Inadequate disclosure of facts/amounts included in the FS
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Definition of (4)
(for the purpose of preparing audit report)
4. Material but not pervasive
Where the circumstances prompting the uncertainty or
disagreement is material BUT confined to one particular
aspect of the FS, so that it does not affect their overall
value of the FS to any particular user
5. Pervasive
Where the extent of the uncertainty or disagreement is
such that it will be pervasive to the overall view shown
by the FS, ie. the FS are or could be misleading
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Modified AUDIT REPORT –
EXCEPT FOR OPINION
Implies that the auditor is satisfied that the
overall FS are correctly stated “except for”
a specific aspect of them which material
or not pervasive
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Modified AUDIT REPORT
- ADVERSE OPINION
• Used when the auditor believes that the overall FS
are so materially misstated / misleading
• FS do not present a true & fair view of the fin position
• Can only arise when the auditor has knowledge after
an adequate investigation of the absence of
conformity
• Arises from a situation of disagreement with the
mgmt
• Used when condition is highly material & pervasive
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Modified AUDIT REPORT
- Disclaimer of Opinion
• Issued when the auditor is unable to satisfy
himself that the overall FS shows a true & fair
view
• Arise because of severe limitation on the
scope of the audit i.e. the auditor lacks of
knowledge
• Used when condition is highly material &
pervasive
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TABLE OF SUMMARY OF AUDIT OPINIONS
CIRCUMSTANCES MATERIAL & MATERIAL
NOT AND
PERVASIVE PERVASIVE
LIMITATION ON EXCEPT FOR/
SCOPE OF WORK QUALIFIED DISCLAIMER
(UNCERTAINTY)
EXCEPT FOR/
DISAGREEMENT QUALIFIED ADVERSE
Pervasiveness of an item in the FS will determine whether the auditor should
issue a qualified (an except for) opinion or disclaimer or adverse opinion
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AUDITOR’S REPORT
Question : Is the financial report presented fairly all material
respects in accordance with the Acc. Stds and all
relevant statutory requirement
YES NO
Issue an Unqualified Report Question ? Why are the financial
OR reports not presented fairly?
Unqualified Report with
Emphasis of Matter
Scope Limitation Disagreement with management
NO
Q? Is the matter NO Q? Is the matter
Issue an “Except Material & pervasive
Material & pervasive
For” opinion
YES YES
Issue a Modified Report with a
disclaimer Issue Modified Report with
Audit opinion an Adverse Opinion
Any questions?
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