Audit report

Audit Report

Statement of Financial Analysis - BBA

The audit report is the final step in the audit process and the means by which the auditors communicate their opinion about the financial statements

Corporate Law and auditing standards sets out the requirements governing the format and content of the audit report

Parts of the Standard Audit Report


Basic elements of the audit report include:

Title

Addressee

Section describing audit scope

Managements ultimate responsibility for preparation of the financial statements

Auditor has conducted an independent audit in order to express an opinion

Audit conducted in accordance with Auditing standards

Audit procedures have been carried out on a test basis

Section expressing auditors opinion on the financial report

Auditors signature

Auditors address and

Date of audit report

TYPES of Audit Report


Two basic types of audit reports are issued;

Unqualified report or

Qualified report

Un Qualified Report


An unqualified report is issued when the auditor is satisfied that the financial statements present fairly the financial statements present fairly the financial position, financial performance and cash flows of the entity in accordance with accounting standards. Most reports are unqualified as most problems are resolved with management prior to the report.

Applies to quality of financial statements not to quality of entity as investment or credit risk

Conditions for Standard

Unqualified Audit Report


1. All financial statements are included.

2. Sufficient evidence has been accumulated

3. The financial statements are presented in accordance with generally accepted accounting principles.

4. There are no circumstances requiring the addition of an explanatory paragraph or modification of the wording of the report.

Unqualified Report with Explanatory Paragraph


1. Lack of consistent application of generally accepted accounting principles

2. Substantial doubt about going concern

3. Auditor agrees with a departure from promulgated accounting principles

4. Emphasis of a matter

5. Reports involving other auditors

Substantial Doubt About Going Concern


1. Significant recurring operating losses or working capital deficiencies.

2. Inability of the company to pay its obligations as they come due.

3. Loss of major customers, the occurrence of uninsured catastrophes.

4. Legal proceedings, legislation that might jeopardize the entity’s ability to operate.

Auditor Agrees with a Departure

from a Promulgated Principle


The auditor must be satisfied and must state and explain, in a separate paragraph or paragraphs in the audit report, that adhering to the principle would have produced a misleading result in that situation.

Emphasis of matter


Auditor may add an emphasis of matter section to the audit report whilst still expressing an unqualified opinion of the financial report

Purpose is to draw attention to relevant information to users of the audit report.

Circumstances;

Additional disclosures with which the auditor concurs

Inherent uncertainty (going concern) that is adequately disclosed

Inconsistent other information included with the audited financial reports

Subsequent events

Qualified Report


Where the auditor is unable to resolve problems or disagreements with management a qualified report will be issued. Circumstances leading to qualification of an audit report include;

Disagreement with management

Conflict between applicable financial reporting frameworks

Limitation of scope

Conditions for Qualified Audit Report

Issues Examples Immaterial Material Fundamental

or Extreme

Disagreement

with

management

1. Appropriateness of

accounting policies selected

E.g. management may not

depreciate building arguing

that value has been

maintained or increased since

acquisition –contravention of

IAS 16

2. Application of accounting

standard or appropriateness

e.g. disagreement over

provision for doubtful debts

amount

3. Adequacy of disclosures e.g.

company being sued for

damages but no disclosure as

a contingent liability

Unqualified

opinion

‘Except for ‘

opinion-

except for

the qualified

aspect the

statements

are fairly

presented

Adverse

opinion –

statements

are not fairly

presented –

misleading

and minimal

information

value to users


Conditions for Qualified Audit Report

Issues Examples Immaterial Material Fundamental

or Extreme

Conflict

between

applicable

reporting

frameworks

Application of an accounting policy is

allowed or required by statue but does

not result in a fair presentation in

accordance with accounting standards

Unqualified

opinion

‘Except

for

opinion’

Adverse

opinion

Limitation of

scope

Auditor is unable to collect sufficient

appropriate evidence from audit

procedures to enable them to form a

conclusion

Unqualified

opinion

‘Except

for

opinion’

Inability to

form an

opinion –

auditor is

unable to give

an opinion due

to limitations

on the audit

process


Qualified Opinion

A qualified opinion report can result from

a limitation on the scope of the audit or

failure to follow generally accepted

accounting principles.


Adverse Opinion

It is used only when the auditor believes

that the overall financial statements are

so materially misstated or misleading that

they do not present fairly the financial

position or results of operations and cash

flows in conformity with GAAP.


Disclaimer of Opinion

It is issued when the auditor is unable

to be satisfied that the overall financial

statements are fairly presented.


INTRODUCTORY PARAGRAPH

• Statement that

– Financial statements were audited

– Financial statements are management’s responsibility

– Auditor’s responsibility is to issue opinion

We have audited the accompanying consolidated balance sheet of The Procter & Gamble Company as of June 30, 2010 and the related consolidated statements of earnings, retained earnings, and cash flows for the period ended June 30, 2010. These financial statementsare the responsibility of the company’s management. Our responsibility is to express an opinion on these statements based on our audits.


SCOPE PARAGRAPH• Statement that

– Audit conducted in accordance with IAS– IAS requires planning, performing audit to obtain reasonable assurance

financial statements free from material misstatements– Audit includes

• Examining evidence on test basis• Evaluating accounting principles & estimates• Evaluating overall financial presentation

We conducted our audits in accordance with the International Accounting Standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


OPINION PARAGRAPH

• Statement of opinion

– Whether financial statements present fairly in all material respects

• Financial position

• Results of operations

• Cash flows

– In conformity with IAS

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the companies at June 30, 2010, and the results of their operations and their cash flows for the period ended June 30, 2010, in conformity with International Accounting Standards.


QUALIFIED OPINION

• Except for effects of a matter, financial statements present fairly in all other material respects

– Statements depart materially from IAS

– Management unable to justify material change in accounting principle

– Scope of audit materially limited

In our opinion, except for the effects of the accounting treatment for

good will as discussed in the preceding paragraph, the financial

statements referred to above present fairly …..


ADVERSE OPINION

• Management’s financial statements do not present fairly

– Financial statements depart from IAS

– Management unable to justify change in accounting principle

– Effects of departure so highly material that qualified opinion unwarranted

In our opinion, because of the effects of the matter discussed

in the preceding paragraph, the financial statements referred

to above do not present fairly in conformity with generally

accepted accounting principles ….


DISCLAIMER OF OPINION

Auditor does not express opinion

– Scope limitation so material auditor does not have reasonable basis to reach opinion

– Auditor is not independent of management

Because of the possible material effect of the matters

discussed in the preceding paragraph, we are unable to

express, and we do not express, an opinion on the financial

statements referred to above.


Date post:	17-Jul-2015
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Audit report

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