SCOPE SYLLIBUS FOR CHAPTER 55.1 UNDERSTAND THE NATURE OF AUDIT REPORT

5.1.1 DEFINE AUDIT REPORT ACCORDING TO THE STATUTORY REQUIREMENT.

5.1.2 STATE THE TYPES OF AUDIT REPORT :• UNMODIFIED REPORT• MODIFIED REPORT

5.1.3 PREPARE AND OVERVIEW EACH TYPES OF REPORT5.1.4 EXPLAIN THE SITUATIONS WHICH RESULTED IN EACH

TYPES OF THE AUDIT REPORT BEING RELEASED5.1.5 DISCUSS THE ELEMENTS IN EACH OF THE AUDIT REPORT5.1.6 DESIGN THE REPORT FOR EACH TYPE

5.2 KNOW THE AUDITOR’S RESPONSIBILITIES5.2.1 DESCRIBE AUDITOR’S RESPONSIBILITIES5.2.2 DISCUSS MATTERS THAT EFFECT AND DO NOT EFFECT THE AUDITOR’S RESPONSIBILITIES

AUDIT REPORT

• A legally required review of the accuracy of a company's or government's financial records. The purpose of a statutory audit is the same as the purpose of any other audit - to determine whether an organization is providing a fair and accurate representation of its financial position by examining information such as bank balances, bookkeeping records and financial transactions.

TYPES OF AUDIT REPORT

•CONSIST OF TWO TYPES UNMODIFIED REPORT

MODIFIED REPORT

UNMODIFIED REPORT

• As know as an unqualified report which mean as a clean report.

• Should be expressed when the auditor concludes that the financial statements give true and fair view (or presented fairly, in all material respects,) in accordance with the identified financial reporting framework.

• 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 statement.

MODIFIED REPORT

• As known as qualified report which mean auditor not be able to express an unqualified opinion when either of the following circumstances exist and, in the auditor’s judgment.

• 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 material and pervasive as to require an adverse opinion .

The effect of the matter is or may be material to the financial statements a) There is a limitation on the scope of the

auditor’s work orb) There is a disagreement with management

regarding the acceptability of the accounting policies selected, the method or their application or the adequacy of financial statement disclosures.

UNMODIFIED REPORT“MATTERS THAT NOT AFFECT THE AUDITOR’S OPINION”

• Unqualified opinion with emphasis of matter paragraph

• Unqualified opinion with emphasis of matter paragraph that have going concern is appropriate but a material uncertainty exist and adequate disclosure is made.

MODIFIED REPORT“MATTERS THAT DO AFFECT THE AUDITOR’S REPORT”

• Qualified opinion (emphasis of matter)• Disclaimer of opinion• Adverse opinion

LETS SEE HOW THE CHANGES ARE REFLECTED IN THE AUDITOR’S REPORT

• Refer the Notes

SITUATION WHICH RESULTED IN EACH TYPE

• UNMODIFIED REPORTHighlight a matter affecting the financial statements

which is included in a note to the financial statements that more extensively discusses the matter.

Does not affect the auditor’s opinion – ordinarily refer to the fact that auditor’s opinion is not qualified in this respect.

Highlight the material matter regarding a going concern problem.

• MODIFIED REPORTa) QUALIFIED OPINION

Should be expressed when the auditor concludes that an unqualified opinion cannot be expressed but that effect of any disagreement with management, or limitation on scope is not material and pervasive as to require an adverse opinion or disclaimer of opinion. A qualified opinion should be expressed as being “except for” the effect of the matter to which the qualification relates.

b) DISCLAIMER OPINIONShould be expressed when the possible affect

of a limitation on scope is so material and pervasive that the auditor has not been able to obtain sufficient appropriates audit evidence and accordingly is unable to express an opinion of the financial statements

• ADVERSE OPINIONShould be expressed when the effect of disagreement is so material and pervasive to the financial statement that the auditor concludes that a qualification of the

report is not adequate to disclose the misleading or incomplete nature of the financial statements.

ELEMENTS OF THE AUDIT REPORT• Ordinarily in the following layout :

a) Titleb) Addresseec) Opening or introductory paragraph

i. Identification of the financial statement auditedii. A statement of the responsibility of the entity’s management and the

responsibility of the auditor

d) Scope paragraph (describing the nature of an audit)i. A reference to the ISAs or relevant national standards or practicesii. A description of the work the auditor performed

e) Opinion paragraph containing an expression of opinion on the financial statements

f) Date of the reportg) Auditor’s address andh) Auditor’s signature

TITLE

• The auditor’s report should have an appropriate title. It may be appropriate to use the term “Independent Auditor” in the title to distinguish the auditor’s report from reports that might be issued by others, such as by officers of the entity, the board of director, or from the reports of other auditors who may not have to abide by the same ethical requirements as the independent auditor.

ADDRESSEE

• The auditor’s report should be appropriately addressed as required by the circumstances of the engagement and local regulations. The report is ordinarily addressed either to the shareholders or the board of directors of the entity whose financial statement are being audited.

OPENING OR INTRODUCTRY PARAGRAPH

• The auditor’s report should identify the financial statements of the entity that have been audited, including the date of and period covered by the financial statements.

• The report should include a statement that the financial statements are the responsibility of the entity’s management and a statement that responsibility of the auditor is to express an opinion on the financial statement based on the audit.

SCOPE PARAGRAPH

• The auditor’s report should describe the scope of the audit by stating that the audit was conducted in accordance with ISAs or in accordance with relevant national standards or practices as appropriate.

• The report should include a statement that the audit was planned and performed to obtain reasonable assurance about whether the financial statement are free of material misstatement.

• The auditor’s report should describe the audit as including :a) Examining , on a test basis, evidence to support

the financial statement amounts and disclosuresb) Assessing the accounting principles used in the

preparation of the financial statementsc) Assessing the significant estimates made by

management in the preparation of the financial statement and

d) Evaluating the overall financial statement presentation.

• The report should include a statement by the auditor that the audit provides a reasonable basis for the opinion.

OPINION PARAGRAPH

• The auditor’s report should clearly state the auditor’s opinion as to whether the financial statement give true and fair view (or are presents fairly, in all material respects) in accordance with the financial reporting framework and where appropriate, whether the financial statement comply with statutory requirements.

DATE OF REPORT

• The auditor should date the report as of the completion date of the audit. This informs the readers that the auditor has considered the effect on the financial statements and on the report of events and transactions of which the auditor became aware and that occurred up to that date.

• The auditor should not date the report earlier than the date on which the financial statement are signed or approved by management.

AUDITOR’S ADDRESS

• The report should name a specific location, which is ordinarily the city where the auditor maintains the office that has responsibility for the audit.

AUDITOR’S SIGNATURE

• The report should be signed in the name of the audit firm, the personal name of the auditor or both, as appropriate. The auditor’s report is ordinarily signed in the name of the firm because the firm assumes responsibility for the audit.

EXAMPLE THE REPORT FOR EACH TYPE

AUDITOR’S RESPONSIBILITIES

• Material versus immaterial misstatements• Reasonable assurance• Errors versus fraud• Professional skepticism• Fraud resulting from fraudulent financial

reporting versus misappropriation of assets

• 3 different types of audits• EXTERNAL AUDITS – Is an independent attestation performed by an

expert.– Auditor that expresses an opinion regarding the

presentation of financial statement.– They are also the one who do the attest service.

• Professional Skepticism– Material misstatement may exist in a financial

statement and auditors should plan their work on this basis.

– It makes clear even where auditors assess the risk of litigation or adverse publicity as very low, they must still perform sufficient procedure according that auditing standards.

INDEPENDENT AUDITOR

• To ensure the financial statements are objectively, free from bias, and manipulation and relevant to the need users.

INTERNAL AUDIT

• Is an independent activity established by management to examine and evaluate the organization’s risk management process and systems control and make recommendations for the achievement of company objectives.

• The current focus of internal audit is on adding value to an organization through risk control and reviewing all types of risk and recommending relevant controls.