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Introduction : What is Standard Audit Report (SAR) Audit reports are a collection of judgments about many matters including

management's application of accounting pronouncements, adequacy of management's disclosures, scope of the audit, risks of misstatement, materiality, and sufficiency and appropriateness of audit evidence. (Arens et al, 2006). The audit report stimulates the communication of economic information and intends to strengthen the credibility and reliability of the financial information prepared by management (Courtis, 1986). The intention of a standard audit report is to give reasonable assurance that an organisation's financial statements are reasonably presented in accordance with the applicable auditing standard (Bavishi, 1995). According to the Cohen Commission (1978), it states that SAR contained standardized alternative phrases rather than a single standard report form. The Chartered Financial Analysts (CFA) Institute (2008) mentioned that SAR included more specific information about auditors opinion, as well as identifies key risk area, significant changes in risk exposures and amount requiring judgments and involving uncertainty. Besides that, U.S Treasury Advisory Committee on the Auditing Profession (2008) reflects that changes in recent SAR make audit report more descriptive, including clarifying the auditor s role and limitation in detecting fraud. (Carcello, 2012) Currently, SAR is focusing on the effectiveness of internal control over financial reporting and SAR performed in accordance with PCAOB. Both of these changes were a direct result of the passage of the Sarbanes-Oxley Act (Carcello, 2012) The International Federation of Accountants (IFAC) has played a primary function in standardisation of audit and the qualified rules governing external control. Their intention is to enhance the improvement of the accounting profession by proposing standardised, high quality professional services in the public interest. (Charron, 1997)

Purpose & Usefulness of Standard Audit Reports Provides Confidence to Shareholders & Stakeholders Purpose : Standard Audit Report (SAR) provides many advantages to the users of audit report such as investor, money lender, creditor and many other agencies. SAR serves a primary purpose in helping to enforce accountability and provide confidence in financial reporting to respective shareholders and stakeholders of an organisation (Salehi, 2009). The SAR has developed over the feedback to corporate risks (Carcello, 2012). Directors are entrusted responsibility for managing the interactions of the company by the shareholders and the financial statements therefore became a most important factor for shareholders to hold the directors to accounts (Flint, 1971). SAR is a legal requirement under law which states that, the auditors are appointed by shareholders to generate and independent SAR. (Arens and Leobbecke, 2000). The SAR states whether in the auditors view the financial accounts (which are organised by and are the duty of the board of directors) reflects a true and fair analysis in accordance with the relevant financial reporting framework (Andersson and Emander, 2005). Besides that, SAR provides the stipulation of a judgment on whether the financial statements have been accurately prepared in accordance with the Act; concern of whether the organisation has kept appropriate accounting records; whether the accounts agree to the original financial records; and whether information given in the directors report is reliable with the accounts (Humphrey, 1992). The primary purpose of SAR in this context is one of accountability and audits help to reinforce trust and promote stability of an organisation. Satava et al. (2006) stress the importance of SAR restored public trust and credibility in a specific organization in the post-Enron world. According to Ernst & Young (2011), SAR benefits the investors and capital market by providing broader view of market across the world and facilitates strategic investment in capital market with reasonable confidence level. 2

USEFULNESS In a real business world, the majorities of shareholders and stakeholders have very little or zero amount of knowledge of accounting process. Thus, SAR will be very useful for those users in order to know the financial performances of their organizations. In order to creating good confidence level regarding an organization performance, SAR offered an independent opinion to the shareholders on the truth and fairness of the financial statements, whether the management have been appropriately prepared in accordance with the Companies Act and to inform by exception to the shareholders on the other needs of company law such as where, in the auditors judgement, proper accounting records have not been kept (Akeel, Lary, and Dennis 2012). Guiral (2007) states the statutory SAR helps to strengthen the confidences and trust in financial reporting and to support a well-ordered and dynamic economy. SAR increases the reliability of financial information provided to investors, owners, creditors and other users, contributed to financial stability as it provides assurance on the veracity of the financial health of all companies (Abbott and Parker, 2000). These assurances reduce the risks of misstatement, and in doing so, reduce the costs of failure that would otherwise be suffered by the company's stakeholders as well as by the broader society (Hermanson, 1993:5). Robust audit is keys to re-establishing trust and market confidence; it contributes to investor protection and reduces the cost of capital for companies. This entrustment respond to the fulfilment of societal roles in offering an opinion on the truth and fairness of the financial statements (Carcello and Neal, 2003). SAR also designed to be consistent with auditors responsibility for detecting frauds in financial statement of an organization (Salehi, 2009). In inventing an opinion on the financial statements for the protection of shareholders, the SAR considers the appropriateness of managements use of the going concern supposition in the preparation of the accounts. In order to assists to determine their audit measures, SAR also examines internal controls and the

potential existence of fraud in terms of the risk that there may be material misstatements (Philip Law, 2008). An audit in accordance with ISAs (UK and Ireland) is designed to provide reasonable assurance that the financial statements taken as a whole are free from material misstatement. Reasonable assurance is a concept relating to the accumulation of the audit evidence necessary for the auditor to conclude that there are no material misstatements in the financial statements taken as a whole. Reasonable assurance relates to the whole audit process quoted from Arnold, (2009). In order to that, SAR provides a reasonable assurance which is the level of confidence that the financial statements made by management are free from materially misstated (Akeel, Lary, and Dennis, 2012). As outcomes of SAR confidence that financial statements are not materially misstated, users of financial statements may also gain confidence that the management of the organisation is conducting its associations in the knowledge that the financial consequences of their performances will be reflected in the financial statement (Farber, 2005). Furthermore, SAR also is useful to potential investor and stakeholder to identify a well-doing organization which provides a higher level of confidence to invest their money (Philip Law, 2008).

Communication Purpose : SAR is a tool of communication among auditor, shareholders and stakeholders towards the financial position of an entity for intention to control the conflict of interest among them (Chow, 1982). According to Bartlett (1991), SAR is the medium of communication between the auditor and the users of the financial statements (stakeholders). It represents the most essential feature of the audit practice and the auditor uses it to express the results of the audit procedure to the users of the financial statements (Philip Law, 2008). The expected effect of the audit report on the users decisions is one of the important factors that stand behind the demand for audit services . As mentioned by Arens et al. (2006) the usage for SAR is generated the remoteness gap between the users of the financial statements and the practise of these statements; the conflict of interest between the users of the financial statements; the complexity of the economic transactions; and the expected effect of the financial statements on decision making. However, because the SAR is the tool of communication between the auditor and the users of SAR, this report must be comprehensible, transperant and acknowledged by the users as a relevant source of information (Salehi and Mansoury, 2008). The understandings of users of SAR enhance the communication between auditors and users, assuming differing evaluations of the message by these parties resulting from differing perceptions, are supportive of its ability to protect user interests (Arens and Leobbecke, 2000). When there are conflicts between the interests of the principal and the agent (shareholder and director), the agent may not act in the best of interests of the principal (Carcello, 2012). In order to avoid or minimize such divergences, a supervising system such as SAR is applicable. Wallace (2000) mentioned that the higher the agency costs, the greater will be the information asymmetries and this is likely to enhance the shareholders keenness to protect their interests via the audit. Furthermore, the greater the risk of financial losses in a company, the greater will

be the need for audit quality. These pressures can be seen as converging to create the present interest in expanding the auditors role (Arnold, 2009). Thus, SAR helps reduced the information asymmetry and protect the interests of the principals, specifically, stockholders and potential stockholders by providing reasonable assurance that managements financial statements are free f rom material misstatements (Watts and Zimmerman, 1986). In such conditions, the SAR play intermediately role between company and stakeholders. Hence shareholders may feel they have to take further action to defend their interests, thus SAR assists an organisation to minimize the agency costs inherent (Antonio, 2003). The independent result from SAR provided, enhance the confidence of shareholders in using financial statements to measure the stewardship of directors and their running of the company.

Usefulness : As tool of communication, SAR provides a better knowledge of decision-making process in investment for shareholders and stakeholders. Antonio (2003) mentioned that SAR is indeed useful for users when making decision, proving to be so by the fact that it affects the investment and financing decisions carried out by dealer, brokering firms and credit institution respectively . Libby (1979) indicates financial statement information plays important roles in the credit evaluation phase of the commercial loan decision, in sense bank officer as well as analysts attempts to ensure accuracy of the financial information by SAR. Besides that, Geiger (1992), Anandarajan and Jaenicke (1995), Lassalle and Anandarajan (1997), Vico Martinez and Pucheta Martinez (2001) have verified that the usefulness and relevance of the information that provided by SAR in the case of loan decision and investment decision to an organization. Regarding capital market, give relevance to the information supplied by the SAR, for investor through its impact on share price. Moreover, lenders and investor strongly agreed that the fact the type of opinion (clean, qualified, adverse, or disclaimer) issued by SAR influence their financial decisions. Therefore, credit institutions and brokering companies consider the information contained in the SAR being relevant and useful for their investment and lending decision (Arnold, 2009). Overall, SAR provides important knowledge in investing and lending decisions as well as for assessing whether the financial statements are free from material fraud (Lassalle and Anandarajan, 1997). Furthermore, the SAR provides a high level of confidence that the company will remain viable. In addition, SAR provides a relatively lower level of confidence that a company is well managed, is a sound investment, or a company will meet its strategic goals (Arnold, 2009).

Conclusion SAR has a clearly identified (and statutory) purpose which is to provide an independent opinion to the shareholders on the truth and fairness of the financial statements that are prepared by the board of directors. Thus, SAR is an important medium to alleviate information asymmetries among users of the financial information. Furthermore, according to Carcello (2012), the users of SAR need certain changes in order to meet their expectation. The changes are such as there needs to be an expended discussion of risks, risk management, governance oversight. Besides that, disclosure of qualitative materiality rather than disclosing with numbers; reliance on other audit firms specialists; and proposed audit adjustments. In the other hand, SAR needs more explicitly stating the auditors responsibility for detecting fraud; stating managements responsibility for preventing and detecting fraud; requiring the auditor to state whether the financial statement present a true and fair view of companys financial condition and results of operations, regardless of whether the financial statements are prepared in accordance of GAAP. (Carcello, 2012) Therefore, SAR provides many purpose and usefulness the users of audit report the justified the status of financial position and risk of an organization. It shows that SAR is a major tool to avoid agency problem and provide confidence the shareholders of an entity. In order to that, SAR must upgrade with more relevance information as suggested and needed by the users of SAR.

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