AUDIT REPORTS

Basic elements of audit report

1. Title the persons to which the report is addressed
2. The use of the prefix independent affirms all ethical standards have been met.
3. the introductory paragraph
Which identifies the entity been audited
The financial statements been audited
pecifying dates and period covered by the financial statements
!. " statement of the responsibilities of the directors for the preparation of the
accounts
#. " statement of the responsibilities of the auditor
To express an opinion
$or auditing the financial statements in accordance with the %nternational auditing
standards
&utlying the 'ey processes involved in reaching the audit opinion
(. "n opinion paragraph
)ontaining an auditors opinion on the financial statements
%dentifying financial reporting framewor' i.e. %$*
+. The signature of the auditor
,. the auditors address
-. The date of the audit report.
*easonable assurance. whether the financial statements are free from material
misstatement.
The auditor so designs tests to have a reasonable assurance of detecting material
misstatement
This is no guarantee of detecting any misstatement
/stimates made by the management
$inancial statements do not contain many figures which are sub0ective not supported by
conclusive evidence nor can they be completely accurate
They can only be assessed for reasonableness
%n our opinion
This is a reasoned 0udgment not a certificate or guarantee
True and $air view or present fairly in all material respects
The financial statement comply with %$*
"1& they reflect the substance of transactions
The directors2 responsibilities
%t is usual for the notes to the financial statements to include a statement of directors2
responsibilities namely
To prepare the financials statements giving a true and fair view and complying with
1/3%1"T%&4
T& tate whether accounting standards have been followed and to 0ustify any departures
there from
To select and consistently apply suitable apply suitable accounting policies to ma'e
reasonable and prudent 0udgments and estimates
To prepare the financial statements on the going concern basis unless inappropriate
To maintain proper accounting records
To safeguard assets
To ta'e reasonable steps to prevent and detect fraud

MODIFIED AUDIT REPORTS
" 5&6%$%/6 "udit report is report which varies from the standard report
*eport may be modified because of the ff
%t contains a 7ualified opinion
%t contains an un7ualified audit opinion but includes a paragraph referring to for
example a material uncertainty which the auditor considers should be brought to
the notice of shareholders
When a 7ualified opinion is considered the necessary the matter in 7uestion
should be clearly described and its effect on the financial statements 7uantified
There are two circumstances giving rise to 7ualification
6isagreement
1imitation in scope
QUALIFIED OPINIONS- DISAGREEMENTS
EGS
1. With "ccounting policies
2. with facts and amounts
3. with manner extent of disclosure
!. with compliance with legislation or regulations
MATERIAL
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This means that the matter with which the auditor disagrees is significant but is
capable of %solation from the rest of the financial statements and therefore does
not distort the overall view given
The form of 7ualification would be an except for opinion
MAATERIAL AND PERVASIVE
%4 this situation the matter in 7uestion is so significant that it cannot be isolated
from the rest of the financial statements. %t pervades the whole of the financial
statement and therefore distorts the view given
The opinion given would adverse opinion.
QUALIFIED OPINIONS
/xamples of limitations in scope
/vidence re7uired was not available
The auditor was unable not allowed to perform a necessary procedure
MATERIAL QUALIFICATION MATERIAL NOT PERVASIVE
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T=/ "uditor will disclaim an opinion ie unable to form an opinion.
ee example
EMPHASIS OF MATTER
"n emphasi>es of matter is not 7ualification not a 7ualification of the audit
opinion.
%ts purpose is to draw the users attention to a significant matter affecting the
financial statements whereby the auditor the auditor refers to the note to the
financial statements which explains the position detail
%t is usually included after the opinion is not 7ualified in this respect
/xamples?
6oubts as to going concern
The outcome and amount of ma0or litigation
%f the mater is material its is ade7uately disclosed by way of note to the financial
statements@ the auditor should include an extra paragraph refereeing to the note
after the un7ualified opinion
&nly in the circumstances where no or inade7uate disclosure is made would the
auditor 7ualify the opinion on the grounds of disagreement over disclosure
Limitation arising prior to a!pting appointm!nt
%f the auditors are aware of an imposed limitation is scope which would result in a
disclaimer of opinion in the audit report@ they should decline acceptance
&therwise independence@ integrity and the rig our re7uired of an audit would be
pre0udiced
$urther@ acceptance would be incompatible with obligations under statue@ %"s
and ethical re7uirements
5oreover@ the auditors could be viewed as merely complying with the form rather
than the substance of regulations
Limitation arising in t"! o#rs! o$ an a#%it
The auditor should re7uest the removal of any limitation imposed during the audit
which would result in a disclaimer of opinion
%f the limitations are not removed@ the auditors should consider resignation
%f the auditors resign or do not see' re.appointment@ the matter should be set out
in the statement of circumstances2 re7uired by the )",# on ceasing to hold office
The mater should also be referred to in the professional clearance2 letter sent to
proposed successor auditors.