Examples of Modified Auditors Reports on Financial Statements Prepared in

Accordance with the SME-FRS based on HKSA 701 Modifications to the

Independent Auditors Report
Matters that do affect the auditors opinion
Example 1 Qualified opinion disagreement with management
Example 2 Qualified opinion limitation on the auditors work
Example 3 Disclaimer of opinion limitation on the auditors work
Example 4 Adverse opinion disagreement with management
1
Example 1 Qualified opinion disagreement with management
INDEPENDENT AUDITORS REPORT
TO THE SHAREHOLDERS OF SME LIMITED
(incorporated in [country or place] with limited liability)1
Report on the Financial Statements
We have audited the financial statements of SME Limited (the Company) set out on
pages ........
to ........, which comprise the balance sheet as at 31 December 200X, and the income
statement for
the year then ended, and a summary of significant accounting policies and other
explanatory notes.
Directors responsibility for the financial statements
The directors are responsible for the preparation and presentation of these financial
statements in
accordance with Small and Medium-sized Entity Financial Reporting Standard (SMEFRS) issued by
the Hong Kong Institute of Certified Public Accountants. This responsibility includes
designing,

implementing and maintaining internal control relevant to the preparation and

presentation of financial
statements that are free from material misstatement, whether due to fraud or error;
selecting and
applying appropriate accounting policies; and making accounting estimates that are
reasonable in the
circumstances.
[In addition, section 141D of the Hong Kong Companies Ordinance requires that the
balance sheet
together with the notes thereon should be prepared in accordance with the
requirements of the
Eleventh Schedule to that Ordinance.] 2
Auditors responsibility
Our responsibility is to express an opinion on these financial statements based on our
audit 3. We
conducted our audit in accordance with Hong Kong Standards on Auditing and with
reference to PN
900 (Revised) Audit of Financial Statements Prepared in Accordance with the Small
and Mediumsized
Entity Financial Reporting Standard issued by the Hong Kong Institute of Certified
Public
Accountants. Those standards require that we comply with ethical requirements and
plan and perform
the audit to obtain reasonable assurance as to whether the financial statements are free
from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts
and disclosures
in the financial statements. The procedures selected depend on the auditors judgment,
including the

assessment of the risks of material misstatement of the financial statements, whether

due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant
to the entitys
preparation and presentation of the financial statements in order to design audit
procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on
the
effectiveness of the entitys internal control. An audit also includes evaluating the
appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the
directors, as
well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis
for our audit opinion.

1 In Hong Kong, it is a common practice to disclose the place of incorporation of the

company.
2 This additional wording is required for companies incorporated in Hong Kong applying
section 141D of the Hong Kong
Companies Ordinance
3 Auditors may consider it appropriate to clarify to whom they are responsible here or
elsewhere in the report in accordance
with their risk management policies and with reference to Professional Risk
Management Bulletin No. 2 Auditors Duty of
Care To Third Parties and The Audit Report.
2
Basis for qualified opinion

Included in debtors shown on the balance sheet is an amount of HK$X due from a
debtor which has
ceased trading. The Company has no security for this debt. On the basis that no
security has been
obtained and no cash has been received on the debt, in our opinion the Company
should make a full
provision for impairment of HK$X, reducing profit before taxation for the year and net
assets at 31
December 200X by that amount.
Qualified opinion arising from disagreement about accounting treatment
In our opinion, except for the effect on the financial statements of the matter described
in the basis for
qualified opinion paragraph, the financial statements have been properly prepared, in all
material
respects, in accordance with the SME-FRS. [In addition, in our opinion, except for the
effect on the
financial statements of the matter described in the basis for qualified opinion paragraph,
the balance
sheet together with the notes thereon is properly drawn up so as to exhibit a true and
correct view of
the state of the Companys affairs as at 31 December 200X according to the best of our
information
and explanations given to us, and as shown by the books of the Company.]2
Report on other matters under section 141D of the Hong Kong Companies
Ordinance
[We report that we have obtained all the information and explanations which we have
required.]2
XYZ & Co.
Certified Public Accountants (Practising) [or Certified Public Accountants]

[Address]
Date

3
Example 2 Qualified opinion - limitation on the auditor's work
INDEPENDENT AUDITORS REPORT
TO THE SHAREHOLDERS OF SME LIMITED
(incorporated in [country or place] with limited liability)1
Report on the Financial Statements
We have audited the financial statements of SME Limited (the Company) set out on
pages ........
to........, which comprise the balance sheet as at 31 December 200X, and the income
statement for
the year then ended, and a summary of significant accounting policies and other
explanatory notes.
Directors responsibility for the financial statements
The directors are responsible for the preparation and presentation of these financial
statements in
accordance with Small and Medium-sized Entity Financial Reporting Standard (SMEFRS) issued by
the Hong Kong Institute of Certified Public Accountants. This responsibility includes
designing,
implementing and maintaining internal control relevant to the preparation and
presentation of financial
statements that are free from material misstatement, whether due to fraud or error;
selecting and
applying appropriate accounting policies; and making accounting estimates that are
reasonable in the
circumstances.

[In addition, section 141D of the Hong Kong Companies Ordinance requires that the
balance sheet
together with the notes thereon should be prepared in accordance with the
requirements of the
Eleventh Schedule to that Ordinance.] 2
Auditors responsibility
Our responsibility is to express an opinion on these financial statements based on our
audit 3. Except
as described in the basis for qualified opinion paragraph, we conducted our audit in
accordance with
Hong Kong Standards on Auditing and with reference to PN 900 (Revised) Audit of
Financial
Statements Prepared in Accordance with the Small and Medium-sized Entity Financial
Reporting
Standard issued by the Hong Kong Institute of Certified Public Accountants. Those
standards require
that we comply with ethical requirements and plan and perform the audit to obtain
reasonable
assurance as to whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts
and disclosures
in the financial statements. The procedures selected depend on the auditors judgment,
including the
assessment of the risks of material misstatement of the financial statements, whether
due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant
to the entitys
preparation and presentation of the financial statements in order to design audit
procedures that are

appropriate in the circumstances, but not for the purpose of expressing an opinion on
the
effectiveness of the entitys internal control. An audit also includes evaluating the
appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the
directors, as
well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis
for our audit opinion.

1 In Hong Kong, it is a common practice to disclose the place of incorporation of the

company.
2 This additional wording is required for companies incorporated in Hong Kong applying
section 141D of the Hong Kong
Companies Ordinance
3 Auditors may consider it appropriate to clarify to whom they are responsible here or
elsewhere in the report in accordance
with their risk management policies and with reference to Professional Risk
Management Bulletin No. 2 Auditors Duty of
Care To Third Parties and The Audit Report.
4
Basis for qualified opinion
HK$X of the Company's recorded turnover comprises cash sales, over which there was
no system of
internal control on which we could rely for the purpose of our audit. There were no other
satisfactory
audit procedures that we could adopt to satisfy ourselves that the recorded turnover
was free from

material misstatements.
Qualified opinion arising from limitation of audit scope
In our opinion, except for the effects of such adjustments, if any, as might have been
determined to be
necessary had we been able to satisfy ourselves as to cash sales, the financial
statements have been
properly prepared, in all material respects, in accordance with the SME-FRS. [In
addition, in our
opinion, except for the effects of such adjustments, if any, as might have been
determined to be
necessary had we been able to satisfy ourselves as to cash sales, the balance sheet
together with the
notes thereon is properly drawn up so as to exhibit a true and correct view of the state
of the
Companys affairs as at 31 December 200X according to the best of our information and
explanations
given to us, and as shown by the books of the Company.]2
.
Report on matters under sections 141(4), 141(6) and 141D of the Hong Kong
Companies Ordinance
In respect alone of the limitation on our work relating to cash sales:
we have not obtained all the information and explanations that we considered
necessary for the
purpose of our audit; and
we were unable to determine whether proper books of account had been kept.
XYZ & Co.
Certified Public Accountants (Practising) [or Certified Public Accountants]
[Address]

Date
5
Example 3 Disclaimer of opinion - limitation on the auditors work
INDEPENDENT AUDITORS REPORT
TO THE SHAREHOLDERS OF SME LIMITED
(incorporated in [country or place] with limited liability)1
Report on the Financial Statements
We were engaged to audit the financial statements of SME Limited (the Company) set
out on
pages ........ to........, which comprise the balance sheet as at 31 December 200X, and
the income
statement, for the year then ended, and a summary of significant accounting policies
and other
explanatory notes.
Directors responsibility for the financial statements
The directors are responsible for the preparation and presentation of these financial
statements in
accordance with Small and Medium-sized Entity Financial Reporting Standard (SMEFRS) issued by
the Hong Kong Institute of Certified Public Accountants. This responsibility includes
designing,
implementing and maintaining internal control relevant to the preparation and
presentation of financial
statements that are free from material misstatement, whether due to fraud or error;
selecting and
applying appropriate accounting policies; and making accounting estimates that are
reasonable in the
circumstances.

[In addition, section 141D of the Hong Kong Companies Ordinance requires that the
balance sheet
together with the notes thereon should be prepared in accordance with the
requirements of the
Eleventh Schedule to that Ordinance.] 2
Auditors responsibility
Our responsibility is to express an opinion on these financial statements based on our
audit.3 Except
as described in the basis for disclaimer of opinion paragraph, we conducted our audit in
accordance
with Hong Kong Standards on Auditing and with reference to PN 900 (Revised) Audit of
Financial
Statements Prepared in Accordance with the Small and Medium-sized Entity Financial
Reporting
Standard issued by the Hong Kong Institute of Certified Public Accountants. Those
standards require
that we comply with ethical requirements and plan and perform the audit to obtain
reasonable
assurance as to whether the financial statements are free from material misstatement.
However,
because of the matter described in the basis for disclaimer of opinion paragraph, we
were not able to
obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.
Basis for disclaimer of opinion
We were initially appointed auditors on (date) which was subsequent to the end of the
Company's
financial year. In consequence we were unable to carry out auditing procedures
necessary to obtain
adequate assurance regarding the quantities and condition of inventories and work in
progress,

appearing in the balance sheet at HK$X. There were no other satisfactory audit
procedures that we
could adopt to obtain sufficient evidence regarding the existence of inventories and
work in progress.
Accordingly, we have not been able to obtain sufficient appropriate audit evidence to
provide a basis

1 In Hong Kong, it is a common practice to disclose the place of incorporation of the

company.
2 This additional wording is required for companies incorporated in Hong Kong applying
section 141D of the Hong Kong
Companies Ordinance
3 Auditors may consider it appropriate to clarify to whom they are responsible here or
elsewhere in the report in accordance
with their risk management policies and with reference to Professional Risk
Management Bulletin No. 2 Auditors Duty of
Care To Third Parties and The Audit Report.
6
for an audit opinion. Any adjustment to the figure may have a consequential significant
effect on the
profit [loss] for the year and net assets at 31 December 200X.
Disclaimer of opinion: disclaimer on view given by financial statements4
Because of the significance of the matters described in the basis for disclaimer of
opinion paragraph,
we do not express an opinion on the financial statements as to whether they have been
properly
prepared, in all material respects, in accordance with the SME-FRS. [In addition, we do
not express
an opinion on the balance sheet together with the notes thereon as to whether they are
properly

drawn up so as to exhibit a true and correct view of the state of the Companys affairs
as at 31
December 200X according to the best of our information and explanations given to us,
and as shown
by the books of the Company.]2

Report on matters under sections 141(4), 141(6) and 141D of the Hong Kong
Companies Ordinance
In respect alone of the limitation on our work relating to inventories and work in
progress:
we have not obtained all the information and explanations that we considered
necessary for the
purpose of our audit; and
we were unable to determine whether proper books of account had been kept.
XYZ & Co.
Certified Public Accountants (Practising) [or Certified Public Accountants]
[Address]
Date

4 In this example, it is assumed that the counting of physical inventories is so material

and pervasive that the auditor has
not been able to obtain sufficient appropriate audit evidence and accordingly is unable
to express an opinion on the
financial statements. If the limitation of scope is not considered so material and
pervasive, the auditor may express an
except for opinion.
7
Example 4 Adverse opinion disagreement with management

INDEPENDENT AUDITORS REPORT

TO THE SHAREHOLDERS OF SME LIMITED
(incorporated in [country or place] with limited liability)1
Report on the Financial Statements
We have audited the financial statements of SME Limited (the Company) set out on
pages ........
to........, which comprise the balance sheet as at 31 December 200X, and the income
statement, for
the year then ended, and a summary of significant accounting policies and other
explanatory notes.
Directors responsibility for the financial statements
The directors are responsible for the preparation and presentation of these financial
statements in
accordance with Small and Medium-sized Entity Financial Reporting Standard (SMEFRS) issued by
the Hong Kong Institute of Certified Public Accountants. This responsibility includes
designing,
implementing and maintaining internal control relevant to the preparation and
presentation of financial
statements that are free from material misstatement, whether due to fraud or error;
selecting and
applying appropriate accounting policies; and making accounting estimates that are
reasonable in the
circumstances.
[In addition, section 141D of the Hong Kong Companies Ordinance requires that the
balance sheet
together with the notes thereon should be prepared in accordance with the
requirements of the
Eleventh Schedule to that Ordinance.] 2

Auditors responsibility
Our responsibility is to express an opinion on these financial statements based on our
audit3. We
conducted our audit in accordance with Hong Kong Standards on Auditing and with
reference to PN
900 (Revised) Audit of Financial Statements Prepared in Accordance with the Small
and Mediumsized
Entity Financial Reporting Standard issued by the Hong Kong Institute of Certified
Public
Accountants. Those standards require that we comply with ethical requirements and
plan and perform
the audit to obtain reasonable assurance as to whether the financial statements are free
from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts
and disclosures
in the financial statements. The procedures selected depend on the auditors judgment,
including the
assessment of the risks of material misstatement of the financial statements, whether
due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant
to the entitys
preparation and presentation of the financial statements in order to design audit
procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on
the
effectiveness of the entitys internal control. An audit also includes evaluating the
appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the
directors, as

well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis
for our audit opinion.

1 In Hong Kong, it is a common practice to disclose the place of incorporation of the

company.
2 This additional wording is required for companies incorporated in Hong Kong applying
section 141D of the Hong Kong
Companies Ordinance
3 Auditors may consider it appropriate to clarify to whom they are responsible here or
elsewhere in the report in accordance
with their risk management policies and with reference to Professional Risk
Management Bulletin No. 2 Auditors Duty of
Care To Third Parties and The Audit Report
8
Basis for adverse opinion
As more fully explained in note ... to the financial statements, losses expected to arise
on certain longterm
contracts currently in progress have not been recognised as expenses, as the directors
consider
that such losses should be off-set against amounts recoverable on other long-term
contracts. In our
opinion, the expected losses on individual contracts should be recognised as expenses
immediately
as required by Section 8 of the SME-FRS. If losses had been so recognised the effect
would have
been to [reduce the profit/increase the loss] before taxation for the year and reduce the
gross

amounts due from customers at 31 December 200X by HK$X.

Adverse opinion
In our opinion, because of the significance of effects of the matters described in the
basis for adverse
opinion paragraph, the financial statements have not been properly prepared, in
accordance with the
SME-FRS. [In addition, in our opinion the balance sheet together with the notes thereon
is not
properly drawn up so as to exhibit a true and correct view of the state of the Companys
affairs as at
31 December 200X according to the best of our information and explanations given to
us, and as
shown by the books of the Company.]2

Report on other matters under section 141D of the Hong Kong Companies
Ordinance
[We report that we have obtained all the information and explanations which we have
required.]2
XYZ & Co.
Certified Public Accountants (Practising) [or Certified Public Accountants]
[Address]

RPG 4 EXAMPLES OF INDEPENDENT AUDITORS REPORTS

EFFECTIVE FOR AUDITS OF FINANCIAL STATEMENTS FOR PERIODS BEGINNING
ON OR AFTER 1 JANUARY 2010
AND AUDITORS REPORTS DATED ON OR AFTER 1 JULY 2013
18
QUALIFIED OPINION REPORTS
Example 9: Inability to obtain sufficient appropriate audit evidence Unable to observe
physical inventory count
INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF XYZ BERHAD
Report on the Financial Statements
We have audited the financial statements of XYZ Berhad, which comprise the balance
sheet as at
31 December 20XX, and the income statement, statement of changes in equity and
cash flow
statement1
for the year then ended, and a summary of significant accounting policies and other
explanatory information, as set out on pages AA to ZZ.
Directors Responsibility for the Financial Statements
The directors of the Company are responsible for the preparation of financial statements
so as to
give a true and fair view in accordance with Financial Reporting Standards2
and the requirements
of the Companies Act 1965 in Malaysia. The directors are also responsible for such
internal
control as the directors determine is necessary to enable the preparation of financial
statements
that are free from material misstatement, whether due to fraud or error.

Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our
audit. We
conducted our audit in accordance with approved standards on auditing in Malaysia.
Those
standards require that we comply with ethical requirements and plan and perform the
audit to
obtain reasonable assurance about whether the financial statements are free from
material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts
and
disclosures in the financial statements. The procedures selected depend on our
judgement,
including the assessment of risks of material misstatement of the financial statements,
whether due
to fraud or error. In making those risk assessments, we consider internal control
relevant to the
entitys preparation of financial statements that give a true and fair view in order to
design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an
opinion on the effectiveness of the entitys internal control. An audit also includes
evaluating the
appropriateness of accounting policies used and the reasonableness of accounting
estimates
made by the directors, as well as evaluating the overall presentation of the financial
statements.

Financial Reporting Standard (FRS) 101 uses the term statement of financial position,
statement of
comprehensive income, statement of changes in equity and statement of cash flows. An
entity may use
other titles for the statements other than those used in FRS 101.
2
Financial Reporting Standards is also known as Accounting Standards for Entities
Other than Private
Entities. Where the entity uses Accounting Standards for Private Entities (or also known
as Private Entity
Reporting Standards), the words should be changed accordingly to reflect the
accounting framework
adopted by the entity.
RPG 4 EXAMPLES OF INDEPENDENT AUDITORS REPORTS
EFFECTIVE FOR AUDITS OF FINANCIAL STATEMENTS FOR PERIODS BEGINNING
ON OR AFTER 1 JANUARY 2010
AND AUDITORS REPORTS DATED ON OR AFTER 1 JULY 2013
19
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a
basis for our qualified audit opinion.
Basis for Qualified Opinion
We did not observe the counting of the physical inventories as of 31 December 20XX,
since that
date was prior to the time we were initially engaged as auditors for the Company. Owing
to the
nature of the Companys records, we were unable to satisfy ourselves as to inventory
quantities by
other audit procedures.

Qualified Opinion
In our opinion, except for the effects of the matter described in the Basis of Qualified
Opinion
paragraph, the financial statements give a true and fair view of the financial position of
the
Company as of 31 December 20XX and of its financial performance and cash flows for
the year
then ended in accordance with Financial Reporting Standards2
and the requirements of the
Companies Act 1965 in Malaysia.
Report on Other Legal and Regulatory Requirements
In accordance with the requirements of the Companies Act 1965 in Malaysia, we also
report that
in our opinion, the accounting and other records and the registers required by the Act to
be kept
by the Company have been properly kept in accordance with the provisions of the Act.
Other Matters
This report is made solely to the members of the Company, as a body, in accordance
with Section
174 of the Companies Act 1965 in Malaysia and for no other purpose. We do not
assume
responsibility to any other person for the content of this report.
(Audit Firm)
[AF: 8888]
Chartered Accountants
(Partner)
[9999/9/99 (J/PH)]
Chartered Accountant

Date
[Location in the country]
RPG 4 EXAMPLES OF INDEPENDENT AUDITORS REPORTS
EFFECTIVE FOR AUDITS OF FINANCIAL STATEMENTS FOR PERIODS BEGINNING
ON OR AFTER 1 JANUARY 2010
AND AUDITORS REPORTS DATED ON OR AFTER 1 JULY 2013
20
Example 10: Financial statements are materially misstated Inappropriate accounting
method
INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF XYZ BERHAD
Report on the Financial Statements
We have audited the financial statements of XYZ Berhad, which comprise the balance
sheet as at
31 December 20XX, and the income statement, statement of changes in equity and
cash flow
statement1
for the year then ended, and a summary of significant accounting policies and other
explanatory information, as set out on pages AA to ZZ.
Directors Responsibility for the Financial Statements
The directors of the Company are responsible for the preparation of financial statements
so as to
give a true and fair view in accordance with Financial Reporting Standards2
and the requirements
of the Companies Act 1965 in Malaysia. The directors are also responsible for such
internal
control as the directors determine is necessary to enable the preparation of financial
statements

that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our
audit. We
conducted our audit in accordance with approved standards on auditing in Malaysia.
Those
standards require that we comply with ethical requirements and plan and perform the
audit to
obtain reasonable assurance about whether the financial statements are free from
material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts
and
disclosures in the financial statements. The procedures selected depend on our
judgement,
including the assessment of risks of material misstatement of the financial statements,
whether due
to fraud or error. In making those risk assessments, we consider internal control
relevant to the
entitys preparation of financial statements that give a true and fair view in order to
design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an
opinion on the effectiveness of the entitys internal control. An audit also includes
evaluating the
appropriateness of accounting policies used and the reasonableness of accounting
estimates
made by the directors, as well as evaluating the overall presentation of the financial
statements.

1
Financial Reporting Standard (FRS) 101 uses the term statement of financial position,
statement of
comprehensive income, statement of changes in equity and statement of cash flows. An
entity may use
other titles for the statements other than those used in FRS 101.
2
Financial Reporting Standards is also known as Accounting Standards for Entities
Other than Private
Entities. Where the entity uses Accounting Standards for Private Entities (or also known
as Private Entity
Reporting Standards), the words should be changed accordingly to reflect the
accounting framework
adopted by the entity.
RPG 4 EXAMPLES OF INDEPENDENT AUDITORS REPORTS
EFFECTIVE FOR AUDITS OF FINANCIAL STATEMENTS FOR PERIODS BEGINNING
ON OR AFTER 1 JANUARY 2010
AND AUDITORS REPORTS DATED ON OR AFTER 1 JULY 2013
21
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a
basis for our qualified audit opinion.
Basis for Qualified Opinion
As discussed in Note GG to the financial statements, no depreciation has been provided
in the
financial statements which practice, in our opinion, is not in accordance with FRS 116,
Property,
Plant and Equipment. Had depreciation been provided for, the depreciation charge for
the year

ended 31 December 20XX would be RMXXX,XXX based on the straight-line method of

depreciation
using annual rates of 5% for the building and 20% for the equipment. In addition, the
carrying
value of property, plant and equipment and retained earnings would have been reduced
by
RMXXX,XXX and RMXXX,XXX respectively. The profit for the year ended 31 December
20XX would
have been reduced by RMXXX,XXX.
Qualified Opinion
In our opinion, except for the effects of the matter described in the Basis for Qualified
Opinion
paragraph, the financial statements give a true and fair view of the financial position of
the
Company as of 31 December 20XX and of its financial performance and cash flows for
the year
then ended in accordance with Financial Reporting Standards2
and the requirements of the
Companies Act 1965 in Malaysia.
Report on Other Legal and Regulatory Requirements
In accordance with the requirements of the Companies Act 1965 in Malaysia, we also
report that
in our opinion:
(a) except for the matter as described in the Basis for Qualified Opinion paragraph, the
accounting and other records have been properly kept in accordance with the provisions
of
the Act.
(b) the registers required by the Act to be kept by the Company have been properly kept
in

accordance with the provisions of the Act.

Other Matters
This report is made solely to the members of the Company, as a body, in accordance
with Section
174 of the Companies Act 1965 in Malaysia and for no other purpose. We do not
assume
responsibility to any other person for the content of this report.
(Audit Firm)
[AF: 8888]
Chartered Accountants
(Partner)
[9999/9/99 (J/PH)]

ISA (UK and Ireland) 705

14
Illustration 1:
Circumstances include the following:
Audit of a complete set of general purpose financial statements prepared by
management of the entity in accordance with International Financial Reporting
Standards.
The terms of the audit engagement reflect the description of managements
responsibility for the financial statements in ISA 210.9
Inventories are misstated. The misstatement is deemed to be material but not
pervasive to the financial statements.
In addition to the audit of the financial statements, the auditor has other reporting
responsibilities required under local law.
INDEPENDENT AUDITORS REPORT
[Appropriate Addressee]
Report on the Financial Statements10
We have audited the accompanying financial statements of ABC Company, which
comprise
the balance sheet as at December 31, 20X1, and the income statement, statement of
changes
in equity and cash flow statement for the year then ended, and a summary of significant
accounting policies and other explanatory information.
Managements11 Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with International Financial Reporting Standards,
12 and for such

internal control as management determines is necessary to enable the preparation of

financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with International Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the
audit to
obtain reasonable assurance about whether the financial statements are free from
material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts
and
disclosures in the financial statements. The procedures selected depend on the
auditors
judgment, including the assessment of the risks of material misstatement of the financial

9
ISA 210, Agreeing the Terms of Audit Engagements.
10 The sub-title Report on the Financial Statements is unnecessary in circumstances
when the second subtitle
Report on Other Legal and Regulatory Requirements is not applicable.
11 Or other term that is appropriate in the context of the legal framework in the
particular jurisdiction.
12 Where managements responsibility is to prepare financial statements that give a
true and fair view, this
may read: Management is responsible for the preparation of financial statements that
give a true and fair

view in accordance with International Financial Reporting Standards, and for such ...
ISA (UK and Ireland) 705
15
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entitys preparation and fair presentation13 of
the
financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the
entitys internal control.14 An audit also includes evaluating the appropriateness of
accounting
policies used and the reasonableness of accounting estimates made by management,
as well
as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a
basis for our qualified audit opinion.
Basis for Qualified Opinion
The companys inventories are carried in the balance sheet at xxx. Management has
not stated
the inventories at the lower of cost and net realizable value but has stated them solely
at cost,
which constitutes a departure from International Financial Reporting Standards. The
companys
records indicate that had management stated the inventories at the lower of cost and
net
realizable value, an amount of xxx would have been required to write the inventories
down to

their net realizable value. Accordingly, cost of sales would have been increased by xxx,
and
income tax, net income and shareholders equity would have been reduced by xxx, xxx
and
xxx, respectively.
Qualified Opinion
In our opinion, except for the effects of the matter described in the Basis for Qualified
Opinion paragraph, the financial statements present fairly, in all material respects, (or
give a
true and fair view of) the financial position of ABC Company as at December 31, 20X1,
and
(of) its financial performance and its cash flows for the year then ended in accordance
with
International Financial Reporting Standards.
Report on Other Legal and Regulatory Requirements
[Form and content of this section of the auditors report will vary depending on the
nature of
the auditors other reporting responsibilities.]
[Auditors signature]
[Date of the auditors report]
[Auditors address]

13 In the case of footnote 12, this may read: In making those risk assessments, the
auditor considers internal
control relevant to the entitys preparation of financial statements that give a true and
fair view in order to
design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an
opinion on the effectiveness of the entitys internal control.

14 In circumstances when the auditor also has responsibility to express an opinion on

the effectiveness of
internal control in conjunction with the audit of the financial statements, this sentence
would be worded as
follows: In making those risk assessments, the auditor considers internal control
relevant to the entitys
preparation and fair presentation of the financial statements in order to design audit
procedures that are
appropriate in the circumstances. In the case of footnote 12, this may read: In making
those risk
assessments, the auditor considers internal control relevant to the entitys preparation of
financial statements
that give a true and fair view in order to design audit procedures that are appropriate in
the circumstances.
ISA (UK and Ireland) 705
16
Illustration 2:
Circumstances include the following:
Audit of consolidated general purpose financial statements prepared by management
of the parent in accordance with International Financial Reporting Standards.
The terms of the audit engagement reflect the description of managements
responsibility for the financial statements in ISA 210.
The financial statements are materially misstated due to the non-consolidation of a
subsidiary. The material misstatement is deemed to be pervasive to the financial
statements. The effects of the misstatement on the financial statements have not been
determined because it was not practicable to do so.
In addition to the audit of the consolidated financial statements, the auditor has other
reporting responsibilities required under local law.

INDEPENDENT AUDITORS REPORT

[Appropriate Addressee]
Report on the Consolidated Financial Statements15
We have audited the accompanying consolidated financial statements of ABC Company
and
its subsidiaries, which comprise the consolidated balance sheet as at December 31,
20X1, and
the consolidated income statement, statement of changes in equity and cash flow
statement
for the year then ended, and a summary of significant accounting policies and other
explanatory information.
Managements16 Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these
consolidated
financial statements in accordance with International Financial Reporting Standards,
17 and for
such internal control as management determines is necessary to enable the preparation
of
consolidated financial statements that are free from material misstatement, whether due
to
fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements
based
on our audit. We conducted our audit in accordance with International Standards on
Auditing.
Those standards require that we comply with ethical requirements and plan and perform
the

audit to obtain reasonable assurance about whether the consolidated financial

statements are
free from material misstatement.

15 The sub-title Report on the Consolidated Financial Statements is unnecessary in

circumstances when the
second sub-title Report on Other Legal and Regulatory Requirements is not
applicable.
16 Or other term that is appropriate in the context of the legal framework in the
particular jurisdiction.
17 Where managements responsibility is to prepare consolidated financial statements
that give a true and fair
view, this may read: Management is responsible for the preparation of consolidated
financial statements
that give a true and fair view in accordance with International Financial Reporting
Standards, and for such
...
ISA (UK and Ireland) 705
17
An audit involves performing procedures to obtain audit evidence about the amounts
and
disclosures in the consolidated financial statements. The procedures selected depend
on the
auditors judgment, including the assessment of the risks of material misstatement of
the
consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entitys preparation
and fair
presentation18 of the consolidated financial statements in order to design audit
procedures that

are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the
effectiveness of the entitys internal control.19 An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting
estimates
made by management, as well as evaluating the overall presentation of the
consolidated
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a
basis for our adverse audit opinion.
Basis for Adverse Opinion
As explained in Note X, the company has not consolidated the financial statements of
subsidiary XYZ Company it acquired during 20X1 because it has not yet been able to
ascertain the fair values of certain of the subsidiarys material assets and liabilities at
the
acquisition date. This investment is therefore accounted for on a cost basis. Under
International Financial Reporting Standards, the subsidiary should have been
consolidated
because it is controlled by the company. Had XYZ been consolidated, many elements in
the
accompanying financial statements would have been materially affected. The effects on
the
consolidated financial statements of the failure to consolidate have not been
determined.
Adverse Opinion
In our opinion, because of the significance of the matter discussed in the Basis for
Adverse

Opinion paragraph, the consolidated financial statements do not present fairly (or do not
give
a true and fair view of) the financial position of ABC Company and its subsidiaries as at
December 31, 20X1, and (of) their financial performance and their cash flows for the
year
then ended in accordance with International Financial Reporting Standards.

18 In the case of footnote 17, this may read: In making those risk assessments, the
auditor considers internal
control relevant to the entitys preparation of consolidated financial statements that give
a true and fair view
in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of
expressing an opinion on the effectiveness of the entitys internal control.
19 In circumstances when the auditor also has responsibility to express an opinion on
the effectiveness of
internal control in conjunction with the audit of the consolidated financial statements,
this sentence would
be worded as follows: In making those risk assessments, the auditor considers internal
control relevant to
the entitys preparation and fair presentation of the consolidated financial statements in
order to design audit
procedures that are appropriate in the circumstances. In the case of footnote 17, this
may read: In making
those risk assessments, the auditor considers internal control relevant to the entitys
preparation of
consolidated financial statements that give a true and fair view in order to design audit
procedures that are
appropriate in the circumstances.
ISA (UK and Ireland) 705

18
Report on Other Legal and Regulatory Requirements
[Form and content of this section of the auditors report will vary depending on the
nature of
the auditors other reporting responsibilities.]
[Auditors signature]
[Date of the auditors report]
[Auditors address]
ISA (UK and Ireland) 705
19
Illustration 3:
Circumstances include the following:
Audit of a complete set of general purpose financial statements prepared by
management of the entity in accordance with International Financial Reporting
Standards.
The terms of the audit engagement reflect the description of managements
responsibility for the financial statements in ISA 210.
The auditor was unable to obtain sufficient appropriate audit evidence regarding an
investment in a foreign affiliate. The possible effects of the inability to obtain
sufficient appropriate audit evidence are deemed to be material but not pervasive to
the financial statements.
In addition to the audit of the financial statements, the auditor has other reporting
responsibilities required under local law.
INDEPENDENT AUDITORS REPORT
[Appropriate Addressee]

Report on the Financial Statements20

We have audited the accompanying financial statements of ABC Company, which
comprise
the balance sheet as at December 31, 20X1, and the income statement, statement of
changes
in equity and cash flow statement for the year then ended, and a summary of significant
accounting policies and other explanatory information.
Managements21 Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with International Financial Reporting Standards,
22 and for such
internal control as management determines is necessary to enable the preparation of
financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with International Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the
audit to
obtain reasonable assurance about whether the financial statements are free from
material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts
and
disclosures in the financial statements. The procedures selected depend on the
auditors

20 The sub-title Report on the Financial Statements is unnecessary in circumstances

when the second subtitle
Report on Other Legal and Regulatory Requirements is not applicable.
21 Or other term that is appropriate in the context of the legal framework in the
particular jurisdiction.
22 Where managements responsibility is to prepare financial statements that give a
true and fair view, this
may read: Management is responsible for the preparation of financial statements that
give a true and fair
view in accordance with International Financial Reporting Standards, and for such ...
ISA (UK and Ireland) 705
20
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entitys preparation and fair presentation23 of
the
financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the
entitys internal control.24 An audit also includes evaluating the appropriateness of
accounting
policies used and the reasonableness of accounting estimates made by management,
as well
as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a
basis for our qualified audit opinion.
Basis for Qualified Opinion

ABC Companys investment in XYZ Company, a foreign associate acquired during the
year
and accounted for by the equity method, is carried at xxx on the balance sheet as at
December
31, 20X1, and ABCs share of XYZs net income of xxx is included in ABCs income for
the
year then ended. We were unable to obtain sufficient appropriate audit evidence about
the
carrying amount of ABCs investment in XYZ as at December 31, 20X1 and ABCs share
of
XYZs net income for the year because we were denied access to the financial
information,
management, and the auditors of XYZ. Consequently, we were unable to determine
whether
any adjustments to these amounts were necessary.
Qualified Opinion
In our opinion, except for the possible effects of the matter described in the Basis for
Qualified Opinion paragraph, the financial statements present fairly, in all material
respects,
(or give a true and fair view of) the financial position of ABC Company as at December
31,
20X1, and (of) its financial performance and its cash flows for the year then ended in
accordance with International Financial Reporting Standards.
Report on Other Legal and Regulatory Requirements
[Form and content of this section of the auditors report will vary depending on the
nature of
the auditors other reporting responsibilities.]
[Auditors signature]
[Date of the auditors report]

[Auditors address]

23 In the case of footnote 22, this may read: In making those risk assessments, the
auditor considers internal
control relevant to the entitys preparation of financial statements that give a true and
fair view in order to
design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an
opinion on the effectiveness of the entitys internal control.
24 In circumstances when the auditor also has responsibility to express an opinion on
the effectiveness of
internal control in conjunction with the audit of the financial statements, this sentence
would be worded as
follows: In making those risk assessments, the auditor considers internal control
relevant to the entitys
preparation and fair presentation of the financial statements in order to design audit
procedures that are
appropriate in the circumstances. In the case of footnote 22, this may read: In making
those risk
assessments, the auditor considers internal control relevant to the entitys preparation of
financial statements
that give a true and fair view in order to design audit procedures that are appropriate in
the circumstances.
ISA (UK and Ireland) 705
21
Illustration 4:
Circumstances include the following:
Audit of a complete set of general purpose financial statements prepared by
management of the entity in accordance with International Financial Reporting

Standards.
The terms of the audit engagement reflect the description of managements
responsibility for the financial statements in ISA 210.
The auditor was unable to obtain sufficient appropriate audit evidence about a single
element of the financial statements. That is, the auditor was also unable to obtain
audit evidence about the financial information of a joint venture investment that
represents over 90% of the companys net assets. The possible effects of this inability
to obtain sufficient appropriate audit evidence are deemed to be both material and
pervasive to the financial statements.
In addition to the audit of the financial statements, the auditor has other reporting
responsibilities required under local law.
INDEPENDENT AUDITORS REPORT
[Appropriate Addressee]
Report on the Financial Statements25
We were engaged to audit the accompanying financial statements of ABC Company,
which
comprise the balance sheet as at December 31, 20X1, and the income statement,
statement of
changes in equity and cash flow statement for the year then ended, and a summary of
significant accounting policies and other explanatory information.
Managements26 Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with International Financial Reporting Standards,
27 and for such
internal control as management determines is necessary to enable the preparation of
financial

statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on
conducting
the audit in accordance with International Standards on Auditing. Because of the matter
described in the Basis for Disclaimer of Opinion paragraph, however, we were not able
to
obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.

25 The sub-title Report on the Financial Statements is unnecessary in circumstances

when the second subtitle
Report on Other Legal and Regulatory Requirements is not applicable.
26 Or other term that is appropriate in the context of the legal framework in the
particular jurisdiction.
27 Where managements responsibility is to prepare financial statements that give a
true and fair view, this
may read: Management is responsible for the preparation of financial statements that
give a true and fair
view in accordance with International Financial Reporting Standards and for such ...
ISA (UK and Ireland) 705
22
Basis for Disclaimer of Opinion
The companys investment in its joint venture XYZ (Country X) Company is carried at
xxx
on the companys balance sheet, which represents over 90% of the companys net
assets as at
December 31, 20X1. We were not allowed access to the management and the auditors
of
XYZ, including XYZs auditors audit documentation. As a result, we were unable to

determine whether any adjustments were necessary in respect of the companys

proportional
share of XYZs assets that it controls jointly, its proportional share of XYZs liabilities for
which it is jointly responsible, its proportional share of XYZs income and expenses for
the
year, and the elements making up the statement of changes in equity and cash flow
statement.
Disclaimer of Opinion
Because of the significance of the matter described in the Basis for Disclaimer of
Opinion
paragraph, we have not been able to obtain sufficient appropriate audit evidence to
provide a
basis for an audit opinion. Accordingly, we do not express an opinion on the financial
statements.
Report on Other Legal and Regulatory Requirements
[Form and content of this section of the auditors report will vary depending on the
nature of
the auditors other reporting responsibilities.]
[Auditors signature]
[Date of the auditors report]
[Auditors address]
ISA (UK and Ireland) 705
23
Illustration 5:
Circumstances include the following:
Audit of a complete set of general purpose financial statements prepared by
management of the entity in accordance with International Financial Reporting

Standards.
The terms of the audit engagement reflect the description of managements
responsibility for the financial statements in ISA 210.
The auditor was unable to obtain sufficient appropriate audit evidence about multiple
elements of the financial statements. That is, the auditor was unable to obtain audit
evidence about the entitys inventories and accounts receivable. The possible effects
of this inability to obtain sufficient appropriate audit evidence are deemed to be both
material and pervasive to the financial statements.
In addition to the audit of the financial statements, the auditor has other reporting
responsibilities required under local law.
INDEPENDENT AUDITORS REPORT
[Appropriate Addressee]
Report on the Financial Statements28
We were engaged to audit the accompanying financial statements of ABC Company,
which
comprise the balance sheet as at December 31, 20X1, and the income statement,
statement of
changes in equity and cash flow statement for the year then ended, and a summary of
significant accounting policies and other explanatory information.
Managements29 Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with International Financial Reporting Standards,
30 and for such
internal control as management determines is necessary to enable the preparation of
financial
statements that are free from material misstatement, whether due to fraud or error.

Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on
conducting
the audit in accordance with International Standards on Auditing. Because of the
matters
described in the Basis for Disclaimer of Opinion paragraph, however, we were not able
to
obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.

28 The sub-title Report on the Financial Statements is unnecessary in circumstances

when the second subtitle
Report on Other Legal and Regulatory Requirements is not applicable.
29 Or other term that is appropriate in the context of the legal framework in the
particular jurisdiction.
30 Where managements responsibility is to prepare financial statements that give a
true and fair view, this
may read: Management is responsible for the preparation of financial statements that
give a true and fair
view in accordance with International Financial Reporting Standards and for such...
ISA (UK and Ireland) 705
24
Basis for Disclaimer of Opinion
We were not appointed as auditors of the company until after December 31, 20X1 and
thus
did not observe the counting of physical inventories at the beginning and end of the
year. We
were unable to satisfy ourselves by alternative means concerning the inventory
quantities

held at December 31, 20X0 and 20X1 which are stated in the balance sheet at xxx and
xxx,
respectively. In addition, the introduction of a new computerized accounts receivable
system
in September 20X1 resulted in numerous errors in accounts receivable. As of the date
of our
audit report, management was still in the process of rectifying the system deficiencies
and
correcting the errors. We were unable to confirm or verify by alternative means
accounts
receivable included in the balance sheet at a total amount of xxx as at December 31,
20X1.
As a result of these matters, we were unable to determine whether any adjustments
might
have been found necessary in respect of recorded or unrecorded inventories and
accounts
receivable, and the elements making up the income statement, statement of changes in
equity
and cash flow statement.
Disclaimer of Opinion
Because of the significance of the matters described in the Basis for Disclaimer of
Opinion
paragraph, we have not been able to obtain sufficient appropriate audit evidence to
provide a
basis for an audit opinion. Accordingly, we do not express an opinion on the financial
statements.
Report on Other Legal and Regulatory Requirements
[Form and content of this section of the auditors report will vary depending on the
nature of
the auditors other reporting responsibilities.]

[Auditors signature]
[Date of the auditors report]
[Auditors address