AUDITING AND ASSURANCE AUDIT REPORT

PREPARED BY :

RATNA DEWI A/P PALANIAPPAN

5.1.1 DEFINE AUDIT REPORT Meaning of audit report : Is a signed written document which present the

purpose ,scope and result of the audit. result of audit may include findings, conclusion (opinion), and recommendations.

Objective: the auditor express his opinion and with evidence in the form of a report which is referred to as the auditor’s report.

the auditor report is to addressed to the shareholders of the company but it is also read by other such as bankers, creditors, and other parties who use the information in the financial statements.

to avoid confusion to the readers, it is important for the auditing profession to adopt conventional and uniform wording in auditors report.

To avoid misunderstanding in the audit report message that being communicated to the users of the financial statements.

5.1.2 Type of audit report -unmodified report -modified report

5.1.3 Overview type of audit report

Immaterial - emphasis of

limitation on scope disagreement matter , e.g: going concern uncertainty

other significant uncertainty

Material

limitation on scope disagreement

Material and Pervasive

unqualified

Unqualified with modified wording or

explanatory paragraph

Qualified Qualified

AdverseDisclaime

r

Auditors disagrees with management about matters such as selection of accounting policies or method of their application, this representative non-compliance with approved accounting standard by the entity.

disagreement

This refers to the limitation on the scope of the auditor’s works. this will result in a lack of audit evidence, due to the auditor inability to obtain the information.

Limitation on scope

Two type of circumstances

It is used only when the auditor believesthat the overall financial statements areso materially misstated or misleading thatthey do not present fairly the financialposition or results of operations and cashflows in conformity with GAAP.

Adverse Opinion

Disclaimer of Opinion

It is issued when the auditor is unableto be satisfied that the overall financialstatements are fairly presented.

A qualified opinion report can result froma limitation on the scope of the audit orfailure to follow generally acceptedaccounting principles.

Qualified Opinion

type of report

The financial statements are presented in

accordance with generally accepted

accounting principles.

Unqualified Audit Report

UNQUALIFIED AUDIT REPORT WITH EXPLANATORY PARAGRAPH

OR MODIFIED WORDING

• Emphasis of matter or significant uncertainly• Audit agrees with a departure from approved accounting

standard• Substantial doubt about going concern

• The report is a share report involving the other auditors• Lack of consistent application of approved accounting.

RELATIONSHIP OF MATERIALITY TO TYPE OF OPINION

MaterialityLevel

Significance in Terms ofReasonable Users’ Decisions

Type ofOpinion

Users’ decisions are unlikelyto be affected.Immaterial Unqualified

Users’ decisions are likelyto be affected.Material Qualified

Users’ decisions are likelyto be significantly affected.

Highlymaterial

Disclaimeror adverse

5.1.4 situations which resulted in each type of the audit report being release

CONDITION MATERIALITY LEVEL TYPE OF REPORT COMMENTS

Scope of the audit has been restricted Highly material Disclaimer

because the client refuses to allow the auditor to expand the scope of his audit, a disclaimer of opinion is appropriate rather than a qualified as to scope and opinion.

Failure to follow GAAP

Highly material or material. We need additional information regarding the auditor's preliminary judgment about materiality

Adverse (if highly material)or Qualified (if material)

The materiality of twenty percent of net earnings before taxes would be sufficient for many auditors to require an adverse opinion. That materiality question is a matter of auditor judgment.

Lack of independence Not applicableDisclaimer

Lack of independence by audit personnel on the engagement mandates a disclaimer for lack of independence.

None Not applicable UnqualifiedThe company has made a decision to follow a different financing method, which is adequately disclosed. There is no change of accounting principle.

Scope of the audit has been restricted Highly material Disclaimer

The auditor cannot issue an unqualified opinion on the income statement or the statement of cash flows because a disclaimer of opinion is necessary for the beginning balance sheet. The auditor may issue an unqualified opinion on the ending balance sheet and a disclaimer of opinion on the income statement, statement of cash flows, and the beginning balance sheet.

Scope of the audit has been restricted Highly material Unqualified

The auditor is able to satisfy him or herself that with the use of alternative procedures, a qualified opinion is not necessary.

ITEM NO. TYPE OF CHANGE

SHOULD AUDITOR'S REPORT BE MODIFIED?

1 An error correction not involving an accounting principle. no

2An accounting change involving a correction of an error in principle, which is accounted for as a correction of an error. yes

3An accounting change involving a change in the reporting entity, which is a special type of change in accounting principles. yes

4

An accounting change involving both a change in accounting principle and a change in accounting estimate. Although the effect of the change in each may be inseparable and the accounting for such a change is the same as that for a change in estimate only, an accounting principle is involved. yes

5

An accounting change involving a change from one generally accepted accounting principle to another generally accepted accounting principle. yes

6An accounting change involving a change in an accounting estimate. no

7 Not an accounting change but rather a change in classification. no

8An accounting change from one generally accepted accounting principle to another generally accepted accounting principle. yes

5.1.5 DISCUSS THE ELEMENTS IN EACH OF THE

AUDIT REPORT

1. Title of report.- The auditor’s report should be appropriately titled so that it

is clear to the user that the financial statements have been audited.

- The title will also distinguish the auditor’s report from reports for non-audit engagements and other statements contained in the annual report such as the director’s report or the chairman’s statement.

2. Addressee.- The auditor’s report should be appropriately addressed as

required by the purpose and circumstances of the engagement.

- For audit of financial statements under the Companies Act, the auditor’s report must be addressed to the members or shareholder of the company.

3. Introductory paragraph.- Should state clearly that the financial statements have been

audited.- It should also identify the financial statements that have been

audited by stating the name of the entity, title of the financial statements and the date and period covered by the financial statements.

- When the audited financial statements are contained in an annual report, the auditor may identify them by referring to the page numbers on which the financial statements are presented.

4. management’s responsibility.- The act requires the directors of the company to present at

the AGM financial statements that give a true and fair view of the financial position and performance of the company and such financial statements must also be prepared in accordance with approved accounting standard.

- The auditor’s report should clearly state that the financial statements are responsibility of the company’s directors.

5.auditor’s responsibility.- to form an independent opinion on the financial statements

based on the audit.- This is to distinguish the auditor’s responsibility from that of

the directors.

6. Scope paragraph.

- should make reference to established auditing standards and communicate to the members, in very general terms, what an audit entails.- conducted in accordance with Approved Standards on

Auditing in Malaysia, which are ISAs adopted by MIA.

- emphasis that these auditing standards require the auditor to obtain reasonable assurance that the financial statements contain no material misstatement.- the scope paragraph also describes that an audit involved: Examination of evidence of a test basis. Assessing the accounting principles used in preparing the

financial statements. Assessing the significant estimates made by management. Evaluation of the overall financial statements presentations.

7. Opinion paragraph.- should contain a clear expression of opinion unless the

auditor is unable to do so.- should contain an opinion stating whether the financial

statements give a true and fair view in accordance with an applicable financial reporting framework.

- should indicate clearly the financial reporting framework used to prepare the financial statements.

- The use of the phrase ‘give a true and fair view’ is to conform to the requirement of the Act (section 174).

- should also state whether the financial statements comply with the statutory requirements.

8. Other reporting responsibilities

- to expressing an opinion on the financial statements arise mainly from statutory or regulatory requirement.- For example, the Act requires the auditor to express an

opinion on the accounting and other record and registers of the company, in addition to an opinion on the true and fair view of the financial statements.

9. Name and signature of auditor.- normally signed in the name of the audit firm and also the

personal name of the audit partner responsible for the audit engagement.

10. Date of report.- All audit reports should be dated.- dated as of the date on which the auditor has completed all

significant auditing procedure.- The auditor’s report date indicates to the user the last day of

the auditor’s responsibility for the review of significant events that have occurred after the date of the financial statements.

- should not be earlier than the date financial statements are signed and approved by the directors and ready for issuance to the members of the company.

11. Auditor’s address.

- should name a specific location in the country or jurisdiction where the auditor practices.

- This is normally the city where the auditor maintains the office that is responsible for the audit.

5.1.6 DESIGN THE REPORT FOR EACH TYPE Page 592 (example unmodified report)- Title- Addressee- Management’s responsibility- Scope paragraph- Opinion paragraph- Name and signature of auditor- Address- Date of report

5.2 KNOW THE AUDITOR’S RESPONSIBILITIES

5.2.1 DESCRIBE AUDITOR’S RESPONSIBILITIES obtaining reasonable assurance that the

financial statements as a whole are free from material misstatement.

to express an opinion on the financial statements based on the audit.

state that the auditor believes that the audit evidence the auditor has obtained is sufficient and appropriate to provide a basis for the auditor’s opinion.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.

designed to assist the auditor in identifying material misstatement of the financial statements due to non compliance with laws and regulations.

5.2.2 DISCUSS MATTERS THAT AFFECT AND DO NOT AFFECT THE AUDITOR’S RESPONSIBILITIES

MATTERS THAT DO AFFECT THE AUDITOR’S RESPONSIBILITIES Limitation on Scope a. Imposed by the entity - the auditor would ordinarily not accept such

a limited engagement as an audit engagement, unless required by statute.

b. Imposed by circumstances- when the timing of the auditor’s appointment

is such that the auditor is unable to observe the counting of physical inventories

MATTERS THAT DO NOT AFFECT THE AUDITOR’S RESPONSIBILITIES

a. The emphasis of matter paragraph- would ordinarily to highlight a material

matter regarding a going concern problem.

b. significant uncertainty- whose outcome depends on future

actions or events not under the direct control of the entity but that may affect the financial statements.

c. amendment to other information- in a document containing audited financial

statements is necessary and the entity refuses to make the amendment, the auditor would consider including in the auditor’s report an emphasis of matter paragraph describing the material inconsistency.