Auditors Report.pdf

8/14/2019 Auditors Report.pdf

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uditReports


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Parts of the Standard

Unqualified Audit Report

1. Report title

2. Addressee3. Introductory paragraph

4. Scope paragraph

5. Opinion paragraph6. Name & signature of auditor firm

7. Audit report date


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Report of the Auditors to the Members ofABC BERHAD (Company No: 12345-X)We have audited the financial statements set out on pages 10 to 55. These

financial statements are the responsibility of the Companys directors.

It is our responsibility to form an independent opinion, based on our audit,on the financial statements and to report our opinion to you, as a body, inaccordance with Section 174 of the Companies Act, 1965 and for no other

purpose. We do not assume responsibility to any other person for thecontents of this report.

We conducted our audit in accordance with applicable Approved Standardson Auditing in Malaysia. Those standards require that we plan and performthe audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by the directors, as well asevaluating the overall presentation of the financial statements. We believe

that our audit provides a reasonable basis for our opinion.


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In our opinion:a) the financial statements have been properly drawn up in accordancewith the provisions of the Companies Act, 1965 and applicable MASBApproved Accounting Standards in Malaysia so as to give a true andfair view of:i) the financial position of the Group and of the Company at 31December 2005 and of the results and the cash flows of the Group and

of the Company for the year then ended; andii) the matters required by Section 169 of the Companies Act, 1965 tobe dealt with in the financial statements; andb) the accounting and other records and the registers required by theAct to be kept by the Company and by its subsidiaries of which we

have acted as auditors have been properly kept in accordance with theprovisions of the Act.


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We are satisfied that the financial statements of the subsidiaries thathave been consolidated with the financial statements of the Companyare in form and content appropriate and proper for the purposes of thepreparation of the consolidated financial statements and we havereceived satisfactory information and explanations required by us forthose purposes.

The auditors report on the financial statements of the subsidiarieswere not subject to any qualification material to the consolidatedfinancial statements and did not include any comment required to bemade under Section 174(3) of the Act.

AUDIT FIRM

AUDIT PARTNER

DATE


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Four Categories

of Audit Reports

Standard unqualified

Qualified

Modified unqualified

report -Emphasis of matter

Adverse or disclaimer


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Modified Unqualified Report

(with Explanation)

1. Going concern uncertainty

2. Significant uncertainty due to pending

litigation

3. Non-compliance with approved accounting

standards but auditor agrees4. Emphasis of matter


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Going Concern Uncertainty

1. Significant recurring operating losses

or working capital deficiencies2. Inability of the company to pay its

obligations as they come due

3. Loss of major customers, the occurrence

of uninsured catastrophes

4. Legal proceedings, legislation, that might

jeopardize the entitys ability to operate


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Going Concern Uncertainty -

Disclosure

- Identify principal conditions that caused the

going concern uncertainty

- Describe managements plans

- State that there is a material uncertainty

relating to going concern conditions, & entity

may not be able to realise its assets/discharge

its liabilities in the normal course of business


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Going Concern Uncertainty

Disclosure example

After opinion paragraph.

Without qualifying our opinion, we draw attention to

Note X in the financial statements which indicates that the

company incurred a net loss of RMXXX during the year

ended 31.12.2005 and as of that date, the companys

current liabilities exceeded its total assets by RMXXX.

These conditions, along with other matters set forth in Note

X indicate the existence of a material uncertainty which

may cast significant doubt about the companys ability

to continue as a going concern.


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Significant uncertainty due to

pending litigation

After opinion paragraph.

Without qualifying our opinion, we draw attention to

Note X to the financial statements. The company is the

defendant in a lawsuit alleging infringement of certain

patent rights and claiming royalties and punitive damages.

The company has filed a counter claim, and preliminary

hearings and discovery proceedings on both actions are in

progress. The ultimate outcome of the matter cannot

presently be determined, and no provision for any liability

that may esult has been made in the financial statements.


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Auditor agrees with non-compliance

with approved accounting standards

- S.166A(4) of CA65directors need not

comply with a standard if they think that the

true & fair view would be affected

- Directors should:

(a) disclose this non-compliance in a Note

(b) disclose the financial effect of non-

compliance in a Note


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Auditor agrees with non-compliance

with approved accounting standards

Auditors report. Auditors should state:

(a) If standard was complied with, will the FS be true &

fair? (No)

(b) If No, to give the reasons for his opinion

(c) If the directors have disclosed the particulars of the

financial effect of non-compliance, to give his opinion

(d) If the directors have not disclose (c), to disclose the

quantified financial effect of the non-compliance


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Emphasis of a Matter

Under certain circumstances, the auditor may

want to emphasize specific matters regardingthe financial statements, even though the

auditor intends to express an unqualified opinion.


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Departures from an

Unqualified Opinion

1. Scope limitation

2. Departure fromaccounting standards


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Qualified Opinion

A qualified opinionreport canresult from a limitation on the

scope of the audit or failure to

follow generally accepted

accounting principles.


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Disclaimer of Opinion

It is issued when the auditor is unable

to be satisfied that the overall financialstatements are fairly presented.


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Adverse Opinion

It is used only when the auditor believes

that the overall financial statements areso materially misstated or misleading that

they do not present fairly the financial

position or results of operations and cashflows in conformity with accounting standards.


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Materiality

A misstatement in the financial statementscan be considered material if knowledge of

the misstatement would affect a decision

of a reasonable user of the statements.


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Levels of Materiality

Amounts are immaterial.

Amounts are material but do not overshadow

the financial statements as a whole.

Amounts are so material or so pervasive that

overall fairness of the statements is in question.


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Relationship of Materiality

to Type of Opinion

Materiality

Level

Significance in Terms of

Reasonable Users Decisions

Type of

Opinion

Users decisions are unlikely

to be affected.Immaterial Unqualified

Users decisions are likelyto be affected.Material Qualified

Users decisions are likely

to be significantly affected.

Highly

material

Disclaimer

or adverse


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Materiality Decisions

Scope

limitation

Audit report

UnqualifiedQualified scope

and opinionDisclaimer


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Scope Limitation

Qualified opinion

Introductory paragraph

Except as discussed in the following paragraph, we conducted our audit in

accordance with ... (scope paragraph)

We did not observe the counting of the physical inventories as of 31

December 2005, 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.

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 physical inventory quantities, the financial statements give a true and ...

(opinion paragraph).


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Scope LimitationDisclaimer

We were engaged to audit the accompanying balance sheet of the ABC

Company as of 31 December 2005, and the related statements of income and

cash flows for the year then ended. These financial statements are the

responsibility of the Companys management.(Omit the sentence stating the responsibility of the auditor).

(The paragraph discussing the scope of the audit would either be omitted or

amended according to the circumstances.)

(Add a paragraph discussing the scope limitation as follows:)

We were not able to observe all physical inventories and confirm accounts

receivable due to limitations placed on the scope of our work by the

Company. Because of the significance of the matters discussed in the

preceding paragraph, we do not express an opinion on the financial

statements.


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Materiality Decisions

Non-compliance with

accounting standards

Audit report

UnqualifiedQualified

opinion onlyAdverse


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Disagreement - Qualified opinion

We have audited ... (introductory paragraph).

We conducted our audit in accordance with ... (scope paragraph).

As discussed in Note X to the financial statements, no depreciation has beenprovided in the financial statements which practice, in our opinion, is not in

accordance with the Malaysian Financial Reporting Standards. The provision for

the year ended 31 December 2005, should be xxx based on the straight-line

method of depreciation using annual rates of 5% for the building and 20% for the

equipment. Accordingly, the fixed assets should be reduced by accumulateddepreciation of xxx and the loss for the year and accumulated deficit should be

increased by xxx and xxx, respectively.

In our opinion, except for the effect on the financial statements of the matter

referred to in the preceding paragraph, the financial statements give a true and ...(opinion paragraph).


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DisagreementAdverse

We have audited ... (introductory paragraph).

We conducted our audit in accordance with ... (scope paragraph).

(Paragraph(s) discussing the disagreement).

In our opinion, because of the effects of the matters discussed in the preceding

paragraph(s), the financial statements do not give a true and fair view of (or do

not present fairly) the financial position of the Company as of 31 December

2005, and of the results of its operations and its cash flows for the year thenended in accordance with Malaysian Financial Reporting Standards and

do not comply with ....


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Auditors Decision Process

Determine whether any condition exists

requiring a departure from a standardunqualified report.

Decide the materiality for each condition.

Decide the appropriate type of report.

Write the audit report.


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Scope limitation

Immaterial Material

Level of Materiality

ExtremelyMaterial

Unqualified

report

Qualified scope, additional

paragraph, and qualifiedopinion (except for)

Disclaimer

of opinion


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Non-compliance with

accounting standards

Immaterial Material

Level of Materiality

ExtremelyMaterial

Unqualified

report

Additional paragraph

and qualified opinion(except for)

Adverse

opinion


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Other information in documents

containing the audited FS (ISA 720)

Material inconsistency

- When other information differs/contradicts the audited FS

- E.g. Per audited FS, sales increase by 10%, but per Chairmans

statement, sales increase by only 5%Need to revise either the FS or the other information.

Material misstatement of fact

- inaccuracy/misstatement in other information

- E.g. Chairmans name is wrong

Need to read other info to identify inconsistenciesbecause it

may indicate a inconsistency in the audited FS


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Other information in documents

containing the audited FS (ISA 720)

Effect on auditors report

- If FS require amendment + entity refuses to amend

disagreementqualified/adverse opinion

- If FS is correct & other information is wrong + entity refuses toamendemphasis of matter paragraph describing the material

inconsistency, maybe legal advice

- Material misstatement of factdiscuss with managementif

mgt refuses to amendnotify top management/directors or

obtain legal advice


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Facts discovered after the date of the auditors

report (ISA 560 Subsequent Events)

Facts discovered before the FS are issued

- If FS are amendedissue a new auditors report (new date)

ensure subsequent events review performed up to date of new

auditors report- If management refuses to amend the FSnotify the directors

not to issue the FSbut if FS were subsequently released

take action to prevent reliance of auditors report (notify client,

regulatory agencies (CCM, SC), other relevant person/s

Facts discovered after the FS have been issued

- Request that client issue an immediate revision to the FSthen

issue new auditors report with emphasis of matter paragraph,

stating reason for the revised FSshould also ensure that

client informs relevant FS users (regulatory authorities, etc)


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Facts discovered after the date of the auditors

report (ISA 560 Subsequent Events)

Facts discovered after the FS have been issued

(Contd.)

- If client refuses to co-operatenotify theBOD & take steps to prevent reliance on

auditors report by notifying FS usersshould

also disclose the effect of the info on auditors

report.


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Private Exempt Auditors Certificate

- Annual reports submitted together with annual

audited FS

- But a private exempt company (PEC) can attachan auditors statement instead of the FS,

provided that the current liabilities do not

exceed current assets.

- Refer Exhibit 18-11 (Page 541)


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Reporting non-compliance with laws &

regulations & breaches of CA65

- Report to management/directors

- If it has a material effect on the FS

qualified/adverse opinion

- If scope limitation was imposed

qualified/disclaimer opinion

- Confidentiality ineffective if reporting is

required by law- Must report on all breaches of CA65 to CCM if

the matter cannot be dealt with in the auditors

report or by notifying the directors


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Special Purpose Audits

FS prepared on other comprehensive basis of

accounting

- Income tax basis, cash/modified cash basis,regulatory basis, price-level adjusted

- Auditors reportdisclose basis of accounting,

ensure that FS are approximately titled,

limitation on distribution


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Reporting on a component of FS

- e.g. revenue, fixed assets

- Usually more extensive than normal audit on theoverall FS

- Auditors reportscope refers to component

being audited, opinion refers to component,

limitation on distribution of report

- If a disclaimer/adverse opinion has been issued

on the entire FS, auditor cannot report on

components of FS


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Reporting on summarised FS

- Less detailed than annual audited FS

- Should not report on summarised FS unless auditor has

reported on the full FS

- Auditors report(a) cannot use true & fair

(b) identify the audited FS from which the summarised FS were

derived

(c) refer to the auditors report date on the full FS & the type ofaudit opinion given

(d) opinion of whether the financial info in the summarised FS is

consistent with the full FS

(e) a statement that for a better understanding of the financial

f d h f ll FS

Documents

Auditors Report.pdf