AUDIT REPORTING

HOW TO PREPARE AUDIT REPORT UNDER INTERNATIONAL AUDITING STANDARDS

1. Title of the report

2. Addressee
3. Auditor's opinion
4. Basis for opinion
5. Material uncertainty related to going concern
6. Key audit matters for( listed companies )
7. Emphasis of Matter.
8. Other information
9. Responsibilities for management.
10.Auditor responsibilities
11.Report on Legal and other regulatory requirements.
12.Other matters if applicable
13.Signature
14.Auditor address
15.Date.
*emphasis of matter paragraph may be presented either before or after the key audit matter
section depending on auditor judgement .(TAAB MKEO RAR OSAD )

*SIGNATURE =reports of listed entities must show the name of engagement partner as well as the
name of audit firm .reports of non listed entities may be signed in the name of firm only .

EXPECTATION GAP

it is the difference between what an auditors responsibility actually is and what public perceive the
auditors responsibility to be .

the auditors report is not :

 a certificate of accuracy of the content of financial statement .

 guarantee against fraud .
 confirmation that an entity is being run in accordance with the principle of good corporate
governance .

UNMODIFIED REPORT

 if a financial statement is providing a true and fair view it means auditors opinion will be
unmodified and unqualified

MODIFIED REPORT

if financial statement contain material misstatement in one or two areas then opinion will be
qualified and auditor will use the words of except for ,rest is giving true and fair view

If financial statement are materially misstated and pervasive (large impact ) it means financial
statement are not providing true and fair view that’s why auditor will give modified opinion and
this modified opinion is called adverse opinion .

if auditor is unable to obtain sufficient appropriate audit evidences it is also called qualified
opinion where auditor will write except for ….
if financial statements are not only materially and pervasive but management is also unable to
provide sufficient appropriate audit evidences then auditor will give disclaimer of opinion ,which
means we are unable to provide opinion .

IMPACT OF DISCLAIMER OF OPINION

where a disclaimer of opinion is being issued :

 the statement that sufficient appropriate evidence to provide a basis for the auditors
opinion have been obtained is not included .
 the statement that financial statement have been audited is changed to ‘we were
engaged to audit the financial statement ‘
 the key audit matter section is not included in the report as to do so would suggest that
financial statement are more credible in relation to those matters which would be
inconsistent with the disclaimer of opinion on the financial statement as a whole .

BASIS FOR OPINION SECTION

WITHIN A REPORT CONTAINING AN UNMODIFIED OR MODIFIED OPINION

the basis for opinion refer to the professional standards the auditor has followed in order to be
able to form an opinion on the financial statement ,to provide confidence to the user that the report
can be relied upon .

WITHIN A REPORT CONTAINING A MODIFIED OPINION

when the auditor modifies the opinion ,the basis for opinion section will explain the reason why
the opinion is modified .

the title of the section must reflect the type of opinion being issued. therefore the auditor must
amend the heading ‘basis for opinion ‘ to basis for qualified opinion , basis for adverse opinion
and basis for disclaimer of opinion as appropriate .

where a qualified or adverse opinion is being issued ,the auditor must amend the statement ‘....the
audit evidence is sufficient and appropriate to provide a basis for auditor qualified or adverse
opinion ‘.

OTHER AUDIT REPORTING IMPLICATIONS

1) if financial statements are not giving certainty about the going concern or there is
material uncertainty about the going concern ,then the auditor will give unmodified
opinion .
2) if financial information and financial statements are inconsistent with each other then it is
referred to other information ,then the opinion will be unmodified .
3) matter of the fundamental importance is disclosed in the financial statement for the users
of the financial statements ,auditor will give emphasis on matter paragraph along with
unmodified opinion .
4) if matters are related to auditor then auditor will give its disclosure to the users of the
financial statements but there will be a paragraph which is called other matters
paragraph and opinion will be unmodified .
 5) auditor will provide basis for opinion while report is modified

ISA 260 (MATTER REQUIRING COMMUNICATION ) (UK syllabus )

1) A request that there should be amendment in all identified misstatements .

2) It covers matters related to auditors independence
3) It cover request for written representation
4) identify key audit matters
5) identify auditor responsibilities in relation to audit
6) planned scope and timing of audit
7) views regarding significant accounting practices and policies
8) significant difficulties which are encountered during the audit
9) there is a bonding of expected modification .

COMMUNICATION OF EFFICIENCY IN INTERNAL CONTROLS

under ISA 265 auditors are required to communicate identified deficiencies in internal controls on
timely basis .

auditor will determine either deficiencies are small or significant in total .

significant deficiencies must be communicated to those charged with governance .

communication should include followings :

1) A description of deficiency
2) explanation of their potential impact
3) explanation of why consideration of internal controls is relevant to the audit .
4) auditors report require management letters or finding from audit letters under ISA 260
and ISA 265 .

MATERIAL UNCERTAINTY RELATING TO THE GOING CONCERN

this section is included when there is a material uncertainty regarding the going concern status
which the director have adequately disclosed in the financial statement .the auditor uses this
section to draw attention of the user to the client disclosure note .

KEY AUDIT MATTER SECTION

ISA 701 require auditor of the listed company to determine key audit matters and to communicate
those matter in the auditor report .

key audit matters are those matters that in the auditors judgement were of most significance in
the audit ,and are selected from matters communicated to those charge with governance .

the auditor of non listed company ,on the request of management or those charged with
governance can include key audit matter in audit report .

key audit matters include :

 areas of higher assessed risk of material misstatement ,or significant risks identified in
accordance with ISA 315 .
  significant auditor judgement relating to areas in the financial statement that involve
significant management judgement ,including accounting estimates .
 the effect on the audit of significant events or transactions that occurred during the period .

EMPHASIS OF MATTER PARAGRAPH

emphasis of matter paragraph use to refer to the matter that has been appropriately presented
or disclosed in the financial statement by the director .the auditor judgement is that these matters
are of such fundamental importance to users understanding of the financial statement that the
auditor should emphasis the disclosure .

an emphasis of matter paragraph is used where :

 the financial statement have been prepared on a basis on a basis other than the going
concern basis .
 the corresponding figures have been restated .
 the financial statement have been recalled and reissued or when an auditor provides an
amended auditors report .

OTHER INFORMATION SECTION

other information refer to financial or non financial information , other than the financial statement
and auditors report thereon ,included in the entity annual report .

OTHER MATTER PARAGRAPH

other matter paragraph is included in the auditors report if the auditor consider it necessary to
communicate to the user regarding the matters other than those presented or described in the
financial statement ,and in the auditors judgement are relevant to understanding the audit ,the
auditors responsibility ,or the auditors report .