CHAPTER SIX

Audit Reports
 Audit report is the final step in the entire audit process and it
communicates the finding of audit engagement to users of the financial
statement.
 Reports are essential to audit and assurance engagements because they
communicate the auditor’s findings. Users of financial statements rely on
the auditor’s report to provide assurance on the company’s financial
statements.

By:-MULU.M
 There are four types of Audit Report:
1. Standard unqualified audit report
Types of Audit Report
2. Unqualified audit report with explanatory paragraph of modified wording
3. Qualified audit opinion
4. Adverse or disclaims

By:-MULU.M
1. Standard unqualified audit report:- is an audit report which is
issued when the following
Types conditions are meet:
of Audit Report
A. All type of financial statement:-when all the balance sheet, income
statement, statement of retain earning and statement of cash flow
are included in the financial statement.
B. When auditors persuaded that the three general standards and
standard of field work are follows in all respects in the audit
engagement.
C. The financial statements are presented in accordance with GAAP.
D. There are no circumstances requiring the addition of an
explanatory paragraph or modification of the wording of the report.

By:-MULU.M
Parts of standard unqualified audit report
The standard unqualified
Typesaudit
ofreport
Audithas the following seven paragraphs
Report
1.Report title:- 

Auditing standards require that the report be titled and that the title include

the word independent. For example, appropriate titles include “independent

auditor’s report,” “report of independent auditor,” or “independent

accountant’s opinion.” The requirement that the title include the word

independent conveys to users that the audit was unbiased in all aspects .

By:-MULU.M
 2. Audit report address
cont’d…
The report is usually addressed to the company, its stockholders, or the board
of directors. In recent years, it has become customary to address the report
to the board of directors and stockholders to indicate that the auditor is
independent of the company.

By:-MULU.M
 3. Introductory paragraph
The first paragraph of the report does three things:
cont’d…
First, it makes the simple statement that the CPA firm has done an
audit. This is intended to distinguish the report from a compilation
or review report.
Second, it lists the financial statements that were audited, including
the balance sheet dates and the accounting periods for the income
statement and statement of cash flows.
The wording of the financial statements in the report should be
identical to those used by management on the financial statements.

By:-MULU.M
 Third, the introductory paragraph states that the
statements are the responsibility
cont’d… of management and
that the auditor’s responsibility is to express an opinion
on the statements based on an audit. The purpose of
these statements is to communicate that management
is responsible for selecting the appropriate accounting
principles and making the measurement decisions and
disclosures in applying those principles and to clarify
the respective roles of management and the auditor.

By:-MULU.M
 4. Scope paragraph
 It is a factual statement about what the auditor did in the audit. The
cont’d…
statements in this paragraph should consist: -
 Compliance with GAAS/ISA
 The audit design to obtain reasonable assurance about the freedom
from material misstatement
 Discuss audit evidence
 Included the word ‘test basis’ to indicate sampling.

By:-MULU.M
 5. Opinion Paragraph
cont’d…
 The final paragraph includes conclusion. The opinion should be expressed as

opinion rather than the absolute facts (guarantee). This term "present fairly" is

used to show the investigation is beyond GAAP/IFRS.

6. Name of CPA Firm

 The name identifies the CPA firm or practitioner who performed the audit.

Typically, the firm’s name is used because the entire CPA firm has the legal and

professional responsibility to ensure that the quality of the audit meets

professional standards.

By:-MULU.M
 cont’d…
7. Audit Report date
 The appropriate date for the report is the one on which the auditor completed
the auditing procedures in the field. This date is important to users because it
indicates the last day of the auditor’s responsibility for the review of
significant events that occurred after the date of the financial statements.

By:-MULU.M
2. Unqualified Audit Report with explanatory paragraph /modified wording
 It is issued when a complete audit is performed with satisfactory result and
cont’d…
all the financial statements are presented in accordance with GAAP, but the
auditor believe that it is important to include explanatory paragraph or
modified the words in the part of standard unqualified audit report is issued
if the following conditions occurred;
A. Lack of consistent application of GAAP/IFRS
B. Substantial doubt about going concern
C. Auditor agrees with a departure from standard
D. Emphasis of Matter
E. Reports involving other auditors

By:-MULU.M
 The first four reports all require an explanatory paragraph. In each case, the
three standard report paragraphs are included without modification, and a
cont’d…
separate explanatory paragraph follows the opinion paragraph.
 Only reports involving the use of other auditors use a modified wording
report.
I. make no reference to other auditor
 When the other auditor audit immaterial portion of the financial statement,
the other auditor is closely supervise the principal auditor and the principal
auditor reviewed the work of other auditor.
 When the principal auditor make no reference to the other auditor standard
unqualified audit report will be issued.

By:-MULU.M
II. Make reference to the other auditor
cont’d… and opinion paragraph
All the introductory, scope
of the standard unqualified audit report will be
modified to include a word statement that explain
the work of others in the audit report.

By:-MULU.M
3. Qualified audit report:- is issued when the auditor conducting the other all
financial statement are fairly present, but the scope of the audit has been
restricted or financial statement cont’d…
are not presented in accordance with
GAAP/IFRS, the qualification can be both scope and opinion only.
I. Scope and opinion qualification:- It is issued when there is a scope restriction
II. Opinion only:- is issued when financial statement are not presented in
accordance with GAAP/IFRS. It is issued when there is no scope restriction

By:-MULU.M
4. Adverse or claim:- it is issued when the auditor conclude as the financial
statement are materially misstated after conducting audit.
cont’d…
Disclaimer: is issued when there is severe scope restriction/when the auditor is
not independent and unable to get sufficient and appropriate evidence, which
results lack of knowledge.

By:-MULU.M
I.    Standard Unqualified Audit Report.  
A. Pure/clean Version

 
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
By:-MULU.M
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