COMPLETION STAGE OF THE FINANCIAL STATEMENTS AUDITS IN AUDITING INFORMATICS SERVICES HO CHI MINH CITY LIMITED COMPANY (AISC) DA NANG BRANCH

 Types of subsequent events : There are two types of events according to VAS 23: the first is adjusting events afterthe balance sheet date: those events that provide evidence of conditi

COMPLETION STAGE OF THE FINANCIAL STATEMENTS AUDITS IN AUDITING & INFORMATICS SERVICES HO CHI MINH CITY LIMITED

COMPANY (AISC) - DA NANG BRANCH

INTRODUCTION INDEX APPENDIX REFERENCES

1 Vietnamese Accounting Standard no.18 Provision, Contingent Assets and

4 International Accounting Standard

5 Vietnamese Standards on Auditing

6 AU Section 341 The Auditor's Consideration of an Entity's Ability to Continue as

a Going Concern

7 VAS 23 - Events after balance sheet date (Issued in pursuance of the Minister of Finance Decision No 12/2005/QD-BTC dated 15 February 2005)

8 VAS 18

9 VSA 230 - Audit Documentation

10 VSA 260 – Communications of audit matters with those charged with

governance

11 VSA 560: Events after balance sheet date

12 VSA 570:Going concern

13 VSA 580

14 VSA 700 (Vietnamese Standard on Auditing no.700)

15 VSA 705 – audit opinion that is not opinion accepted wholly

Part I: Principles of audit work in completion stage of the financial statement audits

1 An overview of an audit of financial statement

1.1 Definition an audit of financial statements

Auditing refers to a systematic and independent examination of books, accounts,documents and vouchers of an organization to ascertain how far the financialstatements present a true and fair view of the concern It also attempts to ensure that thebooks of accounts are properly maintained by the concern as required by law So anaudit of financial statement is collecting and evaluating auditor’s audit evidences inorder to verify the truth and fairness of the financial statements

1.2 Characteristics of financial statement audits

Financial statement is a direct and major object in audit process It has animportant role for external user and internal user because it is to provide informationabout the financial position, performance and changes in financial position of anenterprise that is useful to a wide range of users in making economic decisions.International accounting standard and Vietnamese accounting standard requires that all

of enterprise operating in Vietnam must declare financial statement at the balance sheetdate The basic financial statements of an enterprise include the balance sheet, incomestatement, cash flow statement, and footnote However, financial statement is notunique object of auditing To verify and express an opinion, the auditor also gatheraudit evidences to ensure the trueness and the fairness of accounting information bycomparing data with documents (nominal legal, journal,…), voucher (payment order,receipt voucher,…)

Subjects of an audit of financial statement are independent auditors, internalauditors or government auditor In reality, independent auditor is the most regularsubject participating in the audit Because auditing financial statement is their serviceand they are normally sufficiently independent to conduct audits that can be relied on

Although every audit project is unique, the audit process is similar for mostengagements and normally consists of three stages: Planning, Implement, Completion

In implementing phase, the auditors will check from generality to details It means theywill check following order: financial statement  general  journal  voucher.

The final phase in the audit process is to evaluate the results of the audit evidenceand choose the appropriate audit opinion to issue The auditor’s report is the mainproduct of the audit The audit report communicates the auditor’s findings to the users

of the financial statements

2 The audit process

2.1 Planning phase

Auditing standards require the auditors must have a plan before performing theaudit This is to ensure that the auditors conduct the audit by an effective and efficientmanner The plan can help the auditors give suitable attention to important areas ofaudit, identify and resolve problems in timely manner or facilitate auditor to direct,supervise and review the work of team member… Some procedures performed in thisprocedure are accepting a new client or confirming the continuance of a current client,understanding the entity and its environment, obtaining an understanding of internalcontrol, assessing the risk of material misstatement, calculating planning materiality,developing a response to assessed risk After performing all these procedures, theauditor can develop the overall audit strategy and the detailed audit plan So the result

of the auditor’s planning process is a written plan that sets forth the overall auditstrategy and the nature, extent, and timing of the audit If the audit is not properlyplanned, the auditor may conduct an inefficient audit or issue an incorrect audit report(Crous et al, 2012)

2.2 Implementing phase

After the auditor has planned the audit, the auditor needs to accumulate sufficientappropriate evidence to support the opinion issued The auditor gathers evidences byperforming audit procedures such as examination of documents, inspection oftangible assets, recalculation, observation, confirmation, inquiry, reperformance,analytical procedures These audit procedures consists of test of controls andsubstantive procedures Test of controls are performed to test the system because theauditor wants to consider whether controls can be reliable or not If it does, theauditor can rely on it to gather persuasive evidence to support opinion If it does not,the auditor needs to perform substantive procedures to obtain sufficient andappropriate audit evidence to express an audit opinion When performing theseprocedures, the auditor can perform either manual tests and/or use computer-assistedaudit techniques (CAATs)

2.3 Completing phase

After completely gather evidence, the audit enters the completion phase In thisphase, the auditor evaluates sufficiency and appropriateness of the evidence gathered.The next stage is to determine the final materiality figure and to evaluate allmisstatements identified The list of identified misstatements is discussed with theclient, and the client is given the opportunity to correct some or all of the identifiedmisstatements should they wish to do so During the completion phase the auditor alsocarries out an overall evaluation of the financial statements, an assessment theappropriateness of preparing the financial statements on a going-concern basis as well

as identifying possible subsequent events which have not been correctly disclosed inthe financial statements, reviewing for contingent liabilities After performing all theseprocedures, the auditor needs to make a conclusion and formulate an audit opinion

3 Procedures at completion stage of auditing financial statement

3.1 Overview of completing audit process

After performing test of control and substantive test, gathering appropriatesufficient evidence, the auditors have base to give opinion about the entity’s financialstatement The senior auditor will collects all working paper and audit evidences frommember However, to have more evidence to improve and support conclusion offinancial statement, the auditor commonly review some contents such as: contingentliabilities and commitments, subsequent events, going concern assumption Then thesenior auditor evaluates overall audit results, prepares audit report draft, discusses withclient and issues the audit report based on result collected during the audit process

Figure 1: Steps of the completion phase

3.2 Audit works in completion phase

3.2.1 Preparing for completion audit

a Review for contingent liabilities and commitments

 Definition and cause

Accounting to Vietnamese Accounting Standard 18 (VAS 18), “A contingentliability is a possible obligation that arises from past events and whose existence will

be confirmed only by the occurrence or non-occurrence of one or more uncertain futureevents not wholly within the control of the enterprise; or a present obligation that arisesfrom past events but is not recognized because: It is not probable that an outflow ofresources embodying economic benefits will be required to settle the obligation; or theamount of the obligation cannot be measured with sufficient reliability.” In general,enterprise only recognizes a contingent liability if an outflow of resources embodyingeconomic benefits has occurred In case it has occurred, an enterprise shall disclose foreach class of contingent liability at the balance sheet date the following: an estimate ofcontingent liability's financial effect; a sign of the uncertainties relating to the amount

or timing of any outflow; and the possibility of any reimbursement

If present obligation exists surely and an enterprise can reliably estimate amount,

it must recognize a provision at the balance sheet date However if there is uncertainty

about present obligation’s existence and amount can not be estimated reliably, theenterprise discloses a contingent liability at the balance sheet date on footnote because

it can influence to investor’s economic decision and whether it really exists, it willsignificantly effect on the enterprise’s financial reality If obligation liability’slikelihood is very low, the enterprise must not disclose it on footnote

 Audit procedures:

During this last phase of the audit, auditors carry out audit procedures related tocontingent liabilities The auditor must judge to evaluate the client‘s appropriatetreatment applied because contingent liabilities are potential liabilities that must bedisclosed in the client’s footnotes So the auditor must make sure that the disclosure iscomplete and accurate There are some audit procedures commonly used in order tosearch for contingent liabilities:

 Inquire of management (orally and in writing) about the possibility of unrecordedcontingencies Because the management can miss a contingency or does notunderstand fully about requirement of disclosure contingent liabilities onfootnotes so the auditor must be particular in describing the different kinds ofcontingencies At the completion of the audit, auditors typically ask management

to make a written statement as a part of the letter of representation that it is aware

of no undisclosed contingent liabilities Naturally, Intentional failure tocontingency’s disclosure can not be detected by inquire of management

 Review the minutes of directors’ and stockholders’ meetings for evidence of lawsuits or other contingent liabilities or examine audit documentation for any information that may indicate a potential contingency

 Analyze legal expense for the period under audit and examine invoices andstatements from legal counsel for signs of contingent liabilities, especiallylawsuits and pending tax assessments

 Send a letter to each major attorney performing legal services for the client in order to collect information about the status of pending litigation or other

contingent liabilities Examine letters of credit in force as of the balance sheet date and obtain a confirmation of the used and unused balances This procedure isexamined in more depth shortly

 Examine letters of credit in force as of the balance sheet date and obtain aconfirmation of the used and unused balances

After collecting evidence through performing audit procedures, the auditors evaluatewhich case must be disclosed about contingent liabilities on the footnotes.

Figure 2: Review of contingent liabilities

b Review for subsequent events

 Definition

Some events and transaction occurred after the balance sheet date and they arecalled subsequent events They can affect on the fair presentation or disclosure of thecurrent period statement So the auditor must review for subsequent events to detectthis effect From beginning with the balance sheet date to ending with the date of theauditor’s report, the auditor is in charge of reviewing for subsequent events Becausethe date of the auditor’s report is similar to the completion of the important auditingprocedures in the client’s office, the subsequent events review should be completednear the end of the audit According to Vietnamese Accounting Standard 23 (VAS23)-“Events after the balance sheet date are those events, both favourable orunfavourable, that occur between the balance sheet date and the date when the financialstatements are authorized for issue.”

contingent liabilities

Contingent liabilities

surely exist and

amount can be reliably

estimated

Recognize a provision

The likelihood of contingent liabilities

is low

Non-disclosure the footnote

Contingent liabilities

do not surely exist and amount can not be measured

Disclosure on footnote

 Types of subsequent events :

There are two types of events according to VAS 23: the first is adjusting events afterthe balance sheet date: those events that provide evidence of conditions that existed atthe balance sheet date and the second is non-adjusting events after the balance sheetdate: those events that are indicative of conditions that arose after the balance sheetdate

Figure 4: review for subsequent events after the balance sheet date

 Subsequent events have a direct effect on the financial statements and require adjustment of the current year’s financial statement amounts

Adjusting events: these are events providing additional evidence relating toconditions existing at the balance sheet date: they require adjustments in the financialstatement provided that it is material According to Vietnamese Standards on Auditingnumber 560: events after the balance sheet date (VAS 560), the following are examples

of adjusting events after the balance sheet date that require an enterprise to adjust theamounts recognized in its financial statements, or to recognize items that were notpreviously recognized:

- The resolution after the balance sheet date of a court case which, because itconfirms that an enterprise already had a present obligation at the balance sheetdate, requires the enterprise to adjust a provision already recognized, or torecognize a new provision or recognize new receivables or payables;

- The receipt of information after the balance sheet date indicating that an assetwas impaired at the balance sheet date, or that the amount of a previouslyrecognized impairment loss for that asset needs to be adjusted

- The determination after the balance sheet date of the cost of assets purchased,

or the proceeds from assets sold before the balance sheet date;

Subsequent events

Ajusting events

Non-adjusting events

Disclosure on footnote Non-disclosure on footnote

- The discovery of fraud or errors that show that the financial statements wereincorrect.

 Subsequent events have no direct effect on the financial statement amounts but for disclosure is required.

Non adjusting events: are events concerning conditions which arose after thebalance sheet date, but which may be of such materiality that their disclosure isrequired to ensure that the financial statements are not misleading Financial statementsare not adjusted with non adjusting events An enterprise does not adjust the amountsrecognized in its financial statements for the investments If non-adjusting events afterthe balance sheet date are material, non-disclosure could influence the economicdecisions of users taken on the basis of the financial statements Accordingly, anenterprise should disclose the following information for each material category of non-adjusting event after the balance sheet date: the nature and amount of the event and anestimate of its financial effect, or a statement that such an estimate cannot be made

An example of a non-adjusting event after the balance sheet date is: a decline inmarket value of investments such as capital contributions in join ventures andInvestments in Associates between the balance sheet date and the date when thefinancial statements are authorized for issue; the fall in market value does not normallyrelate to the condition of the investments at the balance sheet date, but reflectscircumstances that have arisen in the following period

 Audit procedures:

Vietnamese standards on auditing 560 (VSA 560) establishes standards and provides guidance on auditors’ responsibility regarding “subsequent events” occurring:

Auditors' responsibility regards "subsequent events" occurring:

- Between the period end and the date of the auditor's report

- Between the date of the auditors' report and the issue of the financial statements-After the financial statements have been issued

To determine whether subsequent events require adjustment in financial statements, theauditor carries out the following audit procedures:

Events occurring between the Date of the Financial Statements and the Date of the Auditor’s Report

The auditor shall perform audit procedures designed to obtain sufficient appropriate audit evidence that all events occurring between the date of the financial statements and the date of the auditor’s report that require adjustment of, or disclosure in, the financial statements have been identified However the auditor is not expected to perform additional audit procedures on matters to which previously applied audit procedures have provided satisfactory conclusions The procedures to identify

subsequent events which may require adjustment of, or disclosure in, the financial statements are performed as near as practicable to the date of the auditor’s report and generally include some or all of the following:

- Certain specific procedures are applied to transactions occurring after thebalance-sheet date such as the examination of data to assure that proper cutoffshave been made and the examination of data which provide information to aid theauditor in his evaluation of the assets and liabilities as of the balance-sheet date

- Enquiring and considering the effectiveness of the procedures management hasestablished to ensure that subsequent events are identified

- Reading minutes of the meetings of members, the board of directors and audit andexecutive committees held after period end and enquiring about matters discussed

at meetings for which minutes are not yet available

- Reviewing relevant accounting records and reading the entity’s latest availablefinancial information, such as interim financial statements, budgets, cash flowforecasts and other related management reports

- Making enquires of management as to whether any subsequent events haveoccurred which might affect the financial statements

After performing audit procedure, the audit shall determine whether each such event isappropriately reflect in those financial statements in accordance with the applicablefinancial report framework The auditor shall request management to provide a writtenrepresentation in accordance with VSA that all events occurring subsequent to the date

of the financial statements and for which the applicable financial reporting frameworkrequires adjustment or disclosure have been adjusted or disclosed

Facts which become known to the auditor after the date of the auditor’s report but before the date the financial statements are issued

The auditor has no obligation to perform any audit procedures regarding the financial statements after the date of the auditor’s report However, if, after the date of the auditor’s report but before the date the financial statements are issued, a fact

becomes known to the auditor that, had it been known to the auditor at the date of the auditor’s report, may have caused the auditor to amend the auditor’s report, the auditor shall: discuss the matter with management and, where appropriate, those charged with governance; determine whether the financial statements need amendment and inquire how management intends to address the matter in the financial statements

If management amends the financial statements, the appropriate action is for the auditors to carry out the audit procedures necessary in the circumstances on the

amendment, to extend the procedures referred under paragraphs 10, 11 on Vietnam standards on Auditing 560 (VSA 560) to the date of the new audit report and to provide

a new report on the amended financial statements The new auditor’s report shall not bedated earlier than the date of approval of the amended financial statements

When the directors do not amend the financial statements before issuing them, in circumstances where the auditors believe they need to be amended, if the auditor’s report has not yet been provided to the entity, the auditor shall modify the opinion and then provide the auditor’s report or if the auditor’s report has already been provided to the entity, the auditor shall notify management and, unless all of those charged with governance are involved in managing the entity, those charge with governance, not to issue the financial statements to third parties before the necessary amendments have been made If the financial statements are nevertheless subsequently issued without the necessary amendments, the auditor shall take appropriate action to seek to prevent reliance on the auditor’s report

Subsequent events discovered after financial statement are issued.

After the financial statements have been issued, auditors have no obligation to perform procedures or make enquiries regarding such financial statements When, afterthe financial statements have been issued, auditors become aware of subsequent events which, had they occurred and been known of at the date of their report, might have caused them to issue a different report, they should consider whether the financial statements need amendment, discuss the matter with the directors, and consider the implications for their report, taking additional action as appropriate

When the directors revise the financial statements, the appropriate action for the auditor to take includes:

- Performing the audit procedures necessary

- Reviewing the steps taken by the directors to ensure that anyone in receipt ofthe previously issued financial statements together with the auditors’ reportthereon is informed of the situation

- Issuing a new report on the revised financial statements

If management does not take the necessary steps to ensure that anyone in receipt

of the previously issued financial statements is informed of the situation and does notamend the financial statements in circumstances where the auditor believes they need

to be amended, the auditor shall notify management and, unless all of those chargedwith governance are involved in managing the entity, those charged with governance,that the auditor will seek to prevent future reliance on the auditor’s report If, despitesuch notification, management or those charged with governance do not take thesenecessary steps, the auditor shall take appropriate action to seek to prevent reliance onthe auditor’s report

c Evaluation going concern assumption

 Definition:

According to VSA 570: going concern state that “An entity is assumed as a goingconcern for the foreseeable future, normally not exceeding one year after period end,that is, the entity is assumed to have neither the intention nor the need to liquidate orcurtail materially the scale of its operations, or seek protection from creditors inaccordance with relevant laws and prevailing regulations.”

 Indications lead to substantial doubt about the entity's ability to continue

as a going concern

Financial indications

- Net liability or net current liability position;

- Fixed-term borrowings approaching maturity without realistic prospects of

renewal or repayment; or excessive reliance on short-term borrowings tofinance long-term asset;

- Indications of withdrawal of financial support by debtors and other creditors;

- Negative operating cash flows indicated by historical or prospective financial

statements

- Adverse key financial ratios;

- Substantial operating losses or significant deterioration in the value of

assets used to generate cash flows;

- Arrears or discontinuance of dividends;

- Inability to pay creditors on due dates;

- Inability to comply with the terms of loan agreements;

- Change from credit to cash-on-delivery transactions with suppliers; and,

- Inability to obtain financing for essential new product development or

other essential investments

Operating indications

- Loss of key management without replacement;

- Loss of a major market, franchise, license, or principal supplier; and,

- Labor difficulties or shortages of important supplies

- Non-compliance with capital or other statutory requirements;

- Pending legal or regulatory proceedings against the entity that may, if

successful, result in claims that are unlikely to be satisfied;

- Changes in legislation or government policy expected to adversely affect

the entity; and,

Other indications

 Audit procedures

The auditor and audit firm’s responsibility is to consider the appropriateness of

management’s use of the going concern assumption in the preparation of thefinancial statements, and consider whether there are material uncertainties aboutthe entity’s ability to continue as a going concern that need to be disclosed in thefinancial statements

The auditor and the audit firm cannot predict future events or conditions that maycause an entity to cease to continue as a going concern Accordingly, the absence ofany reference to going concern uncertainty in an auditor’s report cannot beviewed as a guarantee as to the entity’s ability to continue as a going concern

When events or conditions have been identified which may cast significantdoubt on the entity’s ability to continue as a going concern, the auditor and the auditfirm should:

- review management’s plans for future actions based on its going concern

assessment;

- gather sufficient appropriate audit evidence to confirm or dispel whether or

not a material uncertainty exists through carrying out proceduresconsidered necessary, including considering the effect of any plans ofmanagement and other mitigating factors;

- Analyzing and discussing cash flow, profit and other relevant forecasts

with management; the entity's latest available interim financial statements

- Reading minutes of the meetings of shareholders, Board of Management

and Directors and important committees for reference to financing difficulties

- Inquiring of the entity's lawyer regarding the existence of litigation and claims

and the reasonableness of management’s assessments of their outcome and the estimate

of their financial implications

If, after considering identified conditions and events and management's plans, theauditor concludes that substantial doubt about the entity's ability to continue as a goingconcern for a reasonable period of time remains, the audit report should include anexplanatory paragraph (following the opinion paragraph) to reflect that conclusion Theauditor's conclusion about the entity's ability to continue as a going concern should beexpressed through the use of the phrase "substantial doubt about the entity's ability tocontinue as a going concern" or similar wording that includes the terms substantial

doubt and going concern as illustrated under paragraph 32 and 33 on Vietnamese

standards on Auditing – VSA 570: going concern

In case, in the judgment of the auditor and the audit firm, the entity will not beable to continue as a going concern, the auditor and the audit firm should express anadverse opinion if the financial statements have been prepared on a going concernbasis If, on the basis of the additional procedures carried out and the informationobtained, including the effect of management’s plans, the auditor's judgment is that theentity will not be able to continue as a going concern, the auditor concludes, regardless

of whether or not disclosure has been made, that the going concern assumption used inthe preparation of the financial statements is inappropriate and expresses an adverseopinion

3.2.2 Evaluation, accumulation result

a Perform final analytical procedures

During completion of the audit, the auditor must perform analytical procedures because they are useful to finally review for material misstatements or financial

problems not noted during other testing Furthermore, they also help the auditor take a final objective look at the financial statements The auditor commonly uses this

procedure during the final review of audit documentation and financial statements This procedure will be effective and helpful if the auditor has a good understanding of the client and business because this knowledge combined with effective analytical procedures helps the auditor identify possible oversights in an audit

The auditor usually reads the financial statements, footnotes when performing analytical procedures during the final review stage, and considers: the adequacy of evidence collected about unusual or unexpected account balances or relationships identified during planning or while conducting the audit; unusual or unexpected

account balances or relationships that were not previously identified; results from final analytical procedures may indicate that additional audit evidence is necessary

b Evaluate sufficient appropriate audit evidences

To finally evaluate whether sufficient appropriate evidence has been

accumulated, the auditor reviews the audit documentation for the entire audit to

determine whether all material classes of transactions, accounts and disclosures have been adequately tested, considering all circumstances of the audit The auditors must make sure that they accurately complete and document all parts of the audit program and all audit objectives have been met The auditors also often use an audit completion checklist to remind items that may have been overlooked If auditors conclude that evidence has not been obtained sufficiently to decide whether the financial statements are fairly presented, they have two options: accumulate additional evidence or issue either a qualified opinion or a disclaimer of opinion

c Overall evaluation misstatements identified

In this step, the auditor will aggregate the total identified misstatements and determines if it causes the financial statements to be materially misstated by comparing

to the final materiality figure Then, the auditor discusses with the client about

identified misstatements and the client has opportunity to correct some or all of the

identified misstatements that they wish to do so If the uncorrected misstatements are not material, the auditor may issue a report with an unqualified opinion If the

uncorrected misstatements are judged to be material, the auditor issues an opinion that demonstrates that the financial statements are materially misstated

d Audit documentation review

The auditor must review audit documentation at the completion of the audit in order to evaluate the performance of inexperienced personnel; to make sure that the audit meets the CPA firm’s standard of performance The review of audit

documentation should be conducted by someone who has knowledges about the client and the circumstances in the audit In general, the least experienced auditor’s work is ordinarily reviewed by the audit senior The senior’s superior reviews the senior’s workand the schedules of the inexperienced auditor Finally, the partner assigned to the audit must ultimately review all audit documentation, but the partner reviews those prepared by the supervisor or manager more carefully than the others During the reviewing period, each reviewer discusses audit documentation prepared by each auditor to learn how significant audit issues were resolved Most audit documentation review is done as each segment of the audit is completed

2.2.1 Issue an audit report

controls, also find this information valuable

b Part of standard audit report

According to Vietnamese Standard on Auditing 700 “The auditor's report on

financial statements”

1 Report title Auditing standards require that the report be titled and that the titleinclude the word independent For example, appropriate titles include “independentauditor’s report,” “report of independent auditor,” or “independent accountant’s

opinion.” The requirement that the title include the word independent conveys to usersthat the audit was unbiased in all aspects.

2 Audit report address The report is usually addressed to the company, itsstockholders, or the board of directors In recent years, it has become customary toaddress the report to the board of directors and stockholders to indicate that the auditor

is independent of the company

3 Introductory paragraph The first paragraph does three things: First, it makes thesimple statement that the CPA firm has done an audit This is intended to distinguishthe report from a compilation or review report Second, it lists the financial statementsthat were audited, including the balance sheet dates and the accounting periods for theincome statement and statement of cash flows Third, the introductory paragraph statesthat the statements are the responsibility of management and that the auditor’sresponsibility is to express an opinion on the statements based on an audit

4 Scope paragraph The scope paragraph is a factual statement about what the auditordid in the audit

5 Opinion paragraph The final paragraph in the standard report states the auditor’sconclusions based on the results of the audit

6 Name of CPA firm The name identifies the CPA firm or practitioner who performedthe audit

7 Audit report date The appropriate date for the report is the one on which the auditorcompleted the auditing procedures in the field

c Types of audit’s opinion in audit report

VSA 700 mentions two types of audit’s opinion in audit report Based on the auditevidence, if the auditor concludes that the financial statements are prepared, in allmaterial respects, in accordance with the applicable financial reporting framework;

they will express an unqualified opinion If the auditor concludes that the financial

statements are not free from material misstatement at all or can not obtain sufficient

appropriate audit evidence to conclude this, the auditor shall express audit opinion that

is not unqualified opinion in the auditor’s report in accordance with VSA 705 – audit

opinion that is not opinion accepted wholly

 Unqualified opinion

The auditor shall express an unmodified opinion when the auditor concludes that thefinancial statements are prepared, in all material respects, in accordance with theapplicable financial reporting framework The unqualified opinion does not necessarilymean that the financial statements are completely accurate but that they may containcertain immaterial misstatements according to the auditor's judgments This is the besttype of report a business can receive.

When expressing an unqualified opinion on financial statements prepared inaccordance with a fair presentation framework, the auditor’s opinion shall, unlessotherwise required by law or regulation, use one of the following phrases, which areregarded as being equivalent: The financial statements present fairly, in all materialrespects, … in accordance with [the applicable financial reporting framework]; or Thefinancial statements give a true and fair view of … in accordance with [the applicablefinancial reporting framework]

 Audit opinion that is not opinion accepted wholly

Vietnamese Standards on Auditing 705: “audit opinion that is not opinion accepted wholly” – (VSA 705) provides guidance on how auditor’s report needs to be modified

if expressing a normal opinion is not appropriate in case financial statements aremisstated

The auditor shall modify the opinion in the auditor’s report in the followingcircumstances: based on the audit evidence, the auditor concludes that the financialstatements as a whole are not free from material misstatement or they can not gatherpersuasive audit evidence to conclude that the financial statements are free frommaterial misstatement at all

Type of Modification to the Auditor’s Opinion Qualified Opinion: there are three

types of modification to the auditor’s opinion qualified opinion: qualified opinion,adverse opinion and disclaimer of opinion

Qualified opinion

A qualified opinion is expressed when: the auditor obtained sufficient appropriate auditevidence then concludes that misstatements are material but not pervasive to thefinancial statements; or the auditor can not obtain sufficient appropriate audit evidence

on which to base the opinion, but the auditor concludes that the possible effects on thefinancial statements of undetected misstatements, if any, could be material but notpervasive

When the auditor expresses a qualified opinion due to a material misstatement in thefinancial statements, the auditor shall state in the opinion paragraph that, in theauditor’s opinion, except for the effects of the matters described in the Basis forQualified Opinion paragraph: The financial statements present fairly, in all materialrespects (or give a true and fair view) in accordance with the applicable financialreporting framework when reporting in accordance with a fair presentation framework;

or The financial statements have been prepared, in all material respects, in accordancewith the applicable financial reporting framework when reporting in accordance with acompliance framework When the modification arises from an inability to obtainsufficient appropriate audit evidence, the auditor shall use the corresponding phrase

“except for the possible effects of the matter(s) ” for the qualified opinion

When the auditor expresses a qualified opinion, the auditor shall amend the description

of the auditor’s responsibility to state that the auditor believes that the audit evidencethe auditor has obtained is sufficient and appropriate to provide a basis for the auditor’squalified audit opinion

Adverse Opinion

An adverse opinion is expressed when the auditor concludes that misstatements,individually or in the aggregate, are both material and pervasive to the financialstatements after having obtained sufficient appropriate audit evidence

When the auditor expresses an adverse opinion, the auditor shall state in the opinionparagraph that, in the auditor’s opinion, because of the significance of the matter(s)described in the Basis for Adverse Opinion paragraph: The financial statements do notpresent fairly (or give a true and fair view) in accordance with the applicable financialreporting framework when reporting in accordance with a fair presentation framework;

or The financial statements have not been prepared, in all material respects, inaccordance with the applicable financial reporting framework when reporting inaccordance with a compliance framework

When the auditor expresses an adverse opinion, the auditor shall amend the description

of the auditor’s responsibility to state that the auditor believes that the audit evidencethe auditor has obtained is sufficient and appropriate to provide a basis for the auditor’sadverse audit opinion

Disclaimer of Opinion

Disclaim an opinion is expressed when the auditor can not obtain sufficientappropriate audit evidence on which to base the opinion so the auditor concludes thatthe possible effects on the financial statements of undetected misstatements could beboth material and pervasive In extremely rare cases in involving multipleuncertainties, the auditor shall express a disclaimer of opinion and the concludes that,notwithstanding having obtained sufficient appropriate audit evidence regarding each

of the individual uncertainties, it is not possible to form an opinion on the financialstatements because of the potential interaction of the uncertainties and their possiblecumulative effect on the financial statements

When the auditor disclaims an opinion due to an inability to obtain sufficientappropriate audit evidence, the auditor shall state in the opinion paragraph that: (a)Because of the significance of the matter(s) described in the Basis for Disclaimer ofOpinion paragraph, the auditor has not been able to obtain sufficient appropriate auditevidence to provide a basis for an audit opinion; and, accordingly, (b) The auditor doesnot express an opinion on the financial statements

To comply with VSA 705, when the auditor disclaims an opinion due to an inability toobtain sufficient appropriate audit evidence, the auditor shall amend the introductoryparagraph of the auditor’s report to state that the auditor was engaged to audit thefinancial statements The auditor shall also amend the description of the auditor’sresponsibility and the description of the scope of the audit to state only the following:

“Our responsibility is to express an opinion on the financial statements based onconducting the audit in accordance with International Standards on Auditing Because

of the matter(s) 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.”

Figure 6: This flowchart is based on the requirements of the New Zealand equivalents

to the International Standards on Auditing No 700: Forming an Opinion and

Reporting on Financial Statements; No 705: Modifications to the Opinion in the Independent Auditor's Report; and No 706: Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor's Report.