Lecture Auditing and assurance services (Second international edition) Chapter 18 Reports on audited financial statements

In this chapter, the learning objectives are Know the situations that result in the addition of explanatory language to the standard unqualified audit report, be able to explain the conditions that lead to a departure from the standard unqualifiedunmodified audit report,...

Reports on Audited Financial

Statements

Chapter Eighteen

Audit Report with an Unmodified Opinion

The audit report with an unmodified opinion is issued

when the financial statements conform to the applicable financial reporting framework.

The audit report with an unmodified opinion is issued

when the financial statements conform to the applicable financial reporting framework.

Audit Report with an Unmodified Opinion

Emphasis of Matter Paragraph and Other

Matter Paragraph

An emphasis of matter paragraph does not affect the auditor’s opinion

because it can only be included in the audit report if the matter is appropriately presented

or disclosed in the financial statements

An other matter paragraph does not affect the auditor’s opinion

because it relates to a matter other than those required to be presented

or disclosed in the financial statements.

Emphasis of Matter Paragraph

A matter, although appropriately presented or disclosed in the financial statements, that is of such importance that it is

fundamental to users’ understanding of the financial

• The emphasis of matter paragraph is included immediately

after the opinion paragraph in the audit report and the heading

‘Emphasis of Matter’ is ordinarily used.

• The paragraph includes a clear reference to the matter being emphasized and to where relevant disclosures that fully

describe the matter can be found in the financial statements.

• The auditor should indicate that the auditor’s opinion is not

modified in respect of the matter emphasized

• The emphasis of matter paragraph is included immediately

after the opinion paragraph in the audit report and the heading

‘Emphasis of Matter’ is ordinarily used.

• The paragraph includes a clear reference to the matter being emphasized and to where relevant disclosures that fully

describe the matter can be found in the financial statements.

• The auditor should indicate that the auditor’s opinion is not

modified in respect of the matter emphasized

Emphasis of Matter Paragraph for

Going-Concern Problems

Emphasis of Matter Paragraph

An emphasis of matter paragraph is used only if

the matter is of such importance that it is

fundamental to users’ understanding of the

financial statements

Auditing standards give these examples:

•An uncertainty relating to the future outcome of

exceptional litigation or regulatory action.

•Early application (where permitted) of a new accounting standard that has a pervasive effect on the financial

statements in advance of its effective date.

•A major catastrophe that has had, or continues to have,

a significant effect on the entity’s financial position.

An emphasis of matter paragraph is used only if

the matter is of such importance that it is

fundamental to users’ understanding of the

financial statements

Auditing standards give these examples:

•An uncertainty relating to the future outcome of

exceptional litigation or regulatory action.

•Early application (where permitted) of a new accounting standard that has a pervasive effect on the financial

statements in advance of its effective date.

•A major catastrophe that has had, or continues to have,

a significant effect on the entity’s financial position.

Other Matter Paragraph

• The term ‘other matter’ is used because the matter communicated is a matter other than those that are presented or disclosed in the financial statements.

• The other matter must relate to the understanding of the audit, the auditor’s responsibilities or the auditor’s report.

• An other matter paragraph is headed ‘Other Matter’ and the paragraph is included in the audit report

immediately after the opinion paragraph and any

emphasis of matter paragraph.

• The term ‘other matter’ is used because the matter communicated is a matter other than those that are presented or disclosed in the financial statements.

• The other matter must relate to the understanding of the audit, the auditor’s responsibilities or the auditor’s report.

• An other matter paragraph is headed ‘Other Matter’ and the paragraph is included in the audit report

immediately after the opinion paragraph and any

emphasis of matter paragraph.

Other Matter Paragraph

Audit Reports with Modified Opinion

Qualified

‘except for’

Disclaimer

Adverse

Effect of Materiality and Pervasiveness

Scope Limitation – Disclaimer of Opinion

Scope Limitation – Qualified Opinion

Departure from Applicable Financial

Reporting Framework – Qualified Opinion

Departure from Applicable Financial Reporting Framework– Adverse Opinion

Special Reporting Issues

Reports on specialized areas.

Reports on Comparative Financial

Information

Corresponding figures are comparative

information where amounts and other disclosures for the prior periods are an integral part of the current-period financial statements, and are intended to be read only in relation to

current-period figures.

Corresponding figures are comparative information where amounts and other disclosures for the prior periods are an integral part of the current-period financial statements, and are intended to be read only in relation to

current-period figures.

Comparative financial statements are considered

separate financial statements and are included for comparison with the financial statements of

the current period.

Comparative financial statements are considered separate financial statements and are included for comparison with the financial statements of

the current period.

Corresponding Figures – Audit Report with a Qualified Opinion

Comparative Financial Statements –

Audit Report with an Unmodified Opinion

Other Information in Documents

Containing Audited Financial Statements

Annual Reports

The auditor has no responsibility beyond the financial information contained in the report, and he or she has no obligation to perform any audit procedures to corroborate the other information However, the auditor is required to read the other information and consider whether

it is consistent with the information contained in

the audited financial statements.

Report on a Material Inconsistency

Reporting on Specialized Areas

Reporting on financial statements

prepared in accordance with a

special purpose

framework.

Reporting on single

financial statements or elements of a financial statement.

Reporting on summary financial statements.

Special Purpose Frameworks

Cash Basis

Regulatory Basis

Contract Basis

Tax Basis

Audit Report on Financial Statements

prepared on a Tax Basis

A Single Financial Statements or

Elements of Financial Statements

In some situations an auditor may be engaged to audit a single financial statement, specified elements, accounts,

or items of the financial statements.

In some situations an auditor may be engaged to audit a single financial statement, specified elements, accounts,

or items of the financial statements.

General Purpose Framework

General Purpose Framework

Special Purpose Framework

Special Purpose Framework

Basis of Accounting

Reporting on Summary Financial Statements

End of Chapter 18