Audit Report in Malaysia-Chapter 19

Audit Report
Chapter 19
What is Audit Report?

A signed written document which present: purpose
scope
result of the audit. result of audit should include findings,
conclusion (opinion), and may include recommendations.
Objective:
a) To form an opinion on the financial statements based on an
evaluation of the conclusions drawn from the audit evidence obtained also describes the basis for that opinion
b) To express the opinion clearly through a written report that
Auditors Reporting Responsibility

Applicable Financial Reporting Framework
Fair presentation framework Compliance framework
Forming an Opinion on F/S

Sufficient audit evidence Accordance with financial reporting framework Fair presentation of F/S
Circumstances when departing from the required framework
Types of Audit Report Unmodified (ISA 700)
Standard Unqualified
Modified (ISA 705)
Modified Unqualified (emphasis of matter) Qualified Adverse Disclaimer
Qualified Opinion
Can result from a limitation on the scope of the audit or failure to follow generally accepted accounting principles.
Unqualified Opinion
The financial statements are presented in accordance with generally accepted accounting principles.
Adverse Opinion
It is used only when the auditor believes that the overall financial statements are so materially misstated or misleading that they do not present fairly the financial position or results of operations and cash flows in conformity with GAAP.
Disclaimer Opinion
It is issued when the auditor is unable to be satisfied that the overall financial statements are fairly presented.
ISA 700
Unmodified/Unqualified Report
When the financial statements are prepared, in all material
respects, in accordance with the applicable financial reporting framework.
If the auditor: a) concludes that, based on the audit evidence obtained, the
financial statements as a whole are free from material misstatement; or
b) is able to obtain sufficient appropriate audit evidence to
conclude that the financial statements as a whole are free from material misstatement
ISA 700
Parts of the Standard Unqualified Audit Report

1. Report title &Addressee 2. Introductory paragraph 3. Mgts Responsibility for the F/S 4. Auditors Responsibility 5. Auditors Opinion 6. Other Reporting Responsibility 7. Name & signature of auditor firm 8. Audit report date
ISA 705
Modified Report
1. The nature of the matter giving rise to the modification whether the financial statements are materially misstated or, in the case of an inability to obtain sufficient appropriate audit
evidence, may be materially misstated
2. The auditors judgment about the pervasiveness of the effects or
possible effects of the matter on the financial statements.
Modified Unqualified Report (with explanatory)
1. Going concern uncertainty 2. Significant uncertainty 3. Emphasis of matter
ISA 705
Matters That Dont Affect the Auditors Opinion

Going Concern Uncertainty
Doubt on the entitys ability to continue as going concern If uncertainty exists + adequate disclosure, issue Unqualified report
If there is a significant uncertainty + adequate disclosure, issue Unqualified report.
* Not materially Misstated
Emphasis of a Matter
Under certain circumstances, the auditor may want to emphasize specific matters regarding the financial statements, even though the auditor intends to express an unqualified opinion. * Not materially Misstated
Going Concern Uncertainty

1. Significant recurring operating losses or working capital deficiencies 2. 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
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
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.
Significant uncertainty
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 result has been made in the financial statements.
Type of Modified Reports

Auditors Judgment about the Pervasiveness of Nature of Matter Giving the Rise to the Effects or Possible Effects on the Financial Modification Statement Material but Not Material and Pervasive Pervasive Financial statements are Qualified opinion Adverse opinion materially misstated Inability to obtain Qualified opinion Disclaimer of opinion sufficient appropriate audit evidence
Materiality
A misstatement in the financial statements can be considered material if knowledge of the misstatement would affect a decision of a reasonable user of the statements.
ISA 705
Pervasiveness
A term used, in the context of misstatements, to describe the effects on the financial statements of misstatements or the possible effects on the financial statements of misstatements, if any, that are undetected due to an inability to obtain sufficient appropriate audit evidence. Pervasive effects on the financial statements are those that, in the auditors judgment
1. Are not confined to specific elements, accounts or items of the
financial statements;
2. If so confined, represent or could represent a substantial proportion
of the financial statements; or the financial statements.
3. In relation to disclosures, are fundamental to users understanding of
Departures from an Unqualified Opinion

1. Scope limitation
2. Disagreement with accounting standards
Disclaimer of Opinion
It is issued when the auditor is unable to be satisfied that the overall financial statements are fairly presented.
Adverse Opinion
It is used only when the auditor believes that the overall financial statements are so materially misstated or misleading that they do not present fairly the financial position or results of operations and cash flows in conformity with accounting standards.
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.
Level of Materiality
Type of Opinion
Limitation of Scope Immaterial Material

Extremely Material/pervasive
Disagreement with Non-compliance Unqualified Qualified (except for)

Adverse
Unqualified Qualified (except for)

Disclaimer
Relationship of Materiality to Type of Opinion

Materiality Level
Immaterial
Significance in Terms of Reasonable Users Decisions

Users decisions are unlikely to be affected. Users decisions are likely to be affected. Users decisions are likely to be significantly affected.
Type of Opinion
Unqualified
Material
Highly material
Qualified
Disclaimer or adverse
Scope Limitation (Material) 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).
Scope Limitation (material & pervasive) Disclaimer

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.
Disagreement (Inappropriate Acc Method)-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 been provided 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 accumulated depreciation 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).
Disagreement (Inadequate Disclosure) Adverse

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 then ended in accordance with Malaysian Financial Reporting Standards.
Auditors Decision Process

Determine whether any condition exists requiring a departure from a standard unqualified report.
Decide the materiality for each condition.

Decide the appropriate type of report. Write the audit report.
THANK YOU
Allah Knows Best

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Audit Report

What is Audit Report?

conclusion (opinion), and may include recommendations.

b) To express the opinion clearly through a written report that

Auditors Reporting Responsibility

Forming an Opinion on F/S

Circumstances when departing from the required framework

Types of Audit Report Unmodified (ISA 700)

Modified (ISA 705)

Modified Unqualified (emphasis of matter) Qualified Adverse Disclaimer

respects, in accordance with the applicable financial reporting framework.

financial statements as a whole are free from material misstatement; or

b) is able to obtain sufficient appropriate audit evidence to

Parts of the Standard Unqualified Audit Report

evidence, may be materially misstated

2. The auditors judgment about the pervasiveness of the effects or

possible effects of the matter on the financial statements.

Modified Unqualified Report (with explanatory)

1. Going concern uncertainty 2. Significant uncertainty 3. Emphasis of matter

Matters That Dont Affect the Auditors Opinion

If there is a significant uncertainty + adequate disclosure, issue Unqualified report.

* Not materially Misstated

Going Concern Uncertainty

Going Concern Uncertainty - Disclosure

Going Concern Uncertainty Disclosure example

Type of Modified Reports

2. If so confined, represent or could represent a substantial proportion

of the financial statements; or the financial statements.

3. In relation to disclosures, are fundamental to users understanding of

Departures from an Unqualified Opinion

2. Disagreement with accounting standards

Limitation of Scope Immaterial Material

Disagreement with Non-compliance Unqualified Qualified (except for)

Unqualified Qualified (except for)

Relationship of Materiality to Type of Opinion

Significance in Terms of Reasonable Users Decisions

Scope Limitation (Material) Qualified opinion

Scope Limitation (material & pervasive) Disclaimer

Disagreement (Inappropriate Acc Method)-Qualified opinion

Disagreement (Inadequate Disclosure) Adverse

Auditors Decision Process

Decide the materiality for each condition.

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