AUDIT REPORTING

UGBS 2024
OUTLINE

•Communication with those Charged

with Governance
•The Independent Auditor’s Report
•Modification to the Audit Report
•Emphasis of Matter Paragraph/Other
Matter Paragraph
REPORTING TO THOSE CHARGED
WITH GOVERNANCE

•Regulatory Framework
•How to Communicate?
•What to Communicate?
•When to Communicate?
Regulatory Framework

• ISA 260 ‘Communication with those charged

with Governance’
• ISA 265 ‘Communicating Deficiencies in
Internal Control to those Charged with
Governance’
Forms of Communication

•The auditor shall communicate in writing

with those charged with governance
regarding significant findings from the
audit if, in the auditor’s professional
judgment, oral communication would not
be adequate.
Timing of Communications

•The auditor shall communicate with those

charged with governance on a timely basis.
•The appropriate timing for communications will
vary with the circumstances of the engagement.
•Relevant circumstances include the:
• significance and nature of the matter, and
• the action expected to be taken by those charged
with governance
What Matters to Communicate

•Matters of governance interest that

arise from the audit of the financial
statements.
•Ordinarily such matters include the following:
• The general approach and overall scope of the audit,
including any expected limitations thereon, or any
additional requirements.
• The selection of, or changes in, significant accounting
policies and practices that have, or could have, a
material effect on the entity’s financial statements.
• The potential effect on the financial statements of any
material risks and exposures, such as pending litigation,
that are required to be disclosed in the financial
statements.
•
• Audit adjustments, whether or not recorded by the
entity that have, or could have, a material effect on
the entity’s financial statements.
• Material uncertainties related to events and
conditions that may cast significant doubt on the
entity’s ability to continue as a going concern.
• Disagreements with management about matters
that, individually or in aggregate, could be
significant to the entity’s financial statements or
the auditor’s report.
• These communications include :
• Consideration of whether the matter has, or has not,
been resolved and the significance of the matter.
• Expected modifications to the auditor’s report.
• Other matters warranting attention by those charged
with governance, such as material weaknesses in internal
control, questions regarding management integrity, and
fraud involving management.
• Any other matters agreed upon in the terms of the audit
engagement.
Documentation

• Where matters required to be communicated are

communicated orally, the auditor shall include
them in the audit documentation, and when and
to whom they were communicated.
• Where matters have been communicated in
writing, the auditor shall retain a copy of the
communication as part of the audit
documentation
Reporting Deficiencies of Internal Control

•Auditors should communicate deficiencies in internal

control to those charged with governance and mgt
•Significant deficiencies shd be communicated in writing
[ISA 265]
•The form, timing and addresses of this communication
should be agreed at the start of the audit, as part of the
terms of engagement
•The report , referred to as Management Letter or Report
to Management is usually sent at the end of the audit
process
When to Report

•Usually sent at the conclusion of the

audit
•However there may be the need to
communicate particular matters at
other times
What should be made clear in the letter

•When the auditor reports deficiencies, it should be

made clear that :
• The report is not a comprehensive list of
deficiencies, but only those that have come to light
during normal audit procedures.
• The report is for the sole use of the company.
• No disclosure should not be made to a third party
without the written agreement of the auditor.
• No responsibility is assumed to any other parties.
Deficiency Clear Description of what is wrong
Consequence What could happen if the deficiency is not corrected.
Focus on what matters to the client-the risk of lost profits,
stolen assets, extra costs, errors in the accounts, etc

Recommendat This must deal with the specific deficiency you have
ion observed. It must also provide greater benefit than the
cost of implementation.
Try to suggest who should carry out the control
procedures and when

Management It should clearly present response from mgt as to

Response acceptance or otherwise of the deficiency identified and
the remediation action
• Questions
INDEPENDENT AUDITOR’S REPORT

• ISA 700 ‘Forming an opinion and Reporting on

Financial Statements’
• Introduction
• Forming an opinion
• Contents of the audit report
• Specimen Audit Report
Introduction

• The objectives of an auditor, in accordance

with ISA 700 are:
• To form an opinion on the financial
statements based on evaluation of their
conclusions drawn from audit evidence;
and
• To express clearly that opinion through a
written report.
Forming an opinion

• The auditor forms an opinion on whether the

financial statements are prepared, in all material
respects, in accordance with the applicable
financial reporting framework
• In order to do that they must conclude whether
the financial statements as a whole are free from
material misstatements[whether due to fraud or
error]
•In particular the auditor should evaluate whether:
• The FS adequately disclose the significant
accounting policies
• The accounting policies selected are consistently
applied and appropriate
• Accounting estimates are reasonable
• Information is relevant, reliable, comparable and
understandable
• The FS provide adequate disclosures
• The terminology used is appropriate
•If the auditor concludes that the FS are prepared in all
material respects, in accordance with applicable
financial reporting framework, and are devoid of
material misstatements, they issue unmodified
opinion
•If they conclude that either:
• the FS as a whole are not free from material
misstatement; or
• they have been unable to obtain sufficient
appropriate evidence;
•then they have to issue a modified opinion
Contents of Unmodified audit report

• Title
• Addressee
• Opinion
• Basis of Opinion
• Key Audit Matters
• Statement of Responsibilities of mgt
• Statement of Responsibilities of the
auditors
• Other Reporting Responsibilities
• Signature of the auditor
• Date of the Report
• Auditor’s address
Title

• The auditor's report must have a title that clearly

indicates that it is the report of the independent
auditor.
• This signifies that the auditor has met all the
ethical requirements concerning independence
and therefore distinguishes the auditor's report
from other reports.
Addressee

• The addressee will be determined by law or

regulation, usually to shareholders
Opinion

• The opinion paragraph must identify the entity being

audited, state that the financial statements have been
audited, identify the title of each statement that
comprises the financial statements being audited, refer to
the summary of significant accounting policies and other
explanatory notes, and specify the date or period covered
by each statement comprising the financial statements.
• If the auditor expresses an unmodified opinion on
financial statements prepared in accordance with a fair
presentation framework, the opinion shall use one of the
following equivalent phrases:
• The financial statements present fairly, in all material
respects, …in accordance with [the applicable financial
reporting framework]; or
• The financial statements give a true and fair view of … in
accordance with [the applicable financial reporting
framework].
Basis of Opinion

• Reference to the ISAs

• Reference to related legislations
• Reference to evidence gathered which
provides basis for the opinion
Going Concern

• Where the auditor considers a material

uncertainty related to going concern exists,
this should be described in a separate
paragraph headed ‘Material uncertainty
related to going concern’.
Key Audit Matters

• For the audit of listed entities, or where required by

law or regulation, the auditor should include a ‘Key
audit matters’ section. This section describes the
matters that, in the auditor’s professional
judgement, are most significant to the audit. (eg
Valuation of financial instrument)
Management’s Responsibility for the Financial Statements

• This section of the auditor’s report describes the

responsibilities of those in the organization that are
responsible for the preparation of the financial statements.
• Preparation of FS in accordance with applicable financial
reporting framework
• Designing and implementing an effective internal control
system to enable the preparation of FS that are free from
material misstatement
Auditor’s Responsibility

• The auditor’s report shall include a section with the heading

“Auditor’s Responsibility.”
• The auditor’s report shall state that the responsibility of the auditor
is to express an opinion on the financial statements based on the
audit.
• The auditor’s report shall state that the audit was conducted in
accordance with International Standards on Auditing.
• The auditor’s report shall also explain that those standards require
that the auditor comply with ethical requirements and that the
auditor plans and performs the audit to obtain reasonable assurance
about whether the financial statements are free from material
misstatement.
Other Reporting Responsibilities

•If the auditor addresses other reporting responsibilities

in the auditor’s report on the financial statements that
are in addition to the auditor’s responsibility under the
ISAs to report on the financial statements, these other
reporting responsibilities shall be addressed in a
separate section in the auditor’s report
•Eg
• Companies Act Requirement
• Banking Act Requirement
• Stock Exchange Requirement
• PFM Act Requirement
• REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
• The Companies Act, 2019, (Act 992) requires that in carrying out our
audit we consider and report to you on the following matters. We
confirm that:
• I) We have obtained all the information and explanations which to the best of
our knowledge and belief were necessary for the purpose of our audit.
• ii) In our opinion proper books of accounts have been kept by the Bank and
its subsidiary, so far as appears from our examination of those books, and
• iii) The consolidated statement of financial position and statement of
comprehensive income of the Bank and its subsidiary are in agreement with
the books of accounts.
•The Banking Act 2004 (Act 673), section 78(2) requires that
we state certain matters in our report. We hereby state that:
• i) The consolidated financial statements give a true and fair
view of the state of affairs of the Bank and its results for the
period under review,
• ii) We were able to obtain all the information and
explanation required for the efficient performance of our
duties as auditors,
• iii) The Bank's transactions are within its powers, and
• iv) The Bank has complied with the relevant provisions of
the Banking Act, 2004(Act 673) as amended by Banking
(Amendment) Act 2007 (Act738).
Name of the engagement partner

• The name of the engagement partner should be

identified, unless such a disclosure is reasonably
expected to lead to a significant personal security
threat.
• In Ghana , ICAG requires that the practice license
number of the EP should also be stated
Signature of the Auditor

•The auditor’s signature is either in :

• the name of the audit firm,
• the personal name of the auditor; or
• both,
as appropriate for the particular jurisdiction.
•In addition to the auditor’s signature, in certain
jurisdictions, the auditor may be required to declare
in the auditor’s report the auditor’s professional
accountancy designation or the fact that the auditor
or firm, as appropriate, has been recognized by the
appropriate licensing authority in that jurisdiction.
• Accordingly, in Ghana, ICAG has directed as
follows:
• Signed in the name of the firm (with the firm’s
registration number]
• Disclosure of the name of the Engagement
Partner responsible for the audit (with the ICAG
license number)
Date of the Auditor’s Report

• The auditor’s report shall be dated no earlier than

the date on which the auditor has obtained
sufficient appropriate audit evidence on which to
base the auditor’s opinion on the financial
statements, including evidence that:
• (a) All the statements that comprise the financial
statements, including the related notes, have
been prepared; and
• (b) Those with the recognized authority have
asserted that they have taken responsibility for
those financial statements
Auditor’s Address

• The auditor’s report shall name the location

in the jurisdiction where the auditor
practices.
• QUESTIONS?
MODIFICATIONS TO THE AUDIT
REPORT
• Two Ways of Modification
• Reasons for modifications
Circumstances When a Modification to the
Auditor’s Opinion Is Required

•The auditor shall modify the opinion in the auditor’s

report when:
• (a)The auditor concludes that, based on the audit
evidence obtained, the financial statements as a
whole are not free from material
misstatement[DISAGREEMENT]; or
• (b) The auditor is unable to obtain sufficient
appropriate audit evidence to conclude that the
financial statements as a whole are free from
material misstatement. [LIMITATION OF SCOPE]
Types of modified Opinion

•Qualified Opinion
•Material but non –pervasive
•disagreement and/or limitation of scope
[Except for and/or Subject to]
•Adverse Opinion
•Material and Pervasive Disagreement
•Disclaimer of Opinion
•Material and Pervasive Limitation of scope
Types of modification of Opinion

Nature of Matter Material but Material and

not pervasive Pervasive

Financial Statements Qualified Adverse

materially misstated opinion opinion

Inability to obtain Qualified Disclaimer of

sufficient appropriate Opinion Opinion
evidence
Qualified Opinion

• The auditor shall express a qualified opinion when:

• a) The auditor, having obtained sufficient appropriate
audit evidence, concludes that misstatements,
individually or in the aggregate, are material, but not
pervasive, to the financial statements; or
• (b) The auditor is unable to obtain sufficient
appropriate audit evidence on which to base the
opinion, but the auditor concludes that the possible
effects on the financial statements of undetected
misstatements, if any, could be material but not
pervasive
Adverse Opinion

•The auditor shall express an adverse

opinion when the auditor, having
obtained sufficient appropriate audit
evidence, concludes that
misstatements, individually or in the
aggregate, are both material and
pervasive to the financial statements.
Disclaimer of Opinion

The auditor shall disclaim an opinion

•

when the auditor is unable to obtain

sufficient appropriate audit evidence on
which to base the opinion, and the
auditor concludes that the possible
effects on the financial statements of
undetected misstatements, if any, could
be both material and pervasive.
• The auditor shall also disclaim an opinion
when, in extremely rare circumstances involving
multiple uncertainties, the auditor 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 financial statements due
to the potential interaction of the uncertainties
and their possible cumulative effect on the
financial statements.
Basis for Modification Paragraph

• When the auditor modifies the opinion on the financial

statements, the auditor shall, in addition to the specific
elements required by ISA 700, include a paragraph in the
auditor’s report that provides a description of the matter
giving rise to the modification.
• The auditor shall place this paragraph immediately before
the opinion paragraph in the auditor’s report and use the
heading
• “Basis for Qualified Opinion,”
• “Basis for Adverse Opinion,” or
• “Basis for Disclaimer of Opinion,”
Opinion Paragraph

• When the auditor modifies the audit opinion,

the auditor shall use the heading
• “Qualified Opinion,”
• “Adverse Opinion,” or
• “Disclaimer of Opinion,”
• as appropriate, for the opinion paragraph.
Illustrations

• Basis for Qualified Opinion

• The company’s inventories are carried in the statement of financial
position at 31 Dec 2023. Management has not stated the inventories
at the lower of cost and net realizable value but has stated them
solely at cost, which constitutes a departure from IAS 2. The
company’s records indicate that had management stated the
inventories at the lower of cost and net realizable value, an amount
of GHS2 m would have been required to write the inventories down
to their net realizable value. Accordingly, cost of sales would have
been increased by GHS2m, and income tax, net income and
shareholders’ equity would have been reduced by GHS0.5m,
GHS1.5m and GHS1.5m, respectively.
• Qualified Opinion
• In our opinion, except for the effects of the matter
described in the Basis for Qualified Opinion
paragraph, the financial statements present fairly, in
all material respects, (or give a true and fair view of)
the financial position of ABC Company as at
December 31, 2023, and (of) its financial
performance and its cash flows for the year then
ended in accordance with International Financial
Reporting Standards.
• Basis for Adverse Opinion
• As explained in Note 15, the company has not consolidated the
financial statements of subsidiary XYZ Company it acquired during
2023 because it has not yet been able to ascertain the fair values of
certain of the subsidiary’s material assets and liabilities at the
acquisition date. This investment is therefore accounted for on a cost
basis. Under International Financial Reporting Standards, the
subsidiary should have been consolidated because it is controlled by
the company. Had XYZ been consolidated, many elements in the
accompanying financial statements would have been materially
affected. The effects on the consolidated financial statements of the
failure to consolidate have not been determined.
• Adverse Opinion
• In our opinion, because of the significance of the matter discussed in
the Basis for Adverse Opinion paragraph, the consolidated financial
statements do not present fairly (or do not give a true and fair view
of) the financial position of ABC Company and its subsidiaries as at
December 31, 2023, and (of) their financial performance and their
cash flows for the year then ended in accordance with International
Financial Reporting Standards
• Basis for Disclaimer of Opinion
• The company’s investment in its joint venture XYZ Company
[domiciled in South Africa] is carried at GHS100 m on the
company’s statement of financial position. We were not
allowed access to the management and the auditors of XYZ,
including XYZ’s auditors’ audit documentation. As a result,
we were unable to determine whether any adjustments
were necessary in respect of the company’s share of XYZ’s
net assets that it controls jointly, its proportional share of
XYZ’s income and expenses for the year, and the elements
making up the statement of changes in equity and cash flow
statement
• Disclaimer of Opinion
• Because of the significance of the matter
described in the Basis for Disclaimer of
Opinion paragraph, we have not been able to
obtain sufficient appropriate audit evidence
to provide a basis for an audit opinion.
Accordingly, we do not express an opinion on
the financial statements
Description of Auditor’s Responsibility When the Auditor
Expresses a Qualified or Adverse Opinion

• When the auditor expresses a qualified or

adverse opinion, the auditor shall amend the
description of the auditor’s responsibility to
state that the auditor believes that the audit
evidence the auditor has obtained is
sufficient and appropriate to provide a basis
for the auditor’s modified audit opinion
Description of Auditor’s Responsibility
When the Auditor Disclaims an Opinion
• When the auditor disclaims an opinion due to an inability to
obtain sufficient appropriate audit evidence, the auditor shall
amend the responsibility paragraph of the auditor’s report to
state that the auditor was engaged to audit the financial
statements.
•The auditor shall also amend the description of the auditor’s
responsibility 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 on conducting 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.”
Communication with Those Charged with
Governance
• When the auditor expects to modify the opinion in
the auditor’s report, the auditor shall communicate
with those charged with governance the
circumstances that led to the expected modification
and the proposed wording of the modification
•QUESTIONS?
EMPHASIS OF MATTER PARAGRAPHS
[ISA 706]

Objectives
•These paragraphs simply draw the
readers attention to a note already
disclosed in the FS
•The matters referred to have to be
fundamental to a readers’
understanding of the FS
Its place
•When the auditor includes an Emphasis of Matter paragraph in the
auditor’s report, the auditor shall:
• (a) Include it immediately after the Opinion paragraph in the auditor’s
report;
• (b) Use the heading “Emphasis of Matter,” or other appropriate
heading;
• (c) Include in the paragraph 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; and
• (d) Indicate that the auditor’s opinion is not modified in respect of the
matter emphasized
• Examples of circumstances where the auditor may consider it
necessary to include an Emphasis of Matter paragraph are:
• An uncertainty relating to the future outcome of
exceptional litigation or regulatory action.
• Early application 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 Paragraphs in the Auditor’s
Report
• If the auditor considers it necessary to
communicate a matter other than those that are
presented or disclosed in the financial statements
that, in the auditor’s judgment, is relevant to
users’ understanding of the audit, the auditor’s
responsibilities or the auditor’s report and this is
not prohibited by law or regulation, the auditor
shall do so in a paragraph in the auditor’s report,
with the heading “Other Matter,”
The auditor shall include this paragraph
immediately after the Opinion paragraph and
any Emphasis of Matter paragraph, or
elsewhere in the auditor’s report if the
content of the Other Matter paragraph is
relevant to the Other Reporting
Responsibilities section