Topic 12 Audit Reports_1

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HA3032

AUDITING

Topic 12Audit Reports


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HA3032 Auditing Holmes Institute 2009

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The final phase of an audit is the reporting of the

findings ASA 700 The Auditors Report on a General

Purpose Financial Reportestablishes mandatory

requirements and provides explanatory

guidance on the form and content of the

auditors report

Standards of Reporting


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Financial Statements

The financial statements on which an auditor

reports constitute a general-purpose financialreport

The disclosure and presentation requirements

for such reports are generally determined by

accounting standards and statutory and other

requirements

The Corporations Act 2001 outlines the

scope of the contents of a financial report(s. 295)


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Who are the users of the financial report?

Fiona CampbellAudit Partner

Ernst & Young Melbourne


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Accounting Standards

The auditor reports on whether the financial

statements are in accordance with accountingstandards issued by the Australian Accounting

Standards Board (AASB)

These standards are now mandated by law

under ASA 700 and by virtue of the Corporations

Act under s. 334


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Relevant statutory and other requirements

The Corporations Act prescribes the auditors reporting

duties An auditor who conducts an audit of the financial

statements for either a financial year or half-year, mustform an opinion under s. 307 on whether:

the financial statements are in accordance with the law,comply with accounting standards and give a true and fair view

all information, explanations and assistance necessary for theconduct of the audit have been provided

the financial records have been kept to enable the preparationand audit of the financial statements

the records and registers have been kept as required by law


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Expression of Opinion ASA 700, requires the Auditors Opinion to

state whether the accounts present a true andfair view in accordance with the applicable

financial reporting framework

The auditor must consider whether the

impression created by the financial statements

as a whole is consistent with the auditors

intimate knowledge of the entity and its financial

condition


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What does an audit opinion mean to users of the financial report?




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Unqualified auditors report and an emphasis of matter

In this category of report, the opinion section

continues to express an unqualified opinion

However, this is followed by an emphasis of

matter paragraph to draw the readers

attention to specific circumstances

The addition of such an emphasis of matter

paragraph does not affect the auditors opinion


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ASA 701 Modifications to the Auditors report

provides examples of such emphases of matter

Examples include

significant uncertainty about an entitys going

concern status

need for additional disclosures

inconsistent information

the impact of subsequent events

Unqualified auditors report and an emphasis of matter (cont.)


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Circumstances in which a modification would

be issued, and the type of modificationappropriate to those circumstances, will

depend on

whether the modification is material but not

extreme, or

whether it is an extreme case

Table 15.1 in the textbook gives a number of

examples of types of modifications and whenused

Unqualified auditors report and an emphasis of matter (cont.)

Ci t i hi h difi ti ld b i d d


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Circumstances in which a modification would be issued and

the type of modification appropriate in those circumstances


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Circumstances that give rise to a qualification

Scope Limitation

arises when the auditor cannot perform the

necessary procedures,

or the procedures do not provide sufficient

evidence Figure 5.1 in the textbook provides an example

of a qualified auditors report including a

limitation on scope opinion


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Disagreement with those charged with governance

often relate to disagreement over the appropriateness of the

accounting policies selected, or the adequacy of disclosures of

sensitive matters

Examples include disagreement over accounting estimates for

doubtful debts, or disclosure issues based on fear of marketreactions

Conflict between applicable financial reporting

frameworks

in unusual circumstances, the application of accountingpolicies in compliance with statutory and other requirements

may not result in a fair presentation in accordance with the

accounting standards

Circumstances that give rise to a qualification (cont.)


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Material but

Not Extreme

Extreme

Cases

Scope limitation Except for

(qualified)

Disclaimer of

opinion

Disagreement with those charged with governance

(directors/management)

Except for

(qualified)

Adverse

Conflict between applicable financial reporting frameworks Except for(qualified)

Adverse

Significant Uncertainty Going Concern

Unqualified (modified)

opinion with an emphasis of

matter

Significant Uncertainty Other

Additional Disclosures with which the auditor concurs

Inconsistent Other Information

Subsequent Event resulting in a new auditors report on a

revised financial report

Summary of modified report circumstances


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Other reporting considerations for corporate entities

These considerations include:

Reporting on consolidated accounts

Comparatives

Initial engagements

Half-year statements


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What is the role of the auditor in respect to the consolidation


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What is the role of the auditor in respect to the consolidation

process? How do they support management?




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Comparatives

Comparatives refer to amounts or disclosures of

one or more previous periods presented on acomparative basis with those of the current period

The auditor needs to consider the following:

Any qualified previous period report

Subsequent events

Additional reporting requirements must be met when there has

been a change of auditors

Unaudited previous period financial statements require the

auditor to seek evidence to ensure there are no material

misstatements


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Initial engagements

In an initial audit engagement, ASA 510 requiresthe

auditor to obtain sufficient appropriate auditevidence to ensure that:

the opening balances do not contain misstatements that

materially affect the current periods financial statements

the previous periods closing balances have been correctlybrought forward to the current period or, when appropriate,

have been restated

appropriate accounting policies are consistently applied or

changes in accounting policies have been properly

accounted for and adequately disclosed


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Half-year statements

Section 302 of the Corporations Act prescribes thatdisclosing entities must:

prepare half-year financial statements and a directors report

have the financial statements audited or reviewed, and obtain anauditors report

lodge the financial statements, the directors report and the

auditors report with the Australian Securities and InvestmentsCommission (ASIC)

According to s. 302 of the Corporations Act, the half-yearaccounts may be either audited or reviewed, although

the majority of Australian companies opt for a review If the half-year statements are audited, then the reporting

requirements are covered by ASA 700 (ISA 700)


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If a review engagement is needed, then it should be

performed in accordance with ASRE 2410 Review ofan Interim Financial Report Performed by theIndependent Auditor of an Entity

There are no requirements for the auditors report on

half-year statements to be circulated to the entitysmembers

However, the auditor should encourage distributionof the report to members in the interests of effective

communication

Half-year statements (cont.)

T t i l


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Tutorial

Audit reports

Reading:

Leung Chapter 5

Reporting on financial statements

Tutorial Questions:

Leung Chapter 5

Questions 5.10, 5.12, 5.13, 5.14, 5.18, 5.22 & 5.24

Documents

Topic 12 Audit Reports_1