It has often been said that the auditors‘ report is the formal result of all his efforts. This being the case, it is very important...

It has often been said that the auditors‘ report is the formal result of all his efforts. This being the case, it is very important that the reader well understands the meaning of the Audit Report, particularly where the auditor wishes to qualify his opinion on the financial statements.

Required:
a) Under statutory provision, what are the main contents of the auditors‘ report?
b) Explain how the international standards on auditing attempt to ensure that the report of the auditors is clearly understood.
c) Describe clearly the circumstances in which an adverse opinion and a disclaimer of opinion would be appropriate and give two examples, one each, to illustrate your answer. (A full audit opinion is not required).

(a) Basic elements of the unqualified audit report.
Describe clearly the circumstances in which an adverse opinion and a disclaimer of opinion would be appropriate and give two examples, one each, to illustrate your answer. (A full audit opinion is not required).
1. Title
Audit reports should be addressed to the members of the company on whose behalf the audit is undertaken.
2. Introductory paragraph
It identifies the financial statements audited to distinguish such information from other documents that have not been subject to audit e.g. chairman‘s report. This paragraph also refers to the accounting convention under which the financial statements have been prepared.
3. Statement of responsibility of directors and auditors. This states that it is the responsibility of the directors to prepare financial statements that show a true and fair view.
4. Basis of opinion (scope paragraph)
Audit carried out in accordance with IAS, ISA and Company‘s Act requirement and other statutory requirements.
5. A statement that the audit was planned and performed to obtain reasonable assurance that financial statements are free from material misstatements.
6. It should clearly state the auditor‘s opinion as to whether the financial statements give a true and fair view in accordance with financial reporting framework and their compliance with statutory requirements. In particular whether the balance sheet and the profit and loss account show a true and fair view of the state of the financial position of the company and its financial performance
7. It should date the report as of audit completion date i.e. when the auditor receives all evidence required to support his opinion.
8. It should be signed in the audit firm‘s name and should name the audit firm office.


b) The ISA attempt to ensure that the report of the auditors is clearly understood by giving guidelines to auditors as to how the report should be constructed and what details it should contain. This supplements the requirements of the companies Act and ensures that the audit report is well understood by the users of the audited financial statements
For example it requires auditors to: -
i) Identify the financial statements to which the report covers.
ii) Describe the scope of an audit as having been conducted in accordance with ISA‘s or relevant national standards.
iii) A paragraph educating the users of the report on the responsibilities of the auditor and the directors responsibility regarding the financial statements


c) A disclaimer of opinion is issued when there is a limitation in the scope of the audit or an inherent uncertainty that is so material and pervasive that the auditor has not been able to obtain sufficient appropriate audit evidence and accordingly is unable to express an opinion.
A limitation in the scope of the auditors work may be caused by: -
-The entity e.g. when his engagement terms specify that he will not carry out what he
believes to be necessary.
-Circumstances e.g. where the appointment of the auditor is after stock taking and therefore
the auditor is unable to observe the exercise.
-Inability to carry out audit procedures believed to be desirable.
Adverse opinion
This is expressed when the effect of a disagreement is so material and that a qualification of reports is not adequate to disclose the misstatement or incompleteness of financial statements.
Auditors may disagree with management regarding: -
- The acceptability of accounting policies selected
- Methods of application of accounting policies
- Adequacy of financial statement disclosures.

---

Wilfykil answered the question on February 21, 2019 at 06:39

Exams With Marking Schemes

• Grade 1
• Grade 2
• Grade 3
• Grade 4
• Grade 5
• Grade 6
• Grade 7
• Grade 8
• Grade 9
• PP1
• PP2
• Playgroup
• Form 1
• Form 2
• Form 3
• Form 4

Related Questions

• The cashier of a firm who also acts a bookkeeper has been suspected of dishonesty. The books have not been audited for the last nine... (Solved)
  

  The cashier of a firm who also acts a bookkeeper has been suspected of dishonesty. The books have not been audited for the last nine months. You have been asked to investigate the records to establish whether the cashier has committed a fraud
  
  Required:
  Outline how you would proceed with the investigation

  Date posted: February 21, 2019 .    Answers (1)

• You are an audit senior in a firm of practicing accountants and your manager has gone out for an urgent meeting with a partner. Mr.... (Solved)
  

  You are an audit senior in a firm of practicing accountants and your manager has gone out for an urgent meeting with a partner. Mr. Charo, a manager with Charo and Company, a wholesale business has come to your office with a request that your firm becomes their auditors
  
  Required:
  a) Describe to Mr. Charo the legal, ethical and practical factors your firm would consider before accepting the appointment.
  b) Explain to Mr. Charo the qualification and disqualification of an accounting firm under the provisions of the Companies Act to become auditors.

  Date posted: February 21, 2019 .    Answers (1)

• Discuss the proposition that the =expectations gap‘ has arisen because of the public‘s ignorance and should therefore be resolved by the public themselves (Solved)
  

  Discuss the proposition that the ‗expectations gap‘ has arisen because of the public‘s ignorance and should therefore be resolved by the public themselves

  Date posted: February 21, 2019 .    Answers (1)

• Why should the auditor be unwilling to take full responsibility for the detection of fraud during the annual audit? Explain. (Solved)
  

  Why should the auditor be unwilling to take full responsibility for the detection of fraud during the annual audit? Explain.

  Date posted: February 21, 2019 .    Answers (1)

• Does the auditor require a codified definition of ?reasonable care and skill or should this be left to professional judgment? Explain (Solved)
  

  Does the auditor require a codified definition of ―reasonable care and skill or should this be left to professional judgment? Explain

  Date posted: February 21, 2019 .    Answers (1)

• Do you believe that the auditors should be responsible to users other than the shareholders? Give reasons to support your answer. (Solved)
  

  Do you believe that the auditors should be responsible to users other than the shareholders? Give reasons to support your answer.

  Date posted: February 21, 2019 .    Answers (1)

• How does audit planning assist in the conduct of an audit? (Solved)
  

  How does audit planning assist in the conduct of an audit?

  Date posted: February 21, 2019 .    Answers (1)

• Explain the auditor‘s planning process when planning for an audit of a new client. (Solved)
  

  Explain the auditor‘s planning process when planning for an audit of a new client.

  Date posted: February 21, 2019 .    Answers (1)