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CHAPTER 5:

AUDIT

REPORT
Prepared by:

Zulaida Binti Mohamed


Commerce Department
Politeknik Kota Bharu

Learning outcomes:
Understand

the nature of audit

report
Know the auditors responsibilities

Is a letter or document in which the auditors


express his or her opinion about the financial
statements at the end of the audit examinations
performed on the basis of the guidelines as
provided for under the audit standards (ISA)
either the financial statements may reflect true
& fair view some other findings.

DEFINITION
OF AUDIT
REPORT

TYPES OF AUDIT
REPORT :
Unmodified/unqualified report

Modified/qualified report

Unmodified/unqualified report

common
related to the
financial
statements of
limited
company

Objective
issuing report
to express
opinion that
the financial
statements
have no
problem & its
reflect a true &
fair view

The report
format should
comply with
requirements
provided under
ISA 700 and
the Company
Act 1965

REFUSE TO GIVE AN UNQUALIFIED OPINION

If the auditor believes


that there is a
reasonable chance
that the financial
statements are
materially misstated,
it would be a serious
breach of auditing
standards to issue an
unqualified opinion.

The audit
process
must have
some teeth
in it!

b.

Modified/qualified report
1.cos the audit function is restricted

shortage of time, appointment too late

2.There is lack of cooperation from the


management
information & explanation not enough
No correction for misstatement in account or
inadequate or misleading
Violation of certain laws eg non-compliace with
Income Tax Act

Overview and the situation each


type of reports being released
1.

Unmodified/unqualified report
(true & fair view- free from misstatement)
refer eg. m/s 192 Understanding Auditing In
Malaysia

2. Unmodified/unqualified report with


explanatory paragraph
(still true & fair view)
refer eg. m/s 196 Understanding Auditing In
Malaysia

3. generally modified/qualified report issued


when financial statement do reflect a true
& fair view except for factor which does
not satisfy by auditors such as:
a)

b)
c)

Non-compliance with an
accounting standards
The law & regulations
Sufficient evidence cant collected

refer eg. m/s 198 Understanding Auditing In


Malaysia

4. Adverse report
Issued

when financial statement found


to contain material misstatement &
misleading so not reflect true & fair
view
Eg preparing FS is not accordance with
GAAP & accounting standards rare
happened
The auditor quite aware about condition
of the FS
refer eg. m/s 199 Understanding
Auditing In Malaysia

5.Disclaimer report
Fail to collect sufficient evidence
to make conclusion & opinion
No cooperation from management
Serious shortage time
refer eg. m/s 201 Understanding
Auditing In Malaysia

Elements in the audit report


1.

2.

3.
4.
5.
6.
7.

8.

The title
The party to whom the report is
directed or addressed
Introductory paragraph
Scope paragraph
Opinion paragraph
Name of the auditor or audit firm
Address of audit firm
Date of the audit report

The auditors responsibilities

The auditors responsibilities:


1. Under Common Law

In all cases, auditors must carry out their


duties with reasonable care & skill
eg: London & General Bank
The auditor may depend on the
confirmation made by the companys
management in cases where there are
nothing to arouse the auditors suspicion
Eg: the value of inventories are acceptable
if in his examination has shown the
inventory system & procedures are in good
order not in doubt
Eg : Kingston Cotton Mill co.

2. In planning the audit

Auditor should plan & desing


the audit so as to obtain
reasonable assurance that the
financial statements are free of
material misstatements

ISA 240 misstatements involve:

-errors (occur by accident- without any


intention on the part of the employee to
cheat)

-fraud occur with the intention of


cheating for the benefit of the party
committing them
- two types of fraud:
i.fraudulent financial reporting
ii.Theft or defalcation of company
assets

EXTERNAL AUDITOR RESPONSIBILITY

Current auditing standards require that independent auditors provide


reasonable assurance that the financial statements are free from
material misstatements, whether caused by error or fraud, to render an
unqualified opinion on the financial statements.
External auditors are not and should not be expected to provide
absolute assurance regarding reliability of financial statements, but the
public expectations concerning external auditors performance are high.
Users of audited financial statements generally expect external
auditors to detect financial statement fraud and employees illegal acts
and fraud, which affects the integrity of financial reports. External
auditors, however, are more concerned with material misstatements in
the audited financial statements.

TQ

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