Audit Report

International Standards on Auditing (ISA) 700

The auditor report is a formal opinion or declaimer issued by either an internal
auditor or an independent external auditor as a result of an internal or external
audit on a legal entity or subdivision thereof. The report is subsequently provided to
a user group as an assurance in order to make decisions based on the audit
financial reports.

Independent Auditor
A certified public accountant who examines the financial records and business
transactions of a company that he or she is not affiliated with an independent
auditor is typically used to avoid conflicts of interest and to ensure the integrity of
the auditing process. Independent auditor is sometimes called external auditors. Are
often used or even mandated to protect shareholders and potential investors from
the fraudulent activities or misrepresented financial statements made by public
companies.

Different types of audit report

1) Unqualified audit report or perfect audit report: An unqualified audit report
with nothing outstanding or out of the ordinary. In an unqualified report, the auditor
concludes that the financial statements of your business present fairly its affairs in
all material aspects. General Accepted Accounting Principles (GAAP) and statutory
requirements also known as a clean report, such a report implies that any changes
in the accounting policies, their application and effects are adequately determined
and considered. It merely states that financial reports are transparent and
concludes that the financial statements are prepared in accordance with the
financial reporting framework. An unqualified opinion indicates the following1. The financial statements have been prepared using the Generally Accepted
Accounting Principles which have been consistently applied.
2. The financial statements comply with relevant statutory requirements and
regulations
3. There is adequate disclosure of all material matters relevant to the
presentation of the financial statements subject to statutory requirements
where applicable:
4. Any changes in the accounting principles

Example of an Independent Auditor Unqualified

Report
Board of directors, Stockholders, Owners, and /or Management of
ABC Company, Inc.
123 Main St.
Any town, any country
We have audited the accompanying financial statements of ABC Company, Inc.
which comprise the balance sheet as of December 31, 2016, and the related
statements of income, retained earnings and cash flows for the year then ended,
and the related notes to the financial statements.

Managements Responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these
financial statements in accordance with General Accepted Accounting Principles:
this includes the design, implementation, and maintenance of internal control
relevant to the preparation and fair presentation of financial statements that are
free from material misstatement, whether due to fraud or error.
Auditors responsibility
Our responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit in accordance with Bangladesh Standards on
auditing (BSA). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the financial statements. The procedures selected
depend on the auditors judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments; the auditor considers internal control
relevant to the entitys preparation and fair presentation of the financial statements.
An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of significant accounting estimates made by management,
as well evaluating the overall presentation of the financial statements.
We believe that that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion the financial statements of ABC Company presented fairly, in all
material aspects and are free from material misstatement whether due to fraud or
error. The financial position of ABC Company, Inc. as of December 31, 2016 and the
results of its operations for the year then ended in accordance with Generally
Accepted Accounting Principles.
Auditors Signature
Auditors name and address
Date: Last day of any significant field work
2. Qualified Audit Report: A qualified report is an audit report with some sort of
or except in it. For example; if the auditors cannot agree with the client on the
balance of the inventory accounts but the client insists they are correct the auditors
may issue a qualified report that basically states that everything else they have
checked is in line with industry practice. An auditors report is qualified when there
is either a limitation of scope in the auditors work for auditors an issue must be
material or financially worth consideration to qualify a report. The issue should not
be pervasive, that is, the issue should not misrepresent the factual financial
position.

3. Adverse Audit Report: The worst type of financial report that can be issued to
a business is an adverse opinion. This indicates that the firms financial records do
not conform to GAAP. In addition, the financial records provided by the business
have been grossly misrepresented. Although this may occur by error, it is often an
indication of fraud. When this type of report is issued a company must correct its
financial statement and have it re audited as investors lenders and other users of
financial reports will generally not accept it. 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. In most cases, before punishing an
adverse opinion, the auditor advises the organizations accountants and officers of
the problems and works with them to correct the financial reporting situation, so
that an opinion can be published that is unqualified or qualified rather than adverse.
4. Disclaimer of opinion: On some occasions, an auditor is unable to complete an
accurate audit report. This may occur for a variety of reasons, such as an absence
of appropriate financial records. When this happens the auditor issues a disclaimer
of opinion, stating that an opinion of the firms financial status could not be
determined. 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
may issue a disclaimer of opinion that is publicly report that the auditor has chosen
not to issue an opinion. This may occur when;
1. The auditor has significant uncertainties regarding financial reports,
2. When auditor is not independent or when there is conflict of interest,
3. When limitation of scope is imposed by client.

Going Concern
Going concern is a term which means that an entity will continue to operate in the
near future which is generally more than next 12 months. So long as it generates or
obtains enough resource to operate. If the audit is not a going concern, it means
that the entity might not be able to sustain itself within the next twelve months.
Auditors are required to consider the going concern of an audit before issuing a
report. If the audit is a going concern, the auditor does not modify his/her report in
any way. However, if the auditor considers that the audit is not a going concern, or
will not be a going concern in the near future, and then the auditor is required to
include an explanatory paragraph before the opinion paragraph or following the
opinion paragraph in the audit report explaining the situation, state, the auditors
determination, and state the audits plan to correct the situation. The disclosure
paragraph should immediately follow the opinion paragraph. Which is commonly
referred to as the going concern disclosure? Such an opinion is called an unqualified
modified opinion.
Unfortunately, many auditors are increasingly reluctant to include this disclosure in
their opinions, since it is considered a self fulfilling prophecy by some. This is

because disclosures for a lack of going concern is viewed negatively by investors,

lending institutions, and credit agencies, and therefore reduce the chance that the
audit may obtain the capital or borrowing it need to survive once the disclosure is
made.
The following is the most widely used format of the paragraph which in this case,
deals with a company that has recurring losses.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in mote (x) to the financial
statements, the company has suffered recurring losses and has a net capital
deficiency. These conditions raise substantial doubt about it ability to continue as a
going concern. Managements plans in regard to these matters are also described in
mote (x). The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts of the amount or the
amount and classification of liabilities that might result should the company be
unable to continue as a going concern.

Opinion Shopping
Refer to audits who contract or reject auditors based on the type of opinion they
will issue on the audit. The underlying principles of this concept are:
1. Audit determines the compensation to auditors for their work as well as
awarding future audit engagements.
2. Such fees are the auditors main source of income.
3. Audits may try to contract auditors that will issue audit opinions based on the
audits needs, and
4. Auditors are willing to comply with such demands so long as they are assured
future audit engagements.
The most common example is an audit that knows that the current auditor is going
to issue a qualified, adverse, or disclaimer of opinion report, who then rescinds or
terminate the audit engagement before the opinion is issued and subsequently
shops for another auditor who is willing to issue an unqualified opinion regardless of
any qualifying situations mentioned in the previous sections. However, opinion
shopping is not limited to audits contracting auditors based on issuing opinions. It
also includes auditors who are over pleasing to audits by issuing unqualified reports
without properly auditing or by simply overlooking material issues affecting the
audit. These auditors objectives are to appear much more attractive and easy
going than other auditors in order to secure future audit engagements and fees.
Although the great majority of auditors are not willing to jeopardize their profession
and reputation form guaranteed audit fees, there are some that will issue opinions
solely based on obtaining or maintaining audit engagements. This includes auditors
who knowingly emit unmodified unqualified opinions for audits who are engaged in
illegal activities, audits who have caused a material limitation of scope, audits that
have a lack of going concern, or audits who present fraudulent financial statements
(e.g. Enron and Arthur Andersen). This situation is a clear conflict of interest which
should hinder an auditors independence and the ability to audit but some auditors
willingly ignore this statute.