Introduction to the

Audit Report

Prepared by:
MARK FRANCIS G. NG, CPA, MBA
ANALIZA O. PABILONA, CPA, MAEd
Auditing and Assurance Principles
BSA 4 / BSMA 4
 EXAMPLE OF A STANDARD
UNMODIFIED REPORT
(old format)

INDEPENDENT AUDITOR’S REPORT

[Appropriate Addressee]

Report on the Financial Statements

We have audited the accompanying financial statements of ABC

Company, which comprise the balance sheet as at December 31,
20X1, and the income statement, statement of changes in equity
and cash flow statement for the year then ended, and a summary
of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair

presentation of these financial statements in accordance with
Philippine Financial Reporting Standards; 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.
 EXAMPLE OF A STANDARD
UNMODIFIED REPORT
Auditor’s Responsibility

Our responsibility is to express an opinion on these financial

statements based on our audit. We conducted our audit in
accordance with Philippine Standards on Auditing. Those
standards require that we comply with ethical requirements and
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 auditor’s judgment,
including the assessment of the risks of material misstatement of
the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the
financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal
control.
 EXAMPLE OF A STANDARD
UNMODIFIED REPORT
An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall
presentation of the financial statements.

We believe 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 present fairly, in all

material respects, the financial position of ABC Company as of
December 31, 20X1, and of its financial performance and its cash
flows for the year then ended in accordance with Philippine
Financial Reporting Standards.
 EXAMPLE OF A STANDARD
UNMODIFIED REPORT
Report on Other Legal and Regulatory Requirements

[Form and content of this section of the auditor’s report will vary
depending on the nature of the auditor’s other reporting
responsibilities.]

[Auditor’s signature]

[Date of the auditor’s report]

[Auditor’s address]
 PARTS OF THE AUDIT REPORT

Title
§ The audit report is specifically titled to distinguish it from
other reports issued by the company.
§ PSA 700 “Forming an Opinion and Reporting on Financial
Statements” (approved as of March 31, 2010) provides
that the audit report be specifically titled “Independent
Auditor’s Report”.

Addressee
§ The audit report is ordinarily addressed to those for
whom the report is prepared, often either to the
stockholders or to those charged with governance of the
entity whose financial statements are being audited.

Introductory Paragraph
§ The introductory paragraph identifies the entity whose
financial statements have been audited and states that
the financial statements have been audited, as well as
enumerates these financial statements which are the
subject of the audit.
 PARTS OF THE AUDIT REPORT

Management’s Responsibility Paragraph

§ This part of the audit report states that management is
responsible for the preparation and presentation of the
financial statements as well as other duties and
responsibilities required of management in a financial
statement audit.

Auditor’s Responsibility Paragraph

§ This paragraph states that the primary responsibility of
the auditor is to express an opinion on the financial
statements. This paragraph also describes the nature of
an audit and the audit process.

Opinion Paragraph
§ This paragraph contains the auditor’s opinion as to the
fairness or reasonableness of the financial statements. In
some instances, the auditor also states that an opinion
cannot be expressed.
 PARTS OF THE AUDIT REPORT

Other reporting responsibilities

§ This includes the auditor’s additional responsibilities to
report on other matters that are supplementary to the
auditor’s responsibility to express an opinion on the
financial statements.
Auditor’s signature
§ This bears the signature of the auditor, which is either in
the name of the audit firm, the personal name of the
auditor, or both, as appropriate.
Date of the auditor’s report
§ The auditor should date the report on the financial
statements no earlier than the date on which the auditor
has obtained sufficient appropriate audit evidence on
which to base the opinion on the financial statements.
§ Ordinarily, the audit report is dated on the last day of
fieldwork.
Auditor’s address
§ This names the location in the country where the auditor
practices
§ Usually, the auditor’s address is the location of the main
office where the audit firm is located
 AUDIT OPINION

§ Manifests the attest function of an auditor

§ The assurance provided in the audit report is contained in
the audit opinion expressed in the report
§ Ordinarily, the opinion expressed by the auditor is an
unmodified opinion, which communicates that the
financial statements, taken as a whole, are presented
fairly, in all material respects, in accordance with an
applicable financial reporting framework
§ There might be cases where an auditor expresses a
modified opinion, and sometimes reaches a decision
that an opinion cannot be expressed, depending on
the circumstances surrounding the audit

Types of Opinion
§ Unmodified opinion (previously unqualified opinion)
§ Modified opinion
ü Qualified opinion
ü Adverse opinion
§ Disclaimer of opinion
 TYPES OF OPINION

UNMODIFIED OPINION

§ This is an opinion in which the auditor concludes that the

financial statements present fairly the financial position,
results of operations, and cash flows consistently in all
material respects, in accordance with the identified
financial reporting framework.

§ This opinion is issued when:

ü The audit has been performed in accordance with
GAAS
ü The financial statements are presented fairly and in
conformity with the applicable financial reporting
framework and include all disclosures necessary to
make the statements not misleading
 TYPES OF OPINION

QUALIFIED OPINION (Modified Opinion)

§ an opinion in which the auditor states that “except for”
the effect of the matter to which the qualification relates,
the financial statements present fairly the financial
position, results of operations, and changes in financial
position in conformity with the applicable financial
reporting framework consistently applied.
§ issued when the auditor concludes that an unmodified
opinion cannot be expressed but that the effect of any
disagreement with management, or limitation on scope is
not so material and pervasive as to require an adverse
opinion or a disclaimer of opinion.
§ the PSAs specify that the phrase “except for” should be
used when the auditor qualifies an opinion.
§ is expressed when the following situations are met, and
when they are judged to be material but not pervasive
(or immaterial):
ü Departure from the applicable financial reporting
framework
ü Disagreement with management
ü Limitation on scope
 TYPES OF OPINION

ADVERSE OPINION (Modified Opinion)

§ states that the financial statements do not present fairly
the financial position, results of operation, or changes in
financial position of the company in conformity with the
applicable financial reporting framework.
§ expressed when the effect of a departure from GAAP or a
disagreement with management is so material and
pervasive to the financial statements that the auditor
concludes that a qualification of a report is not adequate
to disclose the misleading or incomplete nature of the
financial statements.
§ expressed when the following situations are met, and
when they are judged to be highly material and
pervasive (or material):
ü Departure from the applicable financial reporting
framework
ü Disagreement with management
 TYPES OF OPINION

DISCLAIMER OF OPINION
§ a statement by the auditor that an opinion cannot be
expressed on the financial statements
§ expressed when the possible effect of a limitation on
scope 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
on the financial statements
§ another circumstance that leads to a disclaimer of opinion
is when the auditor is not entirely independent of
the client

PIECEMEAL OPINION
§ an expression of opinion as to certain identified items in
the financial statements when the auditor either
disclaimed an opinion or expressed an adverse opinion on
the financial statements taken as a whole
§ is now prohibited since in an audit, the audit opinion is
expressed on the financial statements taken as a whole