The Audit Report

Second Part

Modified Opinions

An auditor may not be able to express an unqualified opinion when:

1. The auditor concludes that, based on the audit evidence obtained, the
financial statements as a whole are free from material misstatements; or
2. The auditor is unable to obtain sufficient appropriate audit evidence to
conclude that the financial statements as a whole are free from material
misstatement.

Inability to Obtain Sufficient

Appropriate Audit Evidence

An inability to obtain sufficient appropriate evidence may sometimes

occur either as imposed by the entity or as a result of circumstances
beyond the control of the auditor

Uncorrected Material Misstatements

Uncorrected material misstatements may arise due to disagreements

between the auditor and management, on matters such as:
1. The acceptability of accounting policies selected,
2. The method of their application, or
3. The adequacy of disclosures in the financial statement

Comparative Information

Corresponding figures

Comparative information where

amounts and other disclosures for
the prior period are included as an
integral part of the current period
financial statements, and are
intended to be read only in relation
to the amounts and other
disclosures relating to the current
period.

Comparative financial
statements

Comparative information where

amounts and other disclosures for
the prior period are include for
comparison with the financial
statements of the current period but,
if audited, are referred to in the
auditors opinion.

Corresponding Figures

Corresponding figures are not presented as complete financial

statements capable of standing alone, but are integral part of the
current period financial statements intended to be read only in
relationship to the current period figures

Corresponding Figures

If the auditors report on the prior period, as previously issued, included

a qualified opinion, a disclaimer of opinion, or an adverse opinion and
the matter which gave rise to the modification is unresolved, the auditor
shall modify the auditors opinion on the current periods financial
statements. In the Basis for Modification paragraph in the auditors
report, the auditor shall either:
a) Refer to both the current periods figures and the corresponding figures in the
description of the matter giving rise to the modification when the effects or
possible effects of the matter on the current periods figures are material; or
b) In other cases, explain that the audit opinion has been modified because of
the effects or possible effects of the matter on the current periods figures
and the corresponding figures.

Corresponding Figures

Prior Period Financial Statements Audited by a Predecessor

Auditor

If the financial statements of the prior period were audited by a predecessor

auditor and the auditor is permitted by law or regulation to refer to the
predecessor auditors report on the corresponding figures and decides to do
so, the auditor shall state in an Other Matter paragraph in the auditors
report:
a) That the financial statements of the prior period were audited by the predecessor
auditor;
b) The type of opinion expressed by the predecessor auditor and, if the opinion was
modified, the reasons therefore; and
c) The date of that report.

Corresponding Figures

Prior Period Financial Statements Not Audited

If the prior period financial statements were not audited, the auditor shall
state in an Other Matter paragraph in the auditors report that the
corresponding figures are unaudited, such a statement does not, however,
relieve the auditor of the requirement to obtain sufficient appropriate audit
evidence that the opening balances do not contain misstatements that
materiality affect the current periods financial statements.

Comparative Financial Statements

The comparative financial statements for the prior period(s) are

considered separate financial statements. Accordingly, the level of
information included in those comparative financial statements
approximates that of the financial statements of the current period.

When comparative financial statements are presented, the auditors

opinion shall refer to each period for which financial statements are
presented and on which an audit opinion is expressed.

Comparative Financial Statements

Prior Period Financial Statements Audited by a Predecessor

Auditor

If the financial statements of the prior period were audited by a predecessor

auditor, in addition to expressing an opinion on the current periods financial
statements, the auditor shall state in an Other Matter paragraph:
a) That the financial statements of the prior period were audited by a predecessor
auditor;
b) The type of opinion expressed by the predecessor auditor and, if the opinion was
modified, the reasons therefore; and
c) The date of that report,

Unless the predecessor auditors report on the prior periods financial

statements is reissued with the financial statements.

Comparative Financial Statements

Prior Period Financial Statements Not Audited

If the prior financial statements were not audited, the auditor shall state in an
Other Matter paragraph that the comparative financial statements are
unaudited. Such a statement does not, however, relieve the auditor of the
requirement to obtain sufficient appropriate audit evidence that the opening
balances do not contain misstatements that material affect the current
periods financial statements.

Audits of Group Financial Statements

To objectives of the auditor are:

a) To determine whether to act as the auditor of the group financial statements;
b) To communicate clearly with component auditors about the scope and timing
of their work on financial information related to components and their
findings; and
c) To obtain sufficient appropriate audit evidence about the financial information
of the components and the consolidation process to express an opinion
whether the group financial statements are prepared, in all material respects,
in accordance with the applicable financial reporting framework.

Audits of Group Financial Statements

Acceptance and Continuance and the Effect on the Auditors

Report

In applying PSA 220 (Redrafted), the group engagement partner shall

determine whether sufficient appropriate audit evidence can reasonably be
expected to be obtained in relation to the consolidated process and the
financial information of the components on which to base the group audit
opinion.

If the group engagement partner concludes that:

a) It will not be possible for the group engagement tram to obtain sufficient
appropriate audit evidence due to restrictions imposed by the group management;
and
b) the possible effect of this inability will result in a disclaimer of opinion on the group
financial statements,

Audits of Group Financial Statements

Acceptance and Continuance and the Effect on the Auditors

Report (cont.)

the group engagement partner shall either:

In the case of a new engagement , not accept the engagement, or, in the case of a
continuing engagement, resign from the engagement; or
Where law or regulation prohibits an auditor from declining or resigning from an
engagement, having performed the audit of the group financial statements to the
extent possible, disclaim an opinion on the group financial statements.

Audits of Group Financial Statements

Screening of Component Auditors

When the group engagement team plans to request a component auditor to

perform work on the financial information of a component, the group
engagement team shall obtain an understanding of the following:
a) Whether the component auditor understands and will comply with the ethical
requirements that are relevant to the group audit and , in particular, is
independent;
b) The component auditors professional competence
c) Whether the group engagement team will be able to be involved in the work of the
component auditor to the extent necessary to obtain sufficient appropriate audit
evidence; and
d) Whether the component auditor operated in a regulatory environment that actively
oversees auditors.

Audits of Group Financial Statements

Evaluating the Sufficiency and Appropriateness of Audit

Evidence Obtained

The group engagement team shall evaluate the component auditors

communication. The group engagement team shall:
a) Discuss significant matters arising from that evaluation with the component
auditor, component management or group management, as appropriate; and
b) Determine whether it is necessary to review other relevant parts of the component
auditors audit documentation.

Audits of Group Financial Statements

Sufficiency and Appropriateness of Audit Evidence

The group engagement team shall evaluate whether sufficient appropriate

audit evidence has been obtained from the audit procedures performed on
the consolidation process and the work performed by the group engagement
team and the component auditors on the financial information of the
components, on which to base the group audit opinion

The group engagement partner shall evaluate the effect on the group audit
opinion of any uncorrected misstatements and any instances where there has
been an inability to obtain sufficient appropriate audit evidence.