THE AUDITOR’S REPORT

BY: ALYSSA MARIE B. ALAMA

THE AUDITOR’S REPORT

REPORT CIRCUMSTANCE

UNMODIFIED 1. Unmodified opinion and without EOM and OM

MODIFIED 1. Modified opinion

2. With EOM and/or om that do not necessarily modify opinion
UNMODIFIED AUDITOR’S REPORT

 This type of opinion is issued when the auditor concludes, based on

audit evidence obtained, that the financial statements are
presented fairly, in all material respects in accordance with the
applicable reporting framework.
 Elements of Unmodified Auditor’s Report

1. Title
2. Addressee
3. Report on the Audit of the F/S—Omitted if no ORR
4. Auditor’s Opinion
5. Basis for Opinion
6. Material Uncertainty Related to Going Concern—if applicable
7. Key Audit Matters (KAM)—Required for listed Entities, Voluntary for others
8. Other information—if applicable
9. Responsibilities for F/S
10. Auditor’s Responsibilities for the Audit of F/S
11. Other Reporting Responsibilities (ORR)—if applicable
12. Name of the Engagement Partner—Required only for listed entities (ISAs)
13. Signature of Auditor
14. Auditor’s Address
15. Date of Auditor’s Report
 Title
- the auditor’s report shall have a
title that clearly indicates that it is the
report of an independent auditor to
distinguish it from reports issued by
others.
 Addressee
- The auditor’s report shall be
addressed normally to those for
whom the report is prepared,
often either to shareholders or
those charge with governance.
 Report on the Audit of the
Financial Statements
- This serves as the sub-title of report; its
purpose is to indicate that the sections
up to auditor’s responsibilities pertain to
F/S. This sub-title may be omitted if the
report does not include ORR.
 Auditor’s Opinion
- The first section of the auditor’s report shall include
the auditor’s opinion. This also:
 Identify the entity whose F/S have been audited
 State that the F/S have been audited;
 Identify the title of each statement comprising the
F/S;
 Refer to the notes, including the summary of
significant accounting policies; and
 Specify the date of, or period covered by, each F/S
comprising the F/S.
 Basis for Opinion

This Section:
a. States that the audit was conducted in accordance with PSAs;
b. Refer to section of Auditor’s report that describes the auditor’s
responsibilities
c. Includes a statement that the auditor is independent and has fulfilled
other ethical responsibilities.
d. States whether the auditor believes that the audit evidence the auditor
has obtained is sufficient and appropriate to provide a basis for the
auditor’s opinion.
 Material Uncertainty Related to Going
Concern
This is the case when going concern is appropriate but a material uncertainty exists, the
auditor’s report is required to highlight the existence of such uncertainty. In such case,

 an unmodified opinion
 A section with a heading “Material Uncertainty related to Going Concern” (unless law or
regulation prescribe a different heading);
 Reference to the note in F/S that describes the material uncertainty; and
 A statement that these events or conditions indicate that a material uncertainty exists
that may cast significant doubt on the entity’s ability to continue as a going concern and
that the auditor’s opinion is not modified in respect of the matter.
 Key Audit Matters

 Are those matters that, in the auditor’s professional judgment, were of most significance in the audit
of the financial statements of the current period
The auditor’s determination of key audit matters involves three steps:
1. Categorize the matters that were communicated with those charged with governance.
2. Determine which of these matters required significant auditor’s attention.
3. Which of these matters that required significant attention are the most significance to the audit of
the current period.
Communication of key audit procedures are required ONLY for audits of the financial statements of
listed entities, auditors of non-listed entities may include such communication in the audit report if the
auditor desires it or the client requests for it.
Auditor is required to report KAM unless (1) law or regulation precludes disclosure, or (2) in extremely
rare circumstances, communication result to adverse consequences.
Matters communicated with Those
Always Consider:
Charge with Governance
- Areas of higher assessed ROMM or significant
risks;
- Significant auditor judgments relating to areas
of significant management judgement; and
- Effect on audit of significant events or
transactions
Matters that required significant
auditor’s attention

The description of a KAM is always required to

include:

a. Why the matter determined to be a Kam;

Matters of most b. How the matter was addressed in the audit;
significance in the audit and
c. Reference to the related disclosure(s) in the
= F/S.

KAM
 Other information
PSA 720
- All information included in the annual report, other than the financial statements and the
auditor’s report thereon, are referred to as “other information.”
Examples:
1. Management Report
2. Management Commentary
3. Operating and financial review
4. Chairman’s statement
5. Corporate governance statement
6. Internal control
 Auditor’s Responsibility for Other
Information

PSA 720 requires the auditor to read the other information:

 Whether material inconsistencies exist between the other information
and the financial statements; and

 Whether material inconsistency exists between the other information

and the auditor’s knowledge of the entity obtained in the audit.
(Material Misstatement of Facts)
Responses When Material Inconsistency Exists

 The auditor shall discuss the matter with management and, if

necessary, perform other procedures to conclude whether:
a. A material misstatement of Other Information exists and needs to be
amended;
b. A material misstatement of the financial statement exists and needs
to be amended; or
c. The auditor’s understanding of entity and its environment needs to be
updated.
 Responses When Other Information Material
Misstatement of Facts Exists
 If the auditor concludes that a material misstatement of facts in the Other Information
that was obtained prior to the date of auditor’s report is not corrected, the auditor shall
take actions, including:
a. Consider implications in auditor’s report and communicating with TCWG; or
b. Withdraw from engagement, where possible.
 If the auditor concludes that a material misstatement of facts exists in the Other
Information obtained after the date of auditor’s report, the auditor shall:
a. If the Other Information is corrected, perform necessary procedures; or
b. If the Other Information is not corrected after communicating with TCWG, take appropriate action
considering the auditor’s legal rights and obligations, to seek to have the uncorrected material
misstatement appropriately brought to attention.
 Other Information Section in the Auditor’s
Report
Using the heading “OTHER INFORMATION” or other appropriate heading, and include:
• A statement that management is responsible for the Other Information.
• Identification of the Other Information obtained prior to the date of the auditor’s report. In the case
of a listed entity, the auditor is also required to identify any Other Information expected to be
obtained after the date of the auditor’s report.
• A statement that the auditor’s opinion does not cover the Other Information and accordingly, that
the auditor does not express (or will not express) an audit opinion thereon.
• A description of auditor’s responsibilities relating to reading, considering and reporting on Other
information. When Other Information has been obtained prior to date of the auditor’s report, either:
- A statement that the auditor has nothing to report; or
- If the auditor has concluded that there is an uncorrected material misstatement of Other
Information, a statement that describes the misstatement of the Other information.
 Responsibilities for the F/S

 This section shall describe management responsibilities for:

a. Preparing the F/S and Internal Control

b. Assessing the Entity’s ability to continue as a going concern
 Auditor’s Responsibility for the F/S

 This sections of the auditor’s report shall state

a. The objectives of the auditor

b. That reasonable assurance is at a HIGH LEVEL of assurance, but it is not a guarantee
that an audit will always detect a material misstatement or fraud; and
c. That misstatements can arise from fraud or error, and either describe that they are
considered material or provide a definition or description of materiality.
 Other Reporting Responsibilities

 This refers to auditor’s ORR in addition to responsibilities under PSAs. There ORR shall be addressed in
a separate section with a heading titled “ Report on other Legal and Regulatory Requirements” or
otherwise as appropriate. An example of this is in the Philippines, auditors are required to report on
supplementary information to comply with the requirements of the BIR Revenue Regulation No.15-
2010.

Supplementary Information
- refers to information that is presented together with the financial statements that is not required by
the acceptable financial reporting framework used to prepare the financial statements, normally
presented in either (1) Supplementary Schedules or as (2) Additional notes.
Name of Engagement Partner and Signature of
the Auditor
 The Name of Engagement Partner shall be included in auditor’s report for
financial statement audits of listed entities unless, in rare circumstances,
such disclosure may lead to a personal security threat.

 The auditor’s report shall be signed in the name of the audit firm, the
personal of the auditor or both, as appropriate for the particular
jurisdiction. In some cases, law or regulation may allow for the use of
electronic signatures in the auditor’s report.
 Auditor’s Address

- TheAuditor’s Report shall name

the location where the auditor
practices.
 Date of Auditor’s Report
- Reportshould be dated as of the
completion of all essential audit
procedures, which in effect, the last
day of fieldwork.
Note: Audit Report should not be
dated earlier than the approval of the
financial statements.
Modified Auditor’s Report—Modified Opinion

The following sections of the report are modified if a modified opinion expressed:

1. Auditor’s Opinion
2. Basis for Opinion
3. Description of auditor’s responsibilities, in case of disclaimer of opinion; and
4. Omission of KAM and OI, in case of disclaimer of opinion
 Modification of the Auditor’s report
Material Misstatement Scope of Limitation

Qualified Adverse Qualified Disclaimer

Opinion Section Modified Modified Modified Modified

Basis for Opinion Modified Modified Modified Modified

Section

Responsibilities for No Modification No Modification No Modification No Modification

the FS Section
Auditor's No Modification No Modification Modified Modified
Responsibilities
Section
Material Misstatement

Any departure from the specific requirements of applicable financial reporting

framework or acceptable financial reporting standards will cause the financial
statements to contain material misstatements:
A material misstatement of the financial statement may arise from:
1. Inappropriate accounting policy
2. Misapplication of selected accounting policy
3. Inappropriate or inadequate disclosure
 Qualified Opinion Due to Material
Misstatement
When auditor expresses a qualified opinion due to a material misstatement, the
auditor shall:

 Use the heading “Qualified Opinion” in the opinion section of the report; and
 State that, in the auditor’s opinion, except for the effects of the matter
described in the Basis for Qualified Opinion section, the financial statements
present fairly, in all material respects, the financial position and the financial
performance of the entity in accordance with the applicable financial
reporting framework.
 Adverse Opinion

When the auditor expresses an adverse opinion because the financial statements
are materially misleading, the auditor shall:

 Use the heading “Adverse Opinion” in the opinion section of the report; and
 State that, in the auditor’s opinion, because of the significance of the matter
described in the Basis for Adverse Opinion section, the financial statements do not
present fairly the financial position and financial performance of the entity in
accordance with the applicable financial reporting framework.
 Scope of Limitation

Arises when the auditor is unable to perform necessary audit procedures or the
auditor is unable to obtain sufficient appropriate evidence about an assertion.
A limitation on the scope or the auditor’s work may be imposed by the client or
imposed by circumstances:
1. Circumstances beyond the control of the entity
2. Circumstances relating to the nature or timing of the auditor’s work
3. Limitations imposed by management
 Qualified Opinion Due to Scope
Limitation

When the auditor expresses a qualified opinion due to scope of limitation, the
auditor shall:
 Use the heading “Qualified Opinion” in the opinion section of the report; and
 State that, in the auditor’s opinion, except for the effects of the matter
described in the Basis for Qualified Opinion section, the financial statements
present fairly, in all material respects, the financial position and the financial
performance of the entity in accordance with the applicable financial
reporting framework.
 Disclaimer of Opinion

When the auditor disclaims an opinion due to scope limitation, the auditor shall:
 Use the heading “Disclaimer of Opinion” in the opinion section of the report;
 State that the auditor does not express an opinion on the financial statements
 State that because of the significance of the matter described in the Basis for
Disclaimer of Opinion section, the auditor has not been able to obtain sufficient
appropriate audit evidence to provide a basis for an audit opinion on the financial
statements; and
 Amend the opening statement which indicates that the auditor has audited the
financial statements, to state that the auditor was engaged to audit the financial
statements.
 The Statement about the auditor’s independence and other ethical responsibilities
 Modified Auditor’s Report—EOM and OM

Emphasis of the Matter Other Matter

Matter Highlighted Matter already in the Financial Matter not in the Financial Statements
Statements

Importance of Fundamental to understanding Relevant to understanding the Audit

Matter the Financial Statements

Appropriate when: Matter not result to modification Matter not prohibited by law or
of opinion and not a Key audit regulation and not a Key Audit Matter
Matter
Examples Matter uncertainty related to Inability of the auditor to engagement,
going concern, litigation, or a additional responsibilities of the auditor,
major catastrophe and restrictions on report distributions
 Emphasis of Matter

An Emphasis of Matter paragraph is included in the audit report to draw the reader’s
attention to a matter presented or disclosed in the financial statements that, in the
auditor’s judgment, is of such importance that it is fundamental to the reader’s
understanding of the financial statements.
In including an EOM, the auditor shall:
a. Use an appropriate heading that includes the term “Emphasis of Matter”;
b. Include in the paragraph a clear reference to the matter being emphasized and to where
relevant disclosures that fully describe the matter in the financial statements;
c. Indicate that the opinion is not modified in respect of the matter emphasized.
 Examples of Circumstances to include
an EOM paragraph

 Significant uncertainty
 Early application of new accounting standard in advance of its effective
date
 A major catastrophe that has a significant effect on the entity’s financial
position
 A subsequent discovery of facts affecting the previously issued opinion
 Financial statements prepared using a special purpose framework
 Other Matter Paragraph

There are instances when the auditor considers it necessary to communicate

a matter that is not presented or disclosed in the financial statements but, in
the auditor’s judgment, is relevant to user’s understanding of the audit, the
auditor’s responsibilities or the auditor’s report. The auditor may do so by
including an additional paragraph to an unmodified opinion with the
heading “Other Matter”
 Possible Placements of EOM and OM
Emphasis of Matter Paragraphs

• When the EOM relates to the Acceptable Financial Reporting Framework, the auditor may place it
immediately following the basis of Opinion Section to provide appropriate context to the auditor’s opinion.
• When Key Audit Matter section is presented, an EOM may be presented either directly before or after the Key
Audit Matter. The auditor may also add further context to the heading “Emphasis of Matter – Subsequent
Event”, to differentiate the EOM paragraph from the KAM section

Other Matter Paragraphs

• When a KAM section is presented in the auditor’s report and an OM paragraph is also considered necessary ,
the auditor may add further context to the heading “Other Matter”, such as “Other Matter – Scope of the
Audit”, to differentiate the OM
• When an OM is included to draw user’s attention to a matter relating to ORR, the paragraph maybe included
in the ORR section.
• When relevant to all the auditor’s responsibilities or user’s understanding of the auditor’s report, the OM
paragraph may be included as a separate section following the Report on the audit of the F/S and the ORR.
 Comparative Information

Comparative Information covering one or more preceding periods provides the users of the financial
statements with information necessary to identify trends and changes affecting an entity over a period
of time. PSA 710 has identified two financial reporting frameworks for comparatives, namely:
a. Comparative Financial Statements
- where amounts and other disclosures for the preceding period are included for comparison with
the financial statements of the current period, but do not form part of the current period financial
statements.
b. Corresponding Figures
- where amounts and other disclosures for the preceding period are included as part of the current
period financial statements, and are intended to be read in relation to the amounts and other
disclosures relating to the current period. These corresponding figures are not presented as
complete financial statements capable of standing alone, but are an integral part of the current
period financial statements intended to be read only in relationship to the current figures.
Comparative Information Compared

Corresponding Figures Comparative Financial

Statements
Level of detail Dictated by relevance to the current Comparable with that of
period figures; hence, may not be Financial Statements of the
complete current period.
Covered by opinion No yes
 Reposting on Comparative Financial
Statements

 When Reporting on comparative financial statements, the auditor

should issue a report in which the comparative financial statements are
specifically identified. The auditor’s opinion should be expressed
individually on the financial statements of each period presented.
Reports on comparative financial statements can be illustrated under
the following scenarios.
 Opinion on Prior Period F/S Different from previous opinion provided

This may be the case when the auditor becomes aware of circumstances or events that
materially affect the F/S of a prior period during the current period audit. The auditor shall
disclosed the substantive reasons for the different opinion in an OM.

 Prior Period F/S Audited by a Predecessor Auditor

Unless the predecessor auditor’s report on the prior period’s F/S is reissued with the F/S, the
auditor shall state in an OM:
a. That the F/S of the prior period were audited by a predecessor auditor.
b. The type of opinion and, if the opinion was modified, the reasons therefore; and
c. The date of that report
 Any Restatements Required in Comparative F/S

If a material misstatements exists that affects the prior period’s F/S on which the predecessor
auditor had previously reported without modification:
• Communicate the misstatement with the management and TCWG; and
• Request that the predecessor auditor be informed.
If the prior period’s F/S are amended and the predecessor auditor agrees to issue a new
auditor’s report on the amended F/S of the prior period, the auditor would report only on the
current period.

 Prior Period F/S not audited

The auditor shall state in an OM that the comparative F/S are unaudited.
Comparative Financial Statements
 Audit Reporting—Corresponding Figures

When the comparatives are presented as corresponding figures, the auditor should
issue a report that refers only to the financial statements of the current period. The
comparatives are not specifically identified because the auditor’s opinion is on the
current period’s financial statements as a whole (including the corresponding
figures).
In certain conditions, such as when the report on the prior period’s financial
statements included a qualified, adverse or disclaimer of opinion and the matter
that gave rise to the modification has not yet been resolved, it may be necessary
for the auditor to modify the report on the current period financial statements to
make specific reference to the corresponding figures.
 Modification in Auditor’s Report on the Prior period Remains
Unresolved
The auditor would modify the current period’s opinion by:
• Referring to both the current period’s figures and the corresponding figures when the effects of
the matter on current period’s figures are material; or
• Explaining that the current audit opinion has been modified because the effects of unresolved
matter on comparability of current period’s figures and corresponding figures.

 Misstatement in Prior Period Financial Statements

If the auditor obtains evidence that a material misstatement exists in prior period F/S on which an
unmodified opinion has been previously issued, and the corresponding figures have not been
properly restated, the auditor shall express a qualified opinion or adverse opinion on the current
period F/S.
When the prior period F/S that are misstated have not been amended and an auditor’s report has
not been reissued, but the corresponding figures have been properly restated in the current period
F/S the auditor’s report may include an EOM.
 Prior Period F/S not Audited

The auditor shall state in an OM that the corresponding figures are unaudited.

 Prior Period F/S Audited by a Predecessor Auditor.

The auditor shall state (if not prohibited by law) in an OM:
a. That the F/S of the prior period were audited by the predecessor auditor;
b. The type of opinion and, if the opinion was modified, the reasons therefore; and
c. The date of the report
Corresponding Figures