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Lecturer:
Mai
Đứ
c Ngh
ĩ
a
School of Accounting (UEH)
Topic 6
Audit Report
(Audit completion)
Course tittle:
Principles of Auditing
Prescribed Reading
Notes
Exercises
Materials
Topic 6
Session
Textbook (1):
Chapter 11,
Workbook: Chapter 6
Textbook (1):
Chapter 11,
Textbook (2):
Chapter 6
AuditReport
Relevant Guidance (Quy định có liên quan)
Forming an Opinion and Reporting on Financial Statements
ISA/VSA
Modifications to the Opinion in the Independent Auditor's Report
ISA/VSA
Emphasis of Matter Paragraphs
and
Other Matter Paragraphs
in the
Independent Auditor's Report
ISA/VSA
6.1. Understand the concept, structure and qualitativecharacteristics of the auditor's report2. Identify the different types of auditor's reports3. Describe the circumstances under which an auditorwould issue each type of report4. Identify the reasons for departures from a standardunmodified auditor's report
(material misstatements and
limitations imposed on the scope of the audit; and understandthe factors giving rise to these reasons)
3
Learning objectives of Topic 6
4
Contents of Topic 6
Audit planning
Audit performance
Audit completion
Completion and review before issuingthe auditors report.
2. The auditor’s report
2.1. Definition2.2. Structure and qualitative2.3. Types of auditor’s opinion2.4. Form and content of the
modified audit opinion 2.5. Emphasis of matter & Other matter
5
1. Applying analytical procedures at or near completion of the audit.2. Assessing the appropriateness and sufficiency of audit evidences.3. Evaluating the effects of unadjusted/uncorrected misstatements.4. Perform these following procedures:
subsequent events
review
(s
ự
ki
ệ
n sau ngày k
ế
t thúc niên
độ
examining
related-party transactions
(giao d
ị ch v
ớ
i các bên liên quan)
assessing the appropriateness of the
going concern assumption
(gi
ả đị
nh h
đ
liên t
ụ
c)
5. Obtain “management presentation letters”6. Reviewing of working papers, FSs, and other information contained in theannual report.
1. Completion and review before issuing the auditor’s report 2. THE AUDITOR’S REPORT
ISA 200
: Objective of an audit of the financial report is to
enable the auditor to
express an opinion
as to whether the
financial report is prepared, in all material respects, inaccordance with an applicable financial reporting framework.
Reminding
What is Audit Report?
7
2.1. Definition of the Auditor’s Report
The audit statement means the written report made by
practicing auditors, auditing firms, branches of foreign
auditing firms in Vietnam after the completion of the audit, giving opinions on financial statements and other contents
which have been audited under the audit contract.
Law No.: 67/2011/QH
What is Audit Report?
2.2. STRUCTURE OF AN AUDITOR’S REPORT 1.
Reference number of an Auditor’s report
Title
Addressee
Introductory paragraph
Management’s Responsibility for the FSs (or Responsibility of those charged with governance)
Auditor’s responsibility
Auditor’s opinion
Auditor’s signature
Date of auditor’s report
10. Auditor’s address
S
ố
hi
ệ
u phát hành theo t
ừ
ng n
ă
m c
ủ
a doanh nghi
ệ
p ki
ể
m toán
Ghi rõ “Báo cáo ki
ể
m toán
Đ
ộ
c l
ậ
p” (phân bi
ệ
t v
ớ
i báo cáo khác)
Ghi rõ ng
ườ
i nh
ậ
n, th
ườ
ng là c
ổ
đ
ông, Ban qu
ả
n tr
ị
ho
ặ
c Ban
Giám
đ
ố
c c
ủ
a
đ
ơ
n v
ị
VSA 700
5
6
7
8
13
(4) Introductory paragraph
It should identify
the entity whose FS have been audited
and should state
that the FS have been audited. It should also:
Identify the title of each of the FS that comprise the complete set of FS.
Identify the page number on which auditor’s report and FS are presented.
Specify the date and period covered by the FS.
State the issuing date of the FS.
2.2. STRUCTURE OF AN AUDITOR’S REPORT
Examples of Introduction paragraph
Example ofAmazon.com, Inc.Example ofHAGL group
15
(5) Management's responsibility for the financial statements
The auditors should state that
management is responsible
for
the preparation
and the fair presentation of the FS in accordance with the applicable financialreporting framework.
They are also responsible for designing, implementing and maintaining
internal
control
relevant to the preparation and fair presentation of FS that are free from
material misstatement, whether due to fraud or error.
2.2. STRUCTURE OF AN AUDITOR’S REPORT
Eg -HAGLgroup
Management's responsibility The Company's management is responsible for the preparation and fair presentation of the Company'sseparate financial statements in accordance with Vietnamese Accounting Standards, VietnameseEnterprise Accounting System and the statutory requirements relevant to preparation and presentation ofseparate financial statements, and for such internal control system as management determines isnecessary to enable the preparation and presentation of the separate financial statements that are freefrom material misstatement, whether due to fraud or error.
(6) Auditor's responsibility
The auditor’s the responsibility is to express an opinion on the FS based on the audit.
The auditor needs to:
Make reference to the audit standards were used (eg., ISAs, or VSAs),
State the objective of an audit,
Provide information of performing procedures to obtain audit evidence about theamounts and disclosures in the FS,
State that the audit evidence the auditor has obtained is sufficient and appropriate toprovide a basis for the auditor's opinion
Assess the risks of material misstatement of the FS, whether due to fraud or error,including the assessment of internal control,
Evaluate the appropriateness of the accounting policies used, the reasonableness ofthe accounting estimates made by management, as well as the overall presentationof the FS.
2.2. STRUCTURE OF AN AUDITOR’S REPORT
13
14
15
16
17
An example of Auditor's responsibility
Eg -HAGLgroup
Auditors' responsibility Our responsibility is to express an opinion on these separate financial statements based on our audit.We conducted our audit in accordance with Vietnamese Standards on Auditing. Those standards requirethat we comply with ethical requirements and plan and perform the audit to obtain reasonable assuranceabout whether the separate financial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe separate financial statements. The procedures selected depend on the auditors' judgment, includingthe assessment of the risks of material misstatement of the separate financial statements, whether dueto fraud or error. In making those risk assessments, the auditor considers internal control relevant to theCompany's preparation and fair presentation of the separate financial statements in order to designaudit procedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company's internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimates made bymanagement, as well as evaluating the overall presentation of the separate financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour qualified audit opinion.
18
(7) Auditor’s opinion
It is the primary paragraph of the auditor’s report content. The auditors express theauditor’s opinion on the FSs.
For eg.
An unqualified opinion that the FS give a true and fair view or are presented fairly, in
all material respects, in accordance with applicable financial reporting framework.
They also give a reference of the financial reporting framework used to prepare the FSs(Eg, VASs, IFRS, US GAAP,…)
2.2. STRUCTURE OF AN AUDITOR’S REPORT
(8) Auditor's signature
The signatures identify the CPA firm and practitioner (auditor in charge of the audit).
19
2.2. STRUCTURE OF AN AUDITOR’S REPORT
Eg -HAGLgroup
(9) Date of auditor’s report
The auditor’s report is dated as of the date the auditor signs the report.
To inform users that the auditor has considered the effect of events and transactions thatoccurred up until that date; and about which the auditor was aware.
(10) Auditor's address
The auditor’s report also shows the name of the audit firm, and its location
20
2.3. AUDIT OPINION
Qualified
Opinion
AdverseOpinion
Disclaimer of
Opinion
Unmodified
Opinion
Audit Opinion
Modified Opinion
Types of audit opinions
Ý ki
ế
n ch
ấ
p nh
ậ
n toàn ph
ầ
n
Ý
ki
ế
n không ph
ả
i ý
ki
ế
n ch
ấ
p nh
ậ
n toàn ph
ầ
n
Ý ki
ế
n ngo
ạ
i tr
ừ
Ý ki
ế
n trái ng
ượ
c
Ý ki
ế
n t
ừ
ch
ố
i
đư
a ra ý ki
ế
n
17
18
19
20
25
What are “Material misstatements”?
VSA/ISA 450 defines a misstatement as the
difference
between the
amount, classification, presentation or disclosure of an item reported byan entity in the financial report and the way that item is required to betreated in accordance with the applicable financial reporting framework.
Therefore, a
material misstatement
in the financial report may arise in
relation to:
The
appropriateness of the
accounting policies
selected
The
application
of those
accounting policies
, or
The
appropriateness or adequacy
of
disclosures
in the financial
report
ISA 705.A
What are “Pervasive misstatements”?
Effects are considered to be pervasive if they:
Are not confined
(limited)
to specific elements, accounts or items of the
financial report
If so confined, represent or could represent a substantial proportion ofthe financial report, or
In relation to disclosures, are fundamental to users’ understanding ofthe financial report
For all the types of modified opinions, a
basis for modification
paragraph
is inserted just before the opinion paragraph.
ISA 705.
27
nh h
ng lan to
(Textbook 2)
là
ả
nh h
ưở
ng mà chúng
không ch
ỉ
gi
ớ
i h
ạ
n
ở
1 s
ố
y
ế
u t
ố
, 1 s
ố
tài kho
ả
n ho
ặ
c
kho
ả
n m
ụ
c c
ụ
th
ể
ho
ặ
c chúng có th
ể đạ
i di
ệ
n cho 1 ph
ầ
n quan tr
ọ
ng c
ủ
a BCTC;
ho
ặ
c liên quan
đế
n thuy
ế
t minh ch
ủ
y
ế
u mà
để
ng
ườ
i s
ử
d
ụ
ng hi
ể
u
đượ
c BCTC.
VSA 705
Sai sót có
nh h
ng lan to
28s
The Scope of the Audit Has Been Restricted (Scope Limitation)
When the auditor has not accumulated sufficient appropriate evidence to concludewhether FSs are stated in accordance with the appropriate financial reportingframework,
a scope restriction exists
A limitation on the scope of the auditor’s work may arise for one of the followingthree reasons:
Circumstances
beyond the control
of the entity
Circumstances related to
the nature or timing of the auditor’s work
, or
Limitations imposed by the entity.
ISA 705.A
B
ị
gi
ớ
i
h
ạ
n
v
ề
ph
ạ
m
vi
ki
ể
m
toán
Examples: •
management’s
refusal
to
permit
the
auditor
to
confirm
material
receivables
or
to
physically
examine
inventory,
the
auditor
is
not
appointed
until
after
the
client’s
year
end,
it
is
impossible
to
physically
observe
inventories,
accounting
documents
got
destroyed
in
a
fire.
25
26
27
28
29
Choose the appropriate audit opinion
(Materially/Pervasively)
Auditor’s
judgment
about
the
pervasiveness
of
the
effects
or
possible
effects
on
FSs.
The
nature
of
matter
giving
rise
to
a
modified
opinion
Material
and
pervasive
Material
but
not
pervasive
Adverse
opinion
Qualified
opinion
FSs are materially misstated (disagreements
with
management)
Disclaimer of
opinion
Qualified
opinion
Inability to obtain sufficientappropriate audit evidence (scope
limitations)
(1) QUALIFIED OPINION
Types of Modified opinion
A qualified opinion is expressed when:
The auditor,
having obtained sufficient appropriate audit evidence,
concludes that
misstatements
are
material but not pervasive
to the FSs; or
The auditor is
unable to obtain sufficient appropriate evidence
on which to
base the opinion, but concludes that the possible effects on the FSs could be material but not pervasive
-->The most common types of qualified opinions issued relate tomaterial departures from a specific accounting standard or material disagreementsover the carrying value of a specific asset or liability and its potential effect onprofit.
ISA 705.
31
An example of QUALIFIED OPINION
Eg -HAGLgroup
(2) ADVERSE OPINION
Types of Modified opinion
An adverse opinion should be expressed when:
The auditor,
having obtained sufficient appropriate audit evidence
and, concludes that misstatements are the effect of the misstatements, individually or in the aggregate, are both
material and pervasive
to the FS as a whole.
ISA 705.
29
30
31
32
37
2. Change the title of Opinion paragraph
The auditor shall use the heading
"Qualified opinion", "Adverse opinion", or
"Disclaimer of opinion",
as appropriate, for the opinion paragraph.
3. Amend the description of the auditor's responsibility
when a
Qualified or
Adverse opinion
is issued
To state that the auditor believes that the audit evidence the auditor has obtainedis sufficient and appropriate to provide a basis for that opinion.
4. Amend the introductory paragraph of the Disclaimer of Opinion
To state that the auditor was engaged to audit the FSs. The auditor also amendsthe description of the auditor's responsibility and the description of the scope ofthe audit.
2.4 Form and content of the auditor’s whenthe audit opinion is modified (2)
38
Example of amendment to the auditor responsibility paragraph "Our responsibility is to express an opinion on the financial statements based onconducting the audit in accordance with International Standards on Auditing.Because of the matter(s) in the Basis for Disclaimer of Opinion paragraph,however, we were not able to obtain sufficient appropriate audit evidence toprovide a basis for an audit opinion."
2.4 Form and content of the auditor’s whenthe audit opinion is modified (3)
39
2.5. “Emphasis of matter”
& “Other matter”
ISA 706: “
Emphasis of Matter
Paragraphs and
Other
Matter
Paragraphs in the Independent Auditor's Report”
Emphasis of matter
In certain limited circumstances it is appropriate for the auditor to draw
attention to or emphasise
a matter that is appropriately presented
or
disclosed in the financial report
and is considered relevant to users of
the auditor’s report, but which, because of its nature, does not affect theauditor’s opinion.
The major examples would be where
there is a disclosure
in the
notes to the financial report that the auditor considers to be completeand adequate, but
important enough to bring to users’ attention
37
38
39
40
41
Emphasis of matter To
draw
user’s
attention
to a
matter
appropriately
presented or
disclosedin the FSs
The auditor has
obtained sufficient
appropriate audit evidence that the
matter is not
materially misstated
in the FSs
In the auditor’
judgment, that matter
is of such important that it is fundamental
to user’s
understanding of the
FSs
Đ
o
ạ
n “v
ấ
n
đề
c
ầ
n nh
ấ
n m
ạ
nh”
43
Example: “Emphasis of Matter’ paragraphrelating to inherent uncertainties”
Other matter
The ability to include an
Other Matter
(OM) paragraph in the auditor’s
report allows auditor to draw user’s attention to any other matters, notpresented or disclosed in the financial report, that the auditor believesare sufficiently important to be highlighted.
Circumstances giving rise to an OM paragraph are relevant to
enhancing user’s understanding of:
the audit,
the auditor’s responsibilities or the audit report,
reporting on more than one set of FSs,
restriction on distribution or use of the auditor’s report.
41
42
43
44
Consider these following questions
49
Choose appropriate audit opinion
Is
there
inability to obtain sufficient appropriate audit
evidence
- Are the
possible effects of the inability to
obtain sufficient appropriate audit
evidence material?
No
Unmodified audit opinion
Material but NOT pervasive
Yes
Qualified
audit opinion
Material and pervasive
Disclaimer of
opinion
Scope limitation
49
