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An in-depth look into the composition of an auditor's report, including its definition, elements, and various types of opinions. It covers unmodified, qualified, adverse, and disclaimer opinions, as well as emphasis of matter and other matter paragraphs. based on the textbooks 'Auditing & Assurance Services in Australia' and 'Kiểm Toán' and was used in the School of Accounting at UEH in 2018.
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Auditing Department – SoA - UEH CHAPTER 6:
2 2018 Auditing Dept. - School of Accounting - UEH
3 ISA/VSA 550 Related parties ISA/VSA 560 Subsequent events ISA/VSA 570 Going concern ISA/VSA 580 Written Representation ISA/VSA 700 Forming an opinion and reporting on a financial report ISA/VSA 705 Modifications to the opinion in the independent auditor’s report ISA/VSA 706 Emphasis of Matter paragraphs and other matter paragraphs in the independent auditor’s report 2018 Auditing Dept. - School of Accounting - UEH LEARNING OBJECTIVES
7 2018 Auditing Dept. - School of Accounting - UEH Elements of an auditor’s report
Elements of an auditor’s report
1. Reference number of an auditor’s report It is the number of an auditor’s report issued by his audit firm. 2. Title “Independent Auditor’s Report” , affirms that the auditor has met all of the relevant ethical requirements regarding independence; therefore, distinguishes the independent auditor’s report from reports issued by others. 3. Addressee The auditor’s report is normally addressed to those for whom the report is prepared, often to shareholders or to those charged with governance of the entity (Supervisory Board or Board of Directors). 9 **2018 Auditing Dept. - School of Accounting - UEH Elements of an auditor’s report
Elements of an auditor’s report Example of Management’s Responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards (Vietnamese Accounting Standards, accounting regime for enterprises and legal regulations relating to financial reporting) and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error. 13 2018 Auditing Dept. - School of Accounting - UEH Elements of an auditor’s report
6. Auditor’s responsibility The responsibility of the auditor is to express an opinion on the financial statements based on the audit. To give audit opinion, auditor needs to: Make reference to the audit standards were used State the Objectives of an audit Provide a description of audit work has been performed Evaluate risk of material misstatements of the financial statements, including the evaluation of internal control. Evaluate the appropriateness of the accounting policies used and the reasonableness of accounting policies. Evaluate the overall presentation of the financial statements. 14 2018 Auditing Dept. - School of Accounting - UEH
Elements of an auditor’s report Example of 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 International Standards on Auditing/Vietnamese Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amount and disclosures in the financial statements. The procedures selectes depends 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 consider 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 circumstance, but not for the purpose of expressing an opinion on the effectivenss of the entity’s internal control. 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. (^15) 2018 Auditing Dept. - School of Accounting - UEH Elements of an auditor’s report
7. Signature of the auditor The auditor’s signature is either in the name of the audit firm, the personal name of the auditor or both, as appropriate for the particular jurisdiction. In addition, there may be declaration of the auditor’s professional accountancy designation or recognisation of the appropriate licensing authority in that jurisdiction. 16 2018 Auditing Dept. - School of Accounting - UEH
AUDIT OPINION 19 Types of auditor’s report Unmodified opinion Modified opinions Qualified opinion Adverse opinion Disclaimer of opinion Emphasis of matter (^) Other matter 2018 Auditing Dept. - School of Accounting - UEH AUDITOR’S OPINION
1. Unmodified/Unqualified/Clean opinion When the auditor is satisfied in all material respects that: The financial information has been prepared using acceptable accounting policies, which have been consistently applied (e.g. complies with the requirements of the applicable financial reporting framework such as VASs or IFRSs); The financial information complies with relevant regulations and statutory requirements; Sufficient and appropriate audit evidence has been obtained; Any changes in accounting policies and their effects have been considered and disclosed on the notes to financial statements; There is adequate disclosure of all material matters relevant to the proper presentation of the financial information. The F/S give a true and fair view (or present fairly, in all material respects) 20 2018 Auditing Dept. - School of Accounting - UEH
AUDITOR’S OPINION Example of an Unmodified Opinion In our opinion, the financial statements present fairly, in all material respects, (or give a true and fair view of) the financial position of ABC Company as at December 31, 20X1, and (of) its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (Vietnamese Accounting Standards, accounting regime for enterprises and legal regulations relating to financial reporting). 21 2018 Auditing Dept. - School of Accounting - UEH AUDITOR’S OPINION
2. Modified Opinion The auditor shall modify the opinion when: The auditor concludes, based on the audit evidence obtained, that the financial statements as a whole are not free from material misstatement; or The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as whole are free from material misstatement. 22 2018 Auditing Dept. - School of Accounting - UEH
AUDITOR’S OPINION Effects are considered to be pervasive if, in the auditor’s judgment, they: Are not confined to specific elements, accounts or items of the financial statements If so confined, represent or could represent a substantial proportion of the financial statements In relation to disclosures, are fundamental to users’ understanding of the financial report 25 2018 Auditing Dept. - School of Accounting - UEH AUDITOR’S OPINION Types of Modified Opinions (Materially/Pervasively) 26 Nature of matter giving rise to the modification Auditor’s judgment regarding the pervasiveness of the effects or possible effects on the financial report Material but not pervasive Material and pervasive Financial report is materially misstated (disagreement with management) Qualified opinion Adverse opinion Auditor is unable to obtain sufficient appropriate audit evidence (scope limitation) Qualified opinion Disclaimer of opinion 2018 Auditing Dept. - School of Accounting - UEH
AUDITOR’S OPINION Nature of material misstatements A material misstatement of the financial statements may arise in relation to: a) The appropriateness of the selected accounting policies; b) The application of the selected accounting policies; or c) The appropriateness or adequacy of disclosures in the financial statements. 27 2018 Auditing Dept. - School of Accounting - UEH AUDITOR’S OPINION Nature of inability to obtain sufficient appropriate audit evidence A limitation on the scope of the audit may arise from: Circumstance beyond the control of the entity; Circumstance relating to the nature or timing of the auditor’s work; or Limitation imposed by management. 28 2018 Auditing Dept. - School of Accounting - UEH
AUDITOR’S OPINION Example of a qualified opinion Qualified opinion In our opinion, except for the effects of the matter described in the Basic for Qualified Opinion paragraph, the financial statements present fairly, in all material respects, (or give a true and fair view of) the financial position of ABC Company as at December 31, 20X1, and (of) its financial performance and its cash flows for the year then ended in accordance with International Financial Report Standards. 31 2018 Auditing Dept. - School of Accounting - UEH AUDITOR’S OPINION 2.b. Adverse opinion 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. 32 2018 Auditing Dept. - School of Accounting - UEH
AUDITOR’S OPINION Example of an Adverse opinion Basis for Adverse opinion As explained in note X, the company has not consolidated the financial statements of subsidiary XYZ it acquired during 20X because it has not yet been able to ascertain the fair values of certain of the subsidiary’s material assets and liabilities at the acquisition date. This investment is therefore accounted for on the cost basis. Under International Financial Reporting Standards, the subsidiary should have been consolidated because it is controlled by the company. Had XYZ been consolidated, many elements in the accompanying financial statements would have been materially affected. The effects on the consolidated financial statements of the failure to consolidate have not been determined. 33 2018 Auditing Dept. - School of Accounting - UEH AUDITOR’S OPINION Example of an Adverse opinion Adverse opinion In our opinion, because of the significance of the matter discussed in the Basis for Adverse opinion paragraph, the consolidated financial statements do not present fairly (or do not give the true and fair view of) the financial position of ABC Company and its subsidiaries as at December 31, 20X1, and (of) their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards. 34 2018 Auditing Dept. - School of Accounting - UEH
AUDITOR’S OPINION Example of a Disclaimer of opinion Disclaimer of Opinion Because of the significance of the matter described in the Basis for Disclaimer of opinion paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the financial statements. 37 2018 Auditing Dept. - School of Accounting - UEH AUDITOR’S OPINION Form and content of the auditor’s report when the opinion is modified
1. Basis for Modification paragraph is added This provides a description of the matter giving rise to the modification. The auditor shall place this paragraph immediately before the Opinion paragraph in the auditor’s report and use the heading “Basis for Qualified opinion”, “Basis for Adverse Opinion”, or “Basis for Disclaimer opinion”, as appropriate. This may include a description and quantification of the financial effects of the misstatement, unless impracticable. If not practicable, the auditor shall also state in the basis for modification paragraph. The auditor shall include in the basis for modification paragraph the reasons for an inability to obtain sufficient appropriate audit evidence, if any. 38 2018 Auditing Dept. - School of Accounting - UEH
AUDITOR’S OPINION Form and content of the auditor’s report when the opinion is modified
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 obtained is sufficient and appropriate to provide a basis for that opinion. 3. Amend the introductory paragraph of the Disclaimer of Opinion To state that the auditor was engaged to audit the financial statements. The auditor also amends the description of the auditor’s responsibility and the description of the scope of the audit. (^39) 2018 Auditing Dept. - School of Accounting - UEH AUDITOR’S OPINION Example of amendment to the auditor’s responsibility paragraph “Our responsibility is to express an opinion on the financial statements based on conducting 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 to provide a basis for an audit opinion.” 40 2018 Auditing Dept. - School of Accounting - UEH
