CPA in Transit Reviewer: Audit Reporting 1

2017-2018 ed. AUDITING

AUDITOR’S REPORT report is prepared
ON FINANCIAL STATEMENTS - not appropriate to address to a
specific officer who is responsible for
Objective: Enable the Auditor to express an the financial statement being
opinion & have a clear expression of it. audited.
3. Auditor’s Opinion
Uniformity in the wording of the is required to - This section shall also:
enhance creditability and to promote the a. Identify the entity
reader’s understanding. b. State that financial statements
have been audited
Framework- provides context for the c. Title of each FS audited
auditor’s evaluation of the fair presentation d. Date and period covered by the
of the FS. Without an acceptable financial FS
reporting framework, the auditor does not e. Reference to the summary of
have suitable criteria for evaluating an significant accounting policies
entity’s financial statements. and other explanatory notes
4. Basis for Opinion
Types of Frameworks: - it shall state the following:
 General Purpose Framework a. The audit was conducted in
 Special Purpose Framework accordance with PSA
b. Auditor’s responsibility
The auditor must evaluate the following: c. Auditor is independent and has
1. Accounting policies are consistent fulfilled other ethical
and appropriate responsibilities
2. Accounting estimates are reasonable d. Audit evidence obtained is
3. Information presented in the FS are sufficient and appropriate
relevant, reliable, comparable and 5. Going Concern
understandable 6. Key Audit Matters
4. FS provides sufficient disclosures - Includes matters which were of
most significance in the audit of the
Basic Elements of an Audit Report financial statements of the current
1. Title period
- should clearly indicate that it is a 7. Responsibilities for the Financial
report of an independent auditor. Statements
This title would: - This shall describe management’s
a. Affirms that the auditor has responsibilities for:
met all of the relevant ethical a. Preparing the financial
requirements regarding statements in accordance with
independence the applicable financial reporting
b. Distinguish the independent framework, and for such internal
auditor’s report from others control.
2. Addressee b. Assessing the entity’s ability to
- addressed to those for whom the continue as a going concern

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 CPA in Transit Reviewer: Audit Reporting 2
2017-2018 ed. AUDITING
8. Auditor’s Responsibilities c. Major catastrophe
- This shall state the following: d. Amendments of previously issued FS
a. Objectives of the audit are to: and reports issued by the auditor
i. Obtain reasonable assurance e. Financial statements prepared using
ii. Issue an auditor’s report a special purpose framework
b. Reasonable assurance is a high
level of assurance, but not a Should indicate that the auditor’s opinion is
guarantee that if conducted with not modified in respect to the matter
PSAs it will always detect emphasized.
material misstatement
c. Misstatements can arise from Other Matters Paragraph
fraud or error and either; Relates to matters other than those required
i. Describe that they are to be presents or disclosed in the financial
considered material if statements.
expected to influence
decisions of users Circumstances which require Other Matter
ii. Provide a definition of Paragraph:
materiality a. Reporting on comparative
9. Other Reporting Responsibilities information
10. Name of Engagement Partner b. Material inconsistency
11. Auditor’s Address c. FS prepared using more than one
12. Date of Auditor’s Report framework
- informs readers that the auditor has d. Limiting the use of the auditor’s
considered the effects of events and report
transactions occurred up to that date. e. Subsequent discovery of facts
- should be dated at the completion f. Other matters that the auditor
of all essential audit procedures, or considers appropriate
the last day of field work.
Unmodified Report
Emphasis of Matter Paragraph - Issued when the financial statements
Draws a user’s attention to a matter are presented fairly, in all material
presented or disclosed in the financial respects in accordance with the
statement. Only contains information that: applicable financial reporting
1. Not require to modify the opinion framework.
based on the matter -
2. Not been determined to be a key Qualified Opinion
audit matter - Misstatements are material but not
persuasive
Circumstances that may be necessary to - “except for the effects of the
include an Emphasis of Matter Paragraph: matter(s)”
a. Uncertainty
b. Early application of new accounting Adverse Opinion
standard

Ver. 2.00 | BY: R.M.P

 CPA in Transit Reviewer: Audit Reporting 3
2017-2018 ed. AUDITING
- Misstatements are both material and - auditor’s report should cover the
persuasive current and prior periods
- “do not present fairly” - auditor should update his report of
the prior period to determine if the
Disclaimer of Opinion report is still appropriate
- Auditor is unable to obtain sufficient 2. Prior Period FS audited by another
appropriate audit evidence & auditor
undetected misstatements could be a. Prior auditor reissues the
both material and persuasive report
- Does not express an opinion - predecessor auditor must
determine if his report is still
Reporting on appropriate
Comparative Information - he must reissue the report
with the original date and
Comparatives- comparative financial wordings of such report
information useful in identifying financial b. Prior auditor don’t want to
trends and changes. reissue the report
- the successor auditor should
Corresponding Figures- part of the current include Other Matter
period FS Paragraph stating:
- Intended to be read only in relation i. Prior period FS was
with information of the current period audited by another
- Integral part of the current period auditor
financial statements ii. Date of predecessor’s
- NOT presented as complete financial report
statements capable of standing alone iii. Type of opinion issued,
and if modified, the
Comparative Financial Statements- NOT reasons therefore
part of the current period financial 3. Prior Period FS was not audited
statements - The auditor should state that the
- Compare current and prior periods comparative financial statements are
- Considered separate financial unaudited
statements - The auditor should perform
appropriate procedures to find
The auditor’s report on comparative financial assurance that the prior period FS
statements applies to the individual financial doesn’t contain material
statements presented. misstatements
a. Situation:
Scenarios on reporting on Comparative Material misstatement found
Financial Statements but management refuse to
revise prior year’s FS
1. Prior Period FS audited by Respond:
continuing auditor

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 CPA in Transit Reviewer: Audit Reporting 4
2017-2018 ed. AUDITING
Express a qualified or adverse - A separate paragraph that provides a
opinion description of the matter giving rise
to the modification of a report
Material Misstatements - It is placed before the opinion
paragraph.
Any departure from specific requirements - The auditor must do the following is
contains material misstatements. It may the following opinion is issued:
arise from: a. Qualified Opinion
1. Inappropriate accounting policy - disclose the effects of the
selected departure on the financial statements
2. Misapplication of selected accounting b. Adverse Opinion
policy - should discuss the reasons for the
3. Inappropriate or inadequate adverse opinion and effects of the
disclosure departure
Auditor should inform the client if material c. Disclaimer of Opinion
misstatements was found and advise to - describe the reason of the opinion
revise the financial statements. and the effects thereof.

If material misstatements relates to specific Other Information in Documents

amounts or disclosures, the auditor should Containing Audited Financial Statements
include in the basis for modification
paragraph the following: Other Information- financial and non-
1. Description of its nature financial information included in documents
2. Quantification of its financial effects containing financial information

Scope Limitation Auditor has no obligation to perform audit

Arises when the auditor is unable to perform procedures to corroborate other information.
necessary audit procedures or they are The auditor is required to read other
unable to obtain sufficient appropriate audit information to identify material
evidence. inconsistency

It may arise from the following: Material Inconsistency

1. Circumstances beyond the control of - Statement contained in other
the entity information contradicts audited
2. Those relating to the timing of the financial statements.
auditor’s work - If such existed, the auditor should
3. Limitations imposed by management determined if amendment is needed
Auditor must carry out alternative a. If audited financial statement needs
procedures. If restrictions cannot be to be amended
overcome, a qualified or disclaimer of opinion - if entity refuses, express a qualified
is issued. or adverse opinion
b. If other information needs to be
Basis for Modification Paragraph amended

Ver. 2.00 | BY: R.M.P

 CPA in Transit Reviewer: Audit Reporting 5
2017-2018 ed. AUDITING
- request management to amend it
- If entity refuses, add an Other
Matters paragraph describing the
material inconsistency, withhold the
report, or withdraw from
engagement.

Misstatements of Facts
- Statements unrelated to the financial
statements and is incorrectly stated
or presented
- Auditor should discuss the matter
with the entity’s management and
request them to consult a third party
- If management refuses to correct it,
the auditor should notify those
charges with governance in writing
and obtain legal advice

Availability of Other Information After the

Date of the Auditor’s Report
- Auditor should determine if audited
financial statements or other
information needs to be amended
- If such is necessary, the auditor
should ensure that those who receive
previously issued reports are
informed of such revision
- If management refuses to make
revisions, the auditor should notify
those charged with governance and
obtain legal advise

Ver. 2.00 | BY: R.M.P