Chapter 5:

AUDIT COMPLETION AND REPORTING

PhD. Nguyen Thi Mai Huong

1
 Learning Objectives

CL03
• Understand and distinguish different types of audit report.
• Understand and conducting audit procedures
CL04
• Assess audit evidence to provide appropriate audit
opinion
• Resolve practical audit scenarios

2
 Learning materials

Textbook
[1] Alvin A. Arens, Mark S Beasley, Randal J Elder. (2020). Auditing
and Assurance services – an integrated approach (17th ed.). Pearson
Education.
Other materials
[2] Bộ môn Kiểm toán – Đại học kinh tế TP.HCM. (2019). Kiểm toán.
NXB Lao Động Xã Hội.
[3] Trần Thị Hải Vân & cộng sự. (2016). Tài liệu câu hỏi và Bài tập
Kiểm toán căn bản. Đại học Ngân hàng TP.HCM (Lưu hành nội bộ).

3
 Requirements
Students are presumed to have read all the necessary
materials, and
Prepare for questions:
1. W h at a re co nt i n ge nt l i a b i l i t i e s ? T h e a u d i t
procedures to review contingent liabilities?
2. What is going concern? The audit procedures to
review going concern assumption?
3. The audit procedures to review subsequent events?
4. Explain the difference between the types of audit
opinion.
 Content
5.1. Completion procedures
5.1.1. Contingent liabilities
5.1.2. Going concern
5.1.3. Subsequent events
5.1.4. Overall review of financial statements
5.2. Audit reports
5.2.1. Unmodified Opinion
5.2.2. Modified Opinion
5.2.3. Emphasis of Matter and Other matter

5
5.1. Completion procedures

5.1.1. Contingent liabilities

5.1.2. Going concern
5.1.3. Subsequent events
5.1.4. Overall review of financial statements

6
 5.1.1. Contingent liabilities
A contingent liability is:
(a) A possible obligation that arises from past events and
whose existence will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not
wholly within the control of the enterprise; or
(b) A present obligation that arises from past events but is not
recognised because:
(i) It is not probable that an outflow of resources embodying
economic benefits will be required to settle the obligation;
or
(ii) The amount of the obligation cannot be measured with
sufficient reliability.

7
 5.1.1. Contingent liabilities
Requirement on disclosure of contingent liabilities
Unless the possibility of any outflow in settlement is remote,
an enterprise shall disclose for each class of contingent liability
at the balance sheet date the following:

(a) An estimate of the financial effect of the contingent

liability;
(b) An indication of the uncertainties relating to the
amount or timing of any outflow; and
(c) The possibility of any reimbursement

8
5.1.1. Contingent liabilities
Audit procedures

(a) Inquiry of management and, where applicable,

others within the entity, including in-house legal
counsel;
(b) Reviewing minutes of meetings of those charged
with governance and correspondence between the
entity and its external legal counsel; and
(c) Reviewing legal expense accounts.

9
 Audit procedures

If the auditor assesses a risk of material misstatement

regarding litigation or claims that have been identified, or
when audit procedures performed indicate that other
material litigation or claims may exist,
The auditor shall seek direct communication with the
entity’s external legal counsel.

10
 5.1.2. Going concern
Going concern

Financial statements must be made on the basis of the

assumption that enterprises are operating continuously and
will continue business activities normally in the near future,
i.e., they have no intention or are not compelled to cease
operation or to substantially downscale their operation.

Where reality differs from the continuous operation

assumption, the financial statements must be made on another
basis, which must be explained.

11
 The responsibility of auditors

The auditor’s responsibility is to obtain sufficient appropriate

audit evidence about the appropriateness of management’s use
of the going concern assumption in the preparation of the
financial statements and to conclude whether there is a material
uncertainty about the entity’s ability to continue as a going
concern.

This responsibility exists even if the financial reporting

framework used in the preparation of the financial statements
does not include an explicit requirement for management to
make a specific assessment of the entity’s ability to continue as a
going concern

12
 5.1.3. Subsequent events

Definitions
Subsequent events – Events occurring between the date of
the financial statements and the date of the auditor’s
report, and facts that become known to the auditor after the
date of the auditor’s report.

13
 5.1.3. Subsequent events

Signing of Audit Public of audit report

Ending of
report And audited FS
financial year

The responsibility of auditors?

14
 5.1.3. Subsequent events

Events occurring after the date of Financial Statements (FS)

(i) Events that require adjustment of the FS;

(ii) Events that not require adjustment but require
disclosure in the Notes to the FS.

15
 5.1.3. Subsequent events
Audit procedures

Normal audit procedures, involving the review or

testing of accounting records or transactions
occurring between the date of the FS and the date of
the auditor’s report.
Special audit procedures designed to obtain
sufficient appropriate subsequent events

16
 5.1.3. Subsequent events
Specialized audit procedures

(a) Obtaining an understanding of any procedures that the

management has established.
(b) Inquiring of management and, where appropriate, those
charged with governance.
(c) Inspection of minutes, if any, of the meetings of the entity’s
owners, management and those charged with governance
that have been held after the date of the financial
statements.
(d) Reviewing the entity’s latest subsequent interim financial
statements, if any.

17
 5.1.4. Overall review

ü Perform final analytical procedures

ü Evaluating the sufficiency and appropriateness of audit evidence
ü Evaluating total unadjusted misstatements
ü Reviewing the audit records and documentation
ü Obtain the representation of management representation letter
ü Reviewing the disclosures on the Notes to the FS
ü Considering the information disclosed together with the FS

18
 ü Evaluating total unadjusted misstatement

§ Identifying total misstatement that not been adjusted.

§ Comparing total misstatement to the materiality for the
FS as a whole
§ Deciding the solution for each situation

19
5.2. Audit report

5.2.1. Audit report

5.2.2. Audit opinions

20
 5.2.1. Audit report

Audit report is a document prepared by a practising auditor,

audit firm, or branch of a foreign audit firm in Vietnam
upon completion of the audit, expressing an opinion on the
financial statements and other subject matters in
accordance with the terms of the audit engagement.

21
Structure of an audit report

A. Title
B. Addressee
C. Introductory Paragraph
D. Management’s Responsibility for the FS
E. Auditor’s Responsibility
F. Auditor’s Opinion
G. Other Reporting Responsibilities
H. Signature of the Auditor
I. Date of the Auditor’s Report
L. Auditor’s Address

22
 H. 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 to the auditor’s signature, in certain jurisdictions,

the auditor may be required to declare in the auditor’s report
the auditor’s professional accountancy designation or the
fact that the auditor or firm, as appropriate, has been
recognized by the appropriate licensing authority in that
jurisdiction.

23
 I. Date of the Auditor’s Report

The auditor’s report shall be dated no earlier than the date

on which the auditor has obtained sufficient appropriate
audit evidence on which to base the auditor’s opinion on
the financial statements.

24
 5.2. Audit opinions

5.2.1. Unmodified Opinion

5.2.2. Modified Opinion
5.2.3. Emphasis of Matter and Other matter

25
 5.2.1. Unmodified opinion

Unmodified opinion – The opinion expressed by the

auditor when the auditor concludes that the financial
statements are prepared, in all material respects, in
accordance with the applicable financial reporting
framework.
(ISA 700)

26
 5.2.1. Unmodified opinion - Illustration

“Opinion

In our opinion, the consolidated financial statements

present fairly, in all material respects, (or give a 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 cash flows for the year then
ended in accordance with International Financial Reporting
Standards..”

27
5.2.2. Modified opinion

• Qualified Opinion;
• Adverse Opinion; and
• Disclaimer of Opinion.

28
 5.2.2.1. Qualified opinion

The auditor shall express a qualified opinion when:

(a) The auditor, having obtained sufficient appropriate audit
evidence, concludes that misstatements, individually or in the
aggregate, are material, but not pervasive, to the financial
statements; or
(b) The auditor is unable to obtain sufficient appropriate
audit evidence on which to base the opinion, but the auditor
concludes that the possible effects on the financial statements of
undetected misstatements, if any, could be material but not
pervasive.

29
Pervasive:

A term used, in the context of misstatements, to describe

the effects on the financial statements of misstatements or
the possible effects on the financial statements of
misstatements, if any, that are undetected due to an
inability to obtain sufficient appropriate audit evidence.

Pervasive means found everywhere or spread everywhere. A

pervasive misstatement would be so serious that, to all
intents and purposes the FS are useless. Similarly with a
pervasive lack of sufficient appropriate audit evidence.

30
Pervasive effects on the financial statements are those that, in
the auditor’s judgment:
(i) Are not confined to specific elements, accounts or items of
the financial statements;
(ii) If so confined, represent or could represent a substantial
proportion of the financial statements; or
(iii) In relation to disclosures, are fundamental to users’
understanding of the financial statements.

31
 Qualified opinion - Illustrations

Basis for Qualified Opinion

ABC Company’s investment in XYZ Company, a foreign associate acquired during the
year and accounted for by the equity method, is carried at xxx on the statement of
financial position as at December 31, 20X1, and ABC’s share of XYZ’s net income of xxx
is included in ABC’s income for the year then ended. We were unable to obtain
sufficient appropriate audit evidence about the carrying amount of ABC’s investment
in XYZ as at December 31, 20X1 and ABC’s share of XYZ’s net income for the year
because we were denied access to the financial information, management, and the
auditors of XYZ. Consequently, we were unable to determine whether any adjustments
to these amounts were necessary.

Qualified Opinion
In our opinion, except for the possible effects of the matter described in the Basis 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 Reporting Standards..

32
 Qualified opinion - Illustrations
Basis for Qualified Opinion
The company’s inventories are carried in the statement of financial position at xxx.
Management has not stated the inventories at the lower of cost and net realizable
value but has stated them solely at cost, which constitutes a departure from
International Financial Reporting Standards. The company’s records indicate that
had management stated the inventories at the lower of cost and net realizable value,
an amount of xxx would have been required to write the inventories down to their
net realizable value. Accordingly, cost of sales would have been increased by xxx,
and income tax, net income and shareholders’ equity would have been reduced by
xxx, xxx and xxx, respectively.

Qualified Opinion
In our opinion, except for the effects of the matter described in the Basis 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 Reporting Standards.

33
 5.2.2.2. 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.
(ISA 705)

34
 Adverse opinion - Illustration

Basis for Adverse Opinion

As explained in Note X, the company has not consolidated the financial statements
of subsidiary XYZ Company it acquired during 20X1 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 a
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.
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 a 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.
35
 5.2.2.3. Disclaimer of opinion

The auditor shall disclaim an opinion when the auditor is

unable to obtain sufficient appropriate audit evidence on
which to base the opinion, and the auditor concludes that
the possible effects on the financial statements of
undetected misstatements, if any, could be both material
and pervasive.
(ISA 705)

36
 Disclaimer of opinion - Illustration

Basis for Disclaimer of Opinion

The company’s investment in its joint venture XYZ (Country X) Company is carried
at xxx on the company’s statement of financial position, which represents over
90% of the company’s net assets as at December 31, 20X1. We were not allowed
access to the management and the auditors of XYZ, including XYZ’s auditors’ audit
documentation. As a result, we were unable to determine whether any
adjustments were necessary in respect of the company’s proportional share of
XYZ’s assets that it controls jointly, its proportional share of XYZ’s liabilities for
which it is jointly responsible, its proportional share of XYZ’s income and expenses
for the year, and the elements making up the statement of changes in equity and
cash flow statement.
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
5.2.3. Emphasis of matter & Other matter

5.2.3.1. “Emphasis of matter paragraph”

5.2.3.2. “Other matter paragraph”

38
 5.2.3.1. “Emphasis of Matter paragraph”

A paragraph included in the auditor’s report that refers to a

matter appropriately presented or disclosed in the financial
statements that, in the auditor ’s judgment, is of such
importance that it is fundamental to users’ understanding of the
financial statements;
A widespread use of Emphasis of Matter paragraphs diminishes
the effectiveness of the auditor’s communication of such matters

39
 5.2.3.1. “Emphasis of Matter paragraph”

Examples :

• An uncertainty relating to the future outcome of

exceptional litigation or regulatory action.
• Early application (where permitted) of a new accounting
standard (for example, a new International Financial
Reporting Standard) that has a pervasive effect on the
financial statements in advance of its effective date.
• A major catastrophe that has had, or continues to have, a
significant effect on the entity’s financial position.

40
 Emphasis of Matter - Illustration

Qualified Opinion
In our opinion, except for the effects of the matter described in the Basis
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
Reporting Standards.

Emphasis of Matter
We draw attention to Note X to the financial statements which describes
the uncertainty related to the outcome of the lawsuit filed against the
company by XYZ Company. Our opinion is not qualified in respect of this
matter.

41
 5.2.3.2. “Other Matter paragraph”

A paragraph included in the auditor’s report that refers

to a matter other than those presented or disclosed in
the financial statements that, in the auditor ’s
judgment, is relevant to users’ understanding of the
audit, the auditor’s responsibilities or the auditor’s
report.

42
 5.2.3.2. “Other Matter paragraph”

In the rare circumstance where the auditor is unable to

withdraw from an engagement even though the possible
effect of an inability to obtain sufficient appropriate audit
evidence due to a limitation on the scope of the audit
imposed by management is pervasive, the auditor may
consider it necessary to include an Other Matter paragraph
in the auditor’s report to explain why it is not possible for the
auditor to withdraw from the engagement.

43
44