CHAPTER 11

AUDIT REPORT

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 Management is responsible for the preparation of the financial
statements.
 Management also accepts responsibility for necessary internal
controls to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or
error.
 The purpose of an audit is to enhance the degree of confidence
of intended users of the financial statements.

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 The objectives of the auditor as per SA 700 (Revised), “Forming An Opinion And
Reporting On Financial Statements” are:
 To form an opinion on the FS based on an evaluation of the conclusions drawn from
the audit evidence obtained; and
 To express clearly that opinion through a written report.
 The auditor shall form an opinion on whether the FS are prepared, in all material
respects, in accordance with the applicable FRF and relevant statutory requirements. In
order to form that opinion, the auditor shall conclude as to whether the auditor has
obtained reasonable assurance about whether the FS as a whole are free from material
misstatement, whether due to fraud or error.
 That conclusion shall take into account:
 whether sufficient appropriate audit evidence has been obtained;
 whether uncorrected misstatements are material, individually or in aggregate;
 The evaluations.
 The main users of audit report are shareholders, members and all other stakeholders of
the company.
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 The FS adequately disclose the significant accounting policies
selected and applied;
 The accounting policies selected and applied are consistent with
the applicable FRF and are appropriate;
 The accounting estimates made by management are reasonable;
 The information presented in the FS is relevant, reliable,
comparable, and understandable;
 The FS provide adequate disclosures to enable the intended users
to understand the effect of material transactions and events on
the information conveyed in the FS; and
 The terminology used in the FS, including the title of each FS, is
appropriate

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 Unmodified Opinion: The auditor shall express an unmodified
opinion when the auditor concludes that the financial
statements are prepared, in all material respects, in accordance
with the applicable FRF.
 Modified Opinion: If the auditor:
 Concludes that, based on audit evidence obtained, the FS as
whole are not free from material misstatement.
 Is unable to obtain sufficient appropriate evidence to
conclude that the FS as a whole are free from Material
misstatement.

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Basic Elements of an Audit Report are given below:
 Title: The auditor’s report shall have a title that clearly
indicates that it is the report. For example, “Independent
Auditor’s Report,” distinguishes the independent auditor’s
report from reports issued by others.
 Addressee: The auditor’s report shall be addressed, as
appropriate, based on the circumstances of the engagement.
Law, regulation or the terms of the engagement may specify to
whom the auditor’s report is to be addressed. The auditor’s
report is normally addressed to those for whom the report is
prepared, often either to the shareholders or to those charged
with governance of the entity whose FS are being audited.
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 Auditor’s Opinion: The first section of the auditor’s report shall include the
auditor’s opinion, and shall have the heading “Opinion.”
 The Opinion section of the auditor’s report shall also:
 Identify the entity whose FS have been audited;
 State that the FS have been audited;
 Identify the title of each statement comprising the FS
 Refer to the notes, including the summary of significant accounting
policies; and
 Specify the date of, or period covered by, each FS.

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 Basis for Opinion: The auditor’s report shall include a section, directly
following the Opinion section, with the heading “Basis for Opinion”, that:
 States that the audit was conducted in accordance with Standards on
Auditing, fulfilling their responsibilities, relevant ethical requirements and
states whether the audit evidence obtained is sufficient and appropriate ;
 Going Concern: Where applicable, the auditor shall report in accordance
with SA 570 (Revised).
 Key Audit Matters: For audits of complete sets of general purpose FS of
listed entities, the auditor shall communicate key audit matters in the auditor’s
report in accordance with SA 701. Law or regulation may require
communication of key audit matters for audits of entities other than listed
entities.
 Responsibilities for the Financial Statements: The auditor’s report shall
include a section with a heading “Responsibilities of Management for the
Financial Statements” wherein they clearly states the responsibility of
management and TCWG
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 Auditor’s Responsibilities for the Audit of the Financial Statements:
This section of the auditor’s report shall:
 State that the objectives of the auditor are to:
 Obtain reasonable assurance about whether the FS are free from
material misstatement
 Issue an auditor’s report that includes the auditor’s opinion.
 State that reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with SAs will always
detect a material misstatement when it exists; and
 State that misstatements can arise from fraud or error, and either:
 Describe that they are considered material if, individually or in the
aggregate,
 Provide a definition or description of materiality in accordance with the
applicable FRF

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 State that, as part of an audit in accordance with SAs, the auditor exercises
professional judgment and maintains professional skepticism throughout the
 audit; and
 Describe an audit by stating that the auditor’s responsibilities are:
 To identify and assess the risks of material misstatement of the FS to design and
perform audit procedures; to obtain audit evidence that provide a basis for the
auditor’s opinion.
 To obtain an understanding of internal control relevant to the audit in order to
design audit procedures that are appropriate in the circumstances.
 To evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by
management.
 To conclude on the appropriateness of management’s use of the going concern
basis of accounting and, based on the audit evidence obtained, whether a
material uncertainty exists related to events or conditions that may cast
significant doubt on the entity’s ability to continue as a going concern.

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 Location of the description of the auditor’s
responsibilities for the audit of the FS:
 The description of the auditor’s
responsibilities shall be included Within the
body of the auditor’s report; Within an
appendix to the auditor’s report, By a specifi c
reference within the auditor’s report to the
location of such a description

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 Other Reporting Responsibilities:
 Signature of the Auditor: The report is signed by the auditor (i.e. the
engagement partner) in his personal name. Where the firm is appointed as
the auditor, the report is signed in the personal name of the auditor and in
the name of the audit firm.
 Auditor’s Address: The auditor’s report shall name specific location,
which is ordinarily the city where the audit report is signed.
 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
FS, including evidence that:
 (a) All the statements that comprise the FS, including the related notes,
have been prepared; and
 (b) Those with the recognized authority have asserted that they have
taken responsibility for those FS.
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 Circumstances When a Modification to the Auditor’s Opinion Is Required
 The auditor shall modify the opinion in the auditor’s report when:
 (a) The auditor concludes that, based on the audit evidence obtained, the FS
are not free from material misstatement; or
 (b) The auditor is unable to obtain sufficient appropriate audit evidence to
conclude that the FS are free from material misstatement.
 As per Standard on Auditing (SA) 705 “Modifications To The Opinion In The
Independent Auditor’s Report”, the objective of the auditor is to express
clearly an appropriately modified opinion on the FS in above circumstances.
 When the auditor modifies the opinion, the auditor shall, in addition to the
specific elements required by SA 700 (Revised):
 Amend the heading “Basis for Opinion” required by para of SA 700
(Revised) to “Basis for Qualified Opinion,” “Basis for Adverse Opinion,”
or “Basis for Disclaimer of Opinion,” as appropriate; and
 Within this section, include a description of the matter giving rise to the
modification.
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Qualified Opinion Adverse Opinion Disclaimer of Opinion
• The auditor shall express an • The auditor shall disclaim an
• The auditor, having obtained adverse opinion when the opinion when the auditor is
evidence, concludes that auditor, having obtained unable to obtain sufficient
misstatements are material, evidence, concludes that appropriate audit evidence
but not pervasive, misstatements, are both on which to base the
material and pervasive to opinion, and the auditor
• The auditor is unable to
the FS. concludes that the possible
obtain sufficient appropriate
effects on the FS of
audit evidence on which to
undetected misstatements,
base the opinion
if any, could be both
material and pervasive.

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