AUDIT REPORT (PSA 750)

The objectives of the auditor are

• (a) To form an opinion on the financial

statements based on an evaluation of the
conclusions drawn from the audit evidence
obtained; and
• (b) To express clearly that opinion through a
written report.
 The auditor shall evaluate whether the financial
statements are prepared, in all material respects,
in accordance with the requirements of the
applicable financial reporting framework. This
evaluation shall include consideration of the
qualitative aspects of the entity’s accounting
practices, including indicators of possible bias in
management’s judgments
Auditor’s Report
• The auditor’s report shall be in writing.
• Title
• The auditor’s report shall have a title that clearly indicates that it is the report
of an independent auditor.
• Addressee
• The auditor’s report shall be addressed, as appropriate, based on the
circumstances of the engagement.
• Auditor’s Opinion
• The first section of the auditor’s report shall include the auditor’s opinion,
and shall have the heading “Opinion.”
• Basis for Opinion
• States that the audit was conducted in accordance with Philippine Standards
on Auditing;
Auditor’s Report
• Going Concern
• Where applicable, the auditor shall report in accordance with PSA 570
• Key Audit Matters
• For audits of complete sets of general purpose financial statements of listed
entities, the auditor shall communicate key audit matters in the auditor’s
report in accordance with PSA 701
• Responsibilities for the Financial Statements
• This section of the auditor’s report shall describe management’s
responsibility
• Auditor’s Responsibilities for the Audit of the Financial Statements
• State that reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with PSAs will always detect
a material misstatement when it exists;
Auditor’s Report
• Other Reporting Responsibilities
• These other reporting responsibilities shall be addressed in a separate section in the
auditor’s report
• Name of the Engagement Partner
• The name of the engagement partner shall be included in the auditor’s report for
audits of complete sets of general purpose financial statements
• Signature of the Auditor
• The auditor’s report shall be signed
• Auditor’s Address
• The auditor’s report shall name the location in the jurisdiction where the auditor
practices.
• 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,
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.
• PSA establishes three types of modified opinions,
namely, a qualified opinion, an adverse opinion, and
a disclaimer of opinion. The decision regarding which
type of modified opinion is appropriate depends
upon:
• (a) The nature of the matter giving rise to the modification, that
is, whether the financial statements are materially misstated or,
in the case of an inability to obtain sufficient appropriate audit
evidence, may be materially misstated; and
• (b) The auditor’s judgment about the pervasiveness of the
effects or possible effects of the matter on the financial
statements.
Qualified Opinion
• In situations when a company’s financial records have not
been maintained in accordance with GAAP but no
misrepresentations are identified, an auditor will issue a
qualified opinion.
• The writing of a qualified opinion is extremely similar to
that of an unqualified opinion. A qualified opinion,
however, will include an additional paragraph that
highlights the reason why the audit report is not
unqualified
Qualified Opinion
• In situations when a company’s financial records have not
been maintained in accordance with GAAP but no
misrepresentations are identified, an auditor will issue a
qualified opinion.
• The writing of a qualified opinion is extremely similar to
that of an unqualified opinion. A qualified opinion,
however, will include an additional paragraph that
highlights the reason why the audit report is not
unqualified
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
Adverse Opinion
• The worst type of financial report that can be issued to a
business is an adverse opinion. This indicates that the
firm’s financial records do not conform to GAAP.
• In addition, the financial records provided by the business
have been grossly misrepresented. Although this may
occur by error, it is often an indication of fraud. When this
type of report is issued, a company must correct its
financial statement and have it re-audited, as investors,
lenders and other requesting parties will generally not
accept it.
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.
Disclaimer of Opinion
• On some occasions, an auditor is unable to complete
an accurate audit report. This may occur for a variety
of reasons, such as an absence of appropriate
financial records. When this happens, the auditor
issues a disclaimer of opinion, stating that an opinion
of the firm’s financial status could not be determined.
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.
• The auditor shall disclaim an opinion when, in extremely rare
circumstances involving multiple uncertainties, the auditor concludes
that, notwithstanding having obtained sufficient appropriate audit
evidence regarding each of the individual uncertainties, it is not
possible to form an opinion on the financial statements due to the
potential interaction of the uncertainties and their possible
cumulative effect on the financial statements.
 Auditor's Judgment about the
Pervasiveness of the Effects or
Nature of Matter Giving Possible Effects on the Financial Statements
Rise to the Modification
Material but Not Material and
Pervasive Pervasive

Financial statements are

materially misstated Qualified Adverse opinion

Inability to obtain sufficient Disclaimer of

appropriate audit evidence Qualified opinion
Nature of Material Misstatement
• (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.
Nature of an Inability to Obtain Sufficient
Appropriate Audit Evidence
• (a) Circumstances beyond the control of the entity;
• The entity’s accounting records have been destroyed.
• • The accounting records of a significant component
have been seized indefinitely by governmental
authorities.
• (b) Circumstances relating to the nature or timing of
the auditor’s work; or
• (c) Limitations imposed by management.
Nature of an Inability to Obtain Sufficient
Appropriate Audit Evidence
• (b) Circumstances relating to the nature or timing of the
auditor’s work; or
• The timing of the auditor’s appointment is such that the
auditor is unable to observe the counting of the physical
inventories.
• • The auditor determines that performing substantive
procedures alone is not sufficient, but the entity’s controls
are not effective.
• (c) Limitations imposed by management.
Nature of an Inability to Obtain Sufficient
Appropriate Audit Evidence
• (c) Limitations imposed by management.
• Management prevents the auditor from observing
the counting of the physical inventory.
• Management prevents the auditor from requesting
external confirmation of specific account balances.