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Audit Reports
Audit
Reports
Parts of the Standard Unqualified Audit Report
Parts of the Standard
Unqualified Audit Report
1. Report title 2. Addressee 3. Introductory paragraph 4. Scope paragraph 5. Opinion paragraph 6.
1. Report title
2.
Addressee
3.
Introductory paragraph
4.
Scope paragraph
5. Opinion paragraph
6.
Name & signature of auditor firm
7.
Audit report date
Report of the Auditors to the Members of ABC BERHAD (Company No: 12345-X) We have
Report of the Auditors to the Members of
ABC BERHAD (Company No: 12345-X)
We have audited the financial statements set out on pages 10 to 55. These
financial statements are the responsibility of the Company’s directors.
It is our responsibility to form an independent opinion, based on our audit,
on the financial statements and to report our opinion to you, as a body, in
accordance with Section 174 of the Companies Act, 1965 and for no other
purpose. We do not assume responsibility to any other person for the
contents of this report.
We conducted our audit in accordance with applicable Approved Standards
on Auditing in Malaysia. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by the directors, as well as
evaluating the overall presentation of the financial statements. We believe
that our audit provides a reasonable basis for our opinion.

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In our opinion: a) the financial statements have been properly drawn up in accordance with
In our opinion:
a) the financial statements have been properly drawn up in accordance
with the provisions of the Companies Act, 1965 and applicable MASB
Approved Accounting Standards in Malaysia so as to give a true and
fair view of:
i) the financial position of the Group and of the Company at 31
December 2005 and of the results and the cash flows of the Group and
of the Company for the year then ended; and
ii) the matters required by Section 169 of the Companies Act, 1965 to
be dealt with in the financial statements; and
b) the accounting and other records and the registers required by the
Act to be kept by the Company and by its subsidiaries of which we
have acted as auditors have been properly kept in accordance with the
provisions of the Act.
We are satisfied that the financial statements of the subsidiaries that have been consolidated with
We are satisfied that the financial statements of the subsidiaries that
have been consolidated with the financial statements of the Company
are in form and content appropriate and proper for the purposes of the
preparation of the consolidated financial statements and we have
received satisfactory information and explanations required by us for
those purposes.
The auditors’ report on the financial statements of the subsidiaries
were not subject to any qualification material to the consolidated
financial statements and did not include any comment required to be
made under Section 174(3) of the Act.
AUDIT FIRM
AUDIT PARTNER
DATE
Four Categories of Audit Reports
Four Categories
of Audit Reports
Standard unqualified
Standard unqualified
Qualified
Qualified
Modified unqualified report - Emphasis of matter
Modified unqualified
report -
Emphasis of matter
Adverse or disclaimer
Adverse or disclaimer
Modified Unqualified Report
Modified Unqualified Report
(with Explanation)
(with Explanation)
1. Going concern uncertainty 2. Significant uncertainty due to pending litigation 3. Non-compliance with approved
1. Going concern uncertainty
2. Significant uncertainty due to pending
litigation
3. Non-compliance with approved accounting
standards but auditor agrees
4. Emphasis of matter
Going Concern Uncertainty
Going Concern Uncertainty
1. Significant recurring operating losses or working capital deficiencies 2. Inability of the company to
1. Significant recurring operating losses
or working capital deficiencies
2. Inability of the company to pay its
obligations as they come due
3.
3.

Loss of major customers, the occurrence of uninsured catastrophes Legal proceedings, legislation, that might

uninsured catastrophes Legal proceedings, legislation, that might 4. jeopardize the entity’s ability to operate 3 -
4. jeopardize the entity’s ability to operate
4.
jeopardize the entity’s ability to operate
Going Concern Uncertainty -
Going Concern Uncertainty -
Disclosure
Disclosure
- Identify principal conditions that caused the going concern uncertainty
- Identify principal conditions that caused the
going concern uncertainty
- Describe management’s plans
-
Describe management’s plans
- State that there is a material uncertainty relating to going concern conditions, & entity
- State that there is a material uncertainty
relating to going concern conditions, & entity
may not be able to realise its assets/discharge
its liabilities in the normal course of business
Going Concern Uncertainty – Disclosure example
Going Concern Uncertainty –
Disclosure example
After opinion paragraph….
After opinion paragraph….
Without qualifying our opinion, we draw attention to Note X in the financial statements which
Without qualifying our opinion, we draw attention to
Note X in the financial statements which indicates that the
company incurred a net loss of RMXXX during the year
ended 31.12.2005 and as of that date, the company’s
current liabilities exceeded its total assets by RMXXX.
These conditions, along with other matters set forth in Note
X indicate the existence of a material uncertainty which
may cast significant doubt about the company’s ability
to continue as a going concern.

Significant uncertainty due to pending litigation

Significant uncertainty due to pending litigation After opinion paragraph…. Without qualifying our opinion, we draw
After opinion paragraph….
After opinion paragraph….
Without qualifying our opinion, we draw attention to Note X to the financial statements. The
Without qualifying our opinion, we draw attention to
Note X to the financial statements. The company is the
defendant in a lawsuit alleging infringement of certain
patent rights and claiming royalties and punitive damages.
The company has filed a counter claim, and preliminary
hearings and discovery proceedings on both actions are in
progress. The ultimate outcome of the matter cannot
presently be determined, and no provision for any liability
that may esult has been made in the financial statements.

Auditor agrees with non-compliance with approved accounting standards

with non-compliance with approved accounting standards - - S.166A(4) of CA65  directors need not comply
-
-
-
-
S.166A(4) of CA65  directors need not comply with a standard if they think that
S.166A(4) of CA65  directors need not
comply with a standard if they think that the
true & fair view would be affected
Directors should:
Directors should:
(a) disclose this non-compliance in a Note
(a)
disclose this non-compliance in a Note
(b)
(b)
should: (a) disclose this non-compliance in a Note (b) disclose the financial effect of non- compliance

disclose the financial effect of non- compliance in a Note

should: (a) disclose this non-compliance in a Note (b) disclose the financial effect of non- compliance

Auditor agrees with non-compliance with approved accounting standards

with non-compliance with approved accounting standards Auditor’s report. Auditors should state: (a) If standard
Auditor’s report. Auditors should state:
Auditor’s report. Auditors should state:
(a) If standard was complied with, will the FS be true & fair? (No)
(a) If standard was complied with, will the FS be true &
fair? (No)
(b) If “No”, to give the reasons for his opinion
(b)
If “No”, to give the reasons for his opinion
(c) If the directors have disclosed the particulars of the financial effect of non-compliance, to
(c) If the directors have disclosed the particulars of the
financial effect of non-compliance, to give his opinion
(d) If the directors have not disclose (c), to disclose the quantified financial effect of
(d) If the directors have not disclose (c), to disclose the
quantified financial effect of the non-compliance
Emphasis of a Matter
Emphasis of a Matter
Under certain circumstances, the auditor may want to emphasize specific matters regarding the financial statements,
Under certain circumstances, the auditor may
want to emphasize specific matters regarding
the financial statements, even though the
auditor intends to express an unqualified opinion.
Departures from an Unqualified Opinion
Departures from an
Unqualified Opinion
1. Scope limitation
1. Scope limitation
2. Departure from accounting standards
2. Departure from
accounting standards
Qualified Opinion
Qualified Opinion
A qualified opinion report can result from a limitation on the scope of the audit
A qualified opinion report can
result from a limitation on the
scope of the audit or failure to
follow generally accepted
accounting principles.
Disclaimer of Opinion
Disclaimer of Opinion
It is issued when the auditor is unable to be satisfied that the overall financial
It is issued when the auditor is unable
to be satisfied that the overall financial
statements are fairly presented.
Adverse Opinion
Adverse Opinion
It is used only when the auditor believes that the overall financial statements are so
It is used only when the auditor believes
that the overall financial statements are
so materially misstated or misleading that
they do not present fairly the financial
position or results of operations and cash
flows in conformity with accounting standards.
Materiality
Materiality
A misstatement in the financial statements can be considered material if knowledge of the misstatement
A misstatement in the financial statements
can be considered material if knowledge of
the misstatement would affect a decision
of a reasonable user of the statements.
Levels of Materiality
Levels of Materiality
Amounts are immaterial.
Amounts are immaterial.
Amounts are material but do not overshadow the financial statements as a whole.
Amounts are material but do not overshadow
the financial statements as a whole.
Amounts are so material or so pervasive that overall fairness of the statements is in
Amounts are so material or so pervasive that
overall fairness of the statements is in question.
Relationship of Materiality to Type of Opinion
Relationship of Materiality
to Type of Opinion
Significance in Terms of Reasonable Users’ Decisions Users’ decisions are unlikely to be affected.
Significance in Terms of
Reasonable Users’ Decisions
Users’ decisions are unlikely
to be affected.
Decisions Users’ decisions are unlikely to be affected. Materiality Level Immaterial Material Highly

Materiality

Level
Level

Immaterial

Material

Highly

material

Type of Opinion

Unqualified

Qualified

Disclaimer

or adverse

Users’ decisions are likely to be affected.

Users’ decisions are likely to be affected.
or adverse Users’ decisions are likely to be affected. Users’ decisions are likely to be significantly
Users’ decisions are likely to be significantly affected.
Users’ decisions are likely
to be significantly affected.
Materiality Decisions
Materiality Decisions
Scope limitation Audit report Qualified scope Unqualified Disclaimer and opinion
Scope
limitation
Audit report
Qualified scope
Unqualified
Disclaimer
and opinion
Scope Limitation – Qualified opinion
Scope Limitation
– Qualified opinion

Introductory paragraph…

Except as discussed in the following paragraph, we conducted our audit in

accordance with

(scope paragraph)

We did not observe the counting of the physical inventories as of 31

December 2005, since that date was prior to the time we were initially

engaged as auditors for the Company. Owing to the nature of the Company’s

records, we were unable to satisfy ourselves as to inventory quantities by

other audit procedures.

In our opinion, except for the effects of such adjustments, if any, as might

have been determined to be necessary had we been able to satisfy ourselves

as to physical inventory quantities, the financial statements give a true and

ourselves as to physical inventory quantities , the financial statements give a true and (opinion paragraph).

(opinion paragraph).

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Scope Limitation – Disclaimer
Scope Limitation – Disclaimer

We were engaged to audit the accompanying balance sheet of the ABC

Company as of 31 December 2005, and the related statements of income and

cash flows for the year then ended. These financial statements are the

responsibility of the Company’s management.

(Omit the sentence stating the responsibility of the auditor).

(The paragraph discussing the scope of the audit would either be omitted or

amended according to the circumstances.)

(Add a paragraph discussing the scope limitation as follows:)

We were not able to observe all physical inventories and confirm accounts receivable due to limitations placed on the scope of our work by the

Company. Because of the significance of the matters discussed in the

preceding paragraph, we do not express an opinion on the financial

statements.”

Materiality Decisions
Materiality Decisions
Non-compliance with accounting standards Audit report Qualified Unqualified Adverse opinion only
Non-compliance with
accounting standards
Audit report
Qualified
Unqualified
Adverse
opinion
only
Disagreement - Qualified opinion
Disagreement - Qualified opinion

“We have audited

(introductory paragraph).

We conducted our audit in accordance with

(scope paragraph).

As discussed in Note X to the financial statements, no depreciation has been

provided in the financial statements which practice, in our opinion, is not in

accordance with the Malaysian Financial Reporting Standards. The provision for

the year ended 31 December 2005, should be xxx based on the straight-line

method of depreciation using annual rates of 5% for the building and 20% for the

equipment. Accordingly, the fixed assets should be reduced by accumulated

depreciation of xxx and the loss for the year and accumulated deficit should be increased by xxx and xxx, respectively.

In our opinion, except for the effect on the financial statements of the matter

referred to in the preceding paragraph, the financial statements give a true and

Disagreement – Adverse
Disagreement – Adverse

We have audited

(introductory paragraph).

We conducted our audit in accordance with

(scope paragraph).

(Paragraph(s) discussing the disagreement).

In our opinion, because of the effects of the matters discussed in the preceding

paragraph(s), the financial statements do not give a true and fair view of (or do

not present fairly) the financial position of the Company as of 31 December

2005, and of the results of its operations and its cash flows for the year then

ended in accordance with Malaysian Financial Reporting Standards and

do not comply with

Auditor’s Decision Process
Auditor’s Decision Process
Determine whether any condition exists requiring a departure from a standard unqualified report.
Determine whether any condition exists
requiring a departure from a standard
unqualified report.
Decide the materiality for each condition.
Decide the materiality for each condition.
Decide the appropriate type of report.
Decide the appropriate type of report.
Write the audit report.
Write the audit report.
Scope limitation
Scope limitation
Level of Materiality
Level of Materiality

Immaterial

Unqualified

Material
Material

Extremely

Material

Disclaimer

of opinion

Material Extremely Material Disclaimer of opinion Qualified scope, additional paragraph, and qualified
Material Extremely Material Disclaimer of opinion Qualified scope, additional paragraph, and qualified
Qualified scope, additional paragraph, and qualified opinion (except for)
Qualified scope, additional
paragraph, and qualified
opinion (except for)
report
report
Non-compliance with accounting standards
Non-compliance with
accounting standards
Non-compliance with accounting standards Level of Materiality Immaterial Unqualified report Material Extremely

Level of Materiality

Immaterial

Unqualified

report

Material
Material
of Materiality Immaterial Unqualified report Material Extremely Material Adverse opinion Additional

Extremely

Material

Adverse

opinion

report Material Extremely Material Adverse opinion Additional paragraph and qualified opinion (except
report Material Extremely Material Adverse opinion Additional paragraph and qualified opinion (except

Additional paragraph

and qualified opinion
and qualified opinion
(except for)
(except for)
Material Extremely Material Adverse opinion Additional paragraph and qualified opinion (except for) 3 - 30
Material Extremely Material Adverse opinion Additional paragraph and qualified opinion (except for) 3 - 30
Other information in documents containing the audited FS (ISA 720)
Other information in documents
containing the audited FS (ISA 720)

Material inconsistency

- When other information differs/contradicts the audited FS

- E.g. Per audited FS, sales increase by 10%, but per Chairman’s

statement, sales increase by only 5%

Need to revise either the FS or the other information.

Material misstatement of fact

- inaccuracy/misstatement in other information

- E.g. Chairman’s name is wrong

Need to read other info to identify inconsistencies because it

may indicate a inconsistency in the audited FS

Other information in documents containing the audited FS (ISA 720)
Other information in documents
containing the audited FS (ISA 720)

Effect on auditors’ report

- If FS require amendment + entity refuses to amend

disagreement qualified/adverse opinion

- If FS is correct & other information is wrong + entity refuses to

amend emphasis of matter paragraph describing the material

inconsistency, maybe legal advice

- Material misstatement of fact discuss with management if

mgt refuses to amend notify top management/directors or

obtain legal advice

Facts discovered after the date of the auditors’

report (ISA 560 “Subsequent Events”)
report (ISA 560 “Subsequent Events”)

Facts discovered before the FS are issued

- If FS are amended issue a new auditors’ report (new date)

ensure subsequent events review performed up to date of new

auditors’ report

- If management refuses to amend the FS notify the directors

not to issue the FS but if FS were subsequently released

take action to prevent reliance of auditors’ report (notify client,

regulatory agencies (CCM, SC), other relevant person/s

Facts discovered after the FS have been issued

- Request that client issue an immediate revision to the FS then

issue new auditors’ report with emphasis of matter paragraph,

stating reason for the revised FS should also ensure that

client informs relevant FS users (regulatory authorities, etc)

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Facts discovered after the date of the auditors’

report (ISA 560 “Subsequent Events”)
report (ISA 560 “Subsequent Events”)

Facts discovered after the FS have been issued

(Contd.)

- If client refuses to co-operate notify the BOD & take steps to prevent reliance on auditors’ report by notifying FS users should

also disclose the effect of the info on auditors’

report.

Private Exempt Auditors’ Certificate
Private Exempt Auditors’ Certificate

- Annual reports submitted together with annual

audited FS

- But a private exempt company (PEC) can attach an auditor’s statement instead of the FS,

provided that the current liabilities do not

exceed current assets.

- Refer Exhibit 18-11 (Page 541)

Reporting non-compliance with laws & regulations & breaches of CA65
Reporting non-compliance with laws &
regulations & breaches of CA65

- Report to management/directors

- If it has a material effect on the FS

qualified/adverse opinion

- If scope limitation was imposed

qualified/disclaimer opinion

- Confidentiality ineffective if reporting is

required by law

- Must report on all breaches of CA65 to CCM if

the matter cannot be dealt with in the auditor’s

report or by notifying the directors

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Special Purpose Audits
Special Purpose Audits

FS prepared on other comprehensive basis of

accounting

- Income tax basis, cash/modified cash basis, regulatory basis, price-level adjusted

- Auditors’ report disclose basis of accounting,

ensure that FS are approximately titled,

limitation on distribution

Special Purpose Audits
Special Purpose Audits

Reporting on a component of FS

- e.g. revenue, fixed assets

- Usually more extensive than normal audit on the overall FS

- Auditors’ report scope refers to component

being audited, opinion refers to component,

limitation on distribution of report

- If a disclaimer/adverse opinion has been issued

on the entire FS, auditor cannot report on components of FS

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Special Purpose Audits
Special Purpose Audits

Reporting on summarised FS

-

Less detailed than annual audited FS

-

Should not report on summarised FS unless auditor has

reported on the full FS

-

Auditors’ report

(a)

cannot use “true & fair”

(b)

identify the audited FS from which the summarised FS were

derived

(c)

refer to the auditors’ report date on the full FS & the type of

audit opinion given

(d)

opinion of whether the financial info in the summarised FS is

consistent with the full FS

(e)

a statement that for a better understanding of the financial

performance, to read the full FS

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