Introduction:

Assurance services are independent professional services that improve the quality of information
for decision makers. Individuals who are responsible for making business decisions seek
assurance services to help improve the reliability and relevance of the information used as the
basis of their decisions. Assurance services are valued because the assurance provider is
independent and perceived as being unbiased with respect to the information examined.
Assurance services can be performed by CAs (Chartered accountants in Bangladesh) or by a
variety of other professionals. One category of assurance services provided by CAs is attestation
service.
An Audit of historical financial statements is a form of attestation service in which the auditor
issues a written report expressing an opinion about whether the financial statements are in
material conformity with generally accepted accounting principles (GAAP) or international
financial reporting standards (IFRSs). Audit represents the predominant form of assurance
performed by CA firms. When presenting information in the form of financial statements, the
client makes various assertions about its financial condition and results of operations. External
users who rely on those financial statements to make business decisions look to the auditors
report as an indication of the statements reliability. They value the auditors assurance because
of the auditors independence from the client and knowledge of financial statement reporting
matters (Arens, 2000).
The objectives of an audit of financial statements is to enable the auditor to express an opinion
whether the financial statements are prepared, in all material respects, in accordance with an
identified financial reporting framework. The term financial statements as defined by the
council of the ICAB framework of presentation of financial statements covers balance sheets,
income statements or profit and loss accounts. Cash flow statements, notes and other statements
and explanatory material which are identified as being part of the financial statements. Although
the auditors opinion enhances the credibility of the financial statements, the user cannot assume
that the opinion is an assurance as to the future viability of the entity nor
the efficiency or effectiveness with which management has conducted the affairs of the entity
(ICAB, 2004).
An audit is defined by the International Auditing Practices Committee (IAPC) of International
Federation of Accountants (IFAC) as:
The independent examination of the financial information of any entity, whether profit oriented
or not, and irrespective of its size, or legal form, when such an examination is conducted with a
view to expressing an opinion thereon. The term financial information encompasses financial
statements.
There are three primary types of audits: financial statements audits, operational audits, and
compliance audits. The latter two services are often called audit activities, even though they are
most similar to assurance and attestation services (ICAB, 1999).
Origin of the report:
The report entitled Study of the Audit Reports of the Listed Companies in Bangladesh has
been prepared as a partial fulfillment of BBA program authorized by the Faculty of Business
Studies, Southeast University.
Objectives of the study:
The main objective of the study is to analyze structure of the audit report of the companies issued
by the independent auditor(s) to the shareholders of the companies concerned.
Specific Objectives:
It will serve the purpose of identifying and familiarizing with the deviation in those reports from
standard structure as described in various literatures especially in Bangladesh Standards on
Auditing (BSA)-700. Other objectives are the byproduct of the study as follows:
To have an overall knowledge about standard structure of the auditors report.
To have an idea about real world practice of chartered accountants as well as CA firms.
To evaluate the auditors compliance with requirements in an audit report.
To identify the necessity of harmonized audit reporting.
To acquire practical knowledge about various types of audit report that is mandatory for
my professional education.
Study type:
The study is basically of content analysis. Content analysis is a research technique that obtains
data by observing and analyzing the content or message of advertisement, union contracts,
reports, letters, and the like. It involves systematic analysis, as well as observation, to identify the
specific information content and characteristics of the messages. Content analysis studies the
message itself. Its objective is to obtain a quantitative description of the manifest content of
communication. This technique measures the extent of emphasis, or omission of emphasis, on
any analytical category. (Zikmund, 2003)
Population and Sample:
As the study on the audit reports of the companies doing operations in Bangladesh, my
population should be all the companies doing operations in Bangladesh with the special
emphasis on the listed companies in the Dhaka Stock Exchange in Bangladesh.
Sample size of the study is 60 audit reports selected on random basis.
From the table below it is seen that out of 271 companies are listed on the DSE, as on August,
2010. Of the 271 companies, I have selected 60 companies (Table-1.6) for study on their audit
report audited by various audit firms in Bangladesh and a framework of requirement categories
in an audit report for my study. The annual reports of the 60 companies are 2008 and 2009
studied. The study has been based mainly on secondary data of the samples. The main sources of
data are the Annual Reports of the selected samples.
Table-: Sector wise distribution of listed companies in DSE
SL No. Sector Population Sample Companies
1 Bank and Financial Institute 51 15
2 Investment 28
3 Engineering 22 5
4 Food and Allied Products 23 10
5 Fuel and Power 11 2
6 Jute 3 1
7 Textile 27 5
8 Pharmaceuticals and Chemicals 21 2
9 Paper and Printings 2 1
10 Service and Real estate 4 1
11 Cement 7 2
12 IT Sectors 5 2
13 Tannery 5 1
14 Ceramic 5 1
15 Insurance 44 10
16 Telecommunication 1 1
17 Travel 1 0
18 Miscellaneous 11 1
Total 271 60
Source: monthly Review of DSE, August, 2010


Limitation of the study:
The study is conducted with an objective to make a through study of audit report issued by
independent auditor of the listed companies. I faced some challenges during my study. Though I
have overcome the faced challenges I had some limitations also. These limitations are number of
sample, time and cost.
Number of sample:
For the difficulty of collecting all the audit reports of listed companies in DSE, I have taken 60
listed companies and out of 271 listed companies and all the national & multinational companies
operating in Bangladesh.
Audit in Bangladesh:
The Companies Act 1994 makes it compulsory for every company to have its accounts audited
by qualified auditors. The desirability of this provision can be based on the fact that shareholders
who contribute the capital of the company leave its management and control in the hands of
directors. Auditors are there to safeguard the interest of shareholders.
The qualified chartered accountants from the Institute of Chartered Accountants of Bangladesh
(ICAB) are eligible for auditing practices after getting sufficient experience in this field through
a firm established through the approval of ICAB.
Chronological incidents of Company Audit (ICAB, 1999) reveal the following sequential
incidents towards auditing standards and practice in Bangladesh over the years:
1850: Indian Joint Stock Companies Act (enacted in UK as the 1844 Act)
All incorporated companies required to have their annual financial statements audited. The Act
did not require that the auditor be independent or be a professional accountant. The audit report
was to state whether the balance sheet gave a full and fair view of its state of affairs.
1859: Nichols Case: The judgment stated that it was part of the auditors duty to discover
fraudulent misrepresentation. This was the start of fraud and error detection as the main audit
objective for the next 80 years or so.
1896: Re. Kingston Cotton Mill: The judge remarked that the auditor was a watchdog not a
bloodhound, and that what was required of him was the exercise of what was regarded at the
time as reasonable skill and care in the circumstances.
1913: Companies Act (India): Every company required to have its accounting books and records
audited. A report had to be made on the balance sheet and profit and loss account. Auditors had
to be professionally qualified.
1932: Auditors Certificate Rule: A comprehensive set of rules governing the regulation and
training for the auditors.
1936: Amendments to 1913 Act: Increasing awareness took place about the importance of
financial information to investors.
1947: Partition adopted by Pakistan.
1950: Auditors Certificate Rules 1950: These replaced the 1932 rules. Under these rules persons
who fulfilled specified conditions in relation to practical and theoretical training could have their
names entered in the register and use the designation Registered Accountant. Only a registered
accountant could be appointed auditor of a public limited company.
1961: Institute of Chartered Accountants of Pakistan (ICAP): ICAP was formed from registered
accountants. Government created department of accountancy.
1973: Formation of ICAB: Bangladesh liberated in 1971 creating a major problem because of the
lack of an institute. In 1972 Institute of Chartered Accountants of Bangladesh formed under
Bangladesh Chartered Accountants Order 1973 (P.O. No. 2 of 1973).
1973: Onwards: Bangladesh had been participating in the creation of International Accounting
and Auditing Standards. Increasing awareness of the role of accounting and auditing was been
going on.



Control, Corporate Governance and Audit:
The term control is used at a wide range of levels. At one extreme it means effects to achieve
organizational goals and objectives; at another extreme the concern of control is to see if there
are two approved signatures on a disbursement check; and in between there are all sorts of
resources and operational activities, which must be dealt with (Chowdhury, 2004). Otley and
Bery (1980) view that the study of organization and the study of control are interrelated.
According to McMahon and Ivancevich (1976), an organization implies control. The above view
has support from Tannenbaum (1968) when he claims that an organization without some form of
control is impossible. He states that an organization can be seen as the relationship of human
beings, the exercise of power, use of resources, and the distribution of resources. All these
organizational issues need to be planned, carefully designed, directed, motivated, and controlled.
There are control mechanisms internal and external to the organization. The external control
mechanisms include market competition, government regulations, the market for takeovers, and
corporate governance and monitoring by shareholders, auditors, and independent outside experts
(Chowdhury, 2004). Committee on Corporate Governance (September 1999) suggests that
external auditors shall perform fair audits independently from the corporation concerned, its
management and controlling shareholders, so that shareholders and other users may maintain
confidence in the corporations accounting information. Sir Adrin Cadbury perfectly said,
Corporate governance is considered withholding balance between economic and social goals
and between individual and community goals. The aim is to align as nearly as possible the
interests of individuals, corporations and society (Cadbury, 2003). Corporate governance has
become a top priority for the regulatory bodies with the objective of providing better and
effective protection to all stakeholders and also to make the market confident as research reveals
a positive correlation between corporate governance and share prices (Ahmad, 2004). Various
elements of corporate governance discussion includes the legal framework, ownership structure,
shareholding and protection of minority shareholders, board of directors, and the role of capital
markets and Securities and Exchange Commission (SEC) in corporate governance, accounting
and auditing standards, independent auditors report(Ahmed, 2005). Corporate Governance
Committee (1997) stated remarkably, An audit committee is to be created within the board of
directors. All the members of the committee are to be non-executive directors. Its function will
be to audit the quality of compliance achievements, as well as the appropriateness of risk
management of management. Auditors should audit beyond the normal inspection of compliance
by management, and at the very least should make due judgments on the strategic decisions
made by the board of directors. The quality of corporate auditing has to be upgraded by
designating more than one independent auditors and by a more systematized auditing
(Corporate Governance Committee, 1997).
Economic significance of the audit:
Economic significance of the audit of the financial statements of the company emphasizes the
great importance of the audit. ICAB well stated: In Bangladesh as in most other developed and
developing societies, the owners of resources place them in the custody or stewardship of others.
Examples of this process are the shareholders (owners) of a company committing the resources
of the company to the stewardship of the directors; the public at large committing publicly
owned resources to the stewardship of elected representatives. The owners hold the stewards
accountable. Under the stewardship system of financial reporting, the shareholders, who defector
represent the ownership of corporate entity, are distinct separate from the board of directors, who
defector represent the management of the company. The share holders appoint the directors in
the company annual general meeting to manage the entity in the best interest of the ownership.
The shareholders need an honest, unbiased, objective, independent expert, professional opinion,
and evaluation of the performance of responsibilities entrusted upon the directors. The
management is unlikely to render that opinion and appraisal with any degree of objectivity.
Hence the auditor acts as a bridge helping to make management accountable to shareholder,
through his audit report on the companys financial information. The concept of audit
independence also enumerates from the application of this system of stewardship reporting of
financial reporting. The accountability is frequently in the form of annual reports incorporating
financial statements. The typical example is the annual report and accounts of limited companies
produced by the directors in accounting for their stewardship to the shareholders. Before these
financial statements can be accepted by the owners, they need to be examined by audit (ICAB,
1999).
Thus the role of the audit is essentially linked with the role of accounting information, and may
be summarized (ICAB, 1 999):
(a) The owners of resources (investors) must make decisions on the employment of these
resources;
(b) Such decisions are linked with the expected returns from investments;
(c) In the absence of forecast information the investors look at historical data as a guide to the
future;
(d) Such data is provided by the stewards of the resources (e.g. the company management);
Since their interest may conflict with the investors, the audit serves the function of lending
credibility to the financial statements.
We have seen that the need for an external audit arises primarily when the ownership and
management of an enterprise are separated. There are, however, certain inherent advantages in
having financial statements audited even where no statutory requirement exists for such an audit:
Disputes between management may be more easily settled. For instance, a partnership
which has complicated profit-sharing arrangements may require an independent
examination of the accounts to ensure as far as possible an accurate assessment and
division of those profits;
Major changes in ownership may be facilitated if past accounts contain an unqualified
audit report. For instance, where two sole traders merge their business to form a new
partnership;
Applications to third parties for finance may be enhanced by audited accounts.
However, do remember that a bank, for instance, is likely to be far more concerned about
the future of the business and available security than the past historical cost accounts,
audited or otherwise;
An auditor may well discover major errors and fraud during his audit, even though such
a discovery is not the primary objective of the audit;
The audit is likely to involve an in-depth examination of the business and so may enable
the auditor to give more constructive advice to management on improving the efficiency
of the business (ICAB, 1999).
Auditing standards:
These prescribed basic principles and practices which members are expected to follow in the
conduct of an audit. Apparent failures by members to observe these standards may be enquired
into by appropriate committees of the accountancy bodies and may lead to disciplinary action.
Major accountancy bodies of the world have issued auditing standards to be followed by their
respective members. The major accounting bodies of the United Kingdom and Eire formed
themselves into a body known as the Consultative Committee of Accountancy Bodies. This body
through its sub-committee known as Auditing Practices Committee (APC) is issuing auditing
standards and guidelines (ASC). The initial major standards issued by the APC encompassed:
(i) The auditors operational standard
(ii) The audit report
(iii) Qualification in audit reports.
There is more detailed guidance on how the auditing standards may be applied in practice. Since
it would be impossible to establish a code of rules sufficiently elaborate to cater for all situations
these guidelines are not mandatory. However, they do represent a code of current best practice
and an auditor would be unwise to ignore them unless he had good grounds for doing so. In a
court of law for instance, the court would be likely to use auditing standards and guidelines as
indicative of best practice and would be likely to judge the auditors work against the advice laid
down in the guidelines or standards.
Auditing statements:
In addition to the auditing standards and guidelines, some accounting bodies also issue auditing
statements on the general principles of auditing.
I nternational Federation of Accountants:
The International Federation of Accountants (IFAC) came into existence on 7 October 1977 with
the board objective of the development and enhancement of a co-coordinated worldwide
accountancy profession with harmonized standards. In working toward this objective, the
Council of IFAC has established International Auditing Practices Committee (IAPC) to develop
and issue, on behalf of the Council guidelines on generally accepted auditing practices and on the
form and content of audit reports (ICAB, 1999).
The I nstitute of Chartered Accountants of Bangladesh (I CAB):
The Institute of Chartered Accountants of Bangladesh (ICAB), being the only institute in
Bangladesh for providing CA education, combines a high value qualification with a reputation as
the countrys best institution for training and supports the chartered accountants. ICAB pursues
the following objectives:
- Regulate the accountancy profession and matters connected therewith in the country.
- Ensure sound professional ethics and code of conduct by its members
- Provide specialized training and professional expertise in accounting, auditing, taxation,
corporate laws, management consultancy, information technology and related subjects.
- Impart mandatory continuing professional education (CPE) to its members.
- Foster acceptance and observe of International Financial Reporting Standards (IFRSs) and
International Standards on Auditing (ISA) and adopt IFRSs and ISA in Bangladesh as
Bangladesh Financial Reporting Standards (BFRSs) and Bangladesh Standards of Auditing
(BSA) respectively.
- Keep abreast of latest development in accounting techniques, audit methodology,
information technology, management consultancy and related fields.
- Liaise with international and regional organizations to influence the development of
efficient capital market and international trade in services.
ICAB adopts the standards as Bangladesh Standards on Auditing (BSA) as listed in appendix1:
General principles of an Audit:
The Auditor should comply with the Code of Ethics for Professional Accountants issued by the
Council of the Institute of Chartered Accountants of Bangladesh. Ethical principles governing
the auditors professional responsibilities (ICAB, 2004) are:
(a) Independence;
(b) Integrity;
(c) Objectivity;
(d) Professional competence and due care;
(e) Confidentiality;
(f) Professional behavior; and
(g) Technical Standards
The auditor should conduct an audit in accordance with BSAs or ISAs as adopted in Bangladesh.
These contain basic principles and essential procedures together with related guidance in the
form of explanatory and other material.
The auditor should plan and perform an audit with an attitude of professional skepticism
recognizing that circumstance may exist that cause the financial statements to be materially
misstated. An attitude of professional skepticism means the auditor makes a critical assessment,
with a questioning mind, of the validity of audit evidence obtained and is alert to audit evidence
that contradicts or brings into question the reliability of documents or management
representations. For example, an attitude of professional skepticism is necessary throughout the
audit process for the auditor to reduce the risk of overlooking suspicious circumstances, of over
generalizing when drawing conclusions from audit observations, and of using faulty assumptions
in determining the nature, timing and extent of the audit procedures and evaluating the results
thereof. In planning and performing an audit, the auditor neither assumes that management is
dishonest nor assumes unquestioned honesty. Accordingly, representations from management are
not a substitute for obtaining sufficient appropriate audit evidence to be able to draw reasonable
conclusions on which to base the audit opinion.
Scope of an audit:
The term scope of an audit refers to the audit procedures deemed necessary in the
circumstances to achieve the objective of the audit. The procedures required to conduct an audit
in accordance with BSAs should be determined by the auditor having regard to the requirements
of BSAs, relevant professional bodies, legislation, regulations and, where appropriate, the terms
of the audit engagement and reporting requirements.
Reasonable assurance:
An audit in accordance with BSAs is designed to provide reasonable assurance that the financial
statements taken as a whole are free from material misstatement. Reasonable assurance is a
concept relating to the accumulation of the audit evidence necessary for the auditor to conclude
that there are no material misstatements in the financial statements taken as a whole. Reasonable
assurance relates to the whole audit process.
An auditor cannot obtain absolute assurance because there are inherent limitations in an audit
that affect the auditors ability to detect material misstatements. These limitations result from
factors such as:
- The use of testing.
- The inherent limitations of any accounting and internal control system (for example, the
possibility of management override or collusion).
- The fact that most audit evidence is persuasive rather than conclusive.
Also, the work undertaken by the auditor to form an opinion is permeated by judgment, in
particular regarding:
(a) The gathering of audit evidence, for example, in deciding the nature, timing and extent of
audit procedures; and
(b) The drawing of conclusions based on the audit evidence gathered, for example, assessing
the reasonableness of the estimates made by management in preparing the financial statements.
Further, other limitations may affect the persuasiveness of audit evidence available to draw
conclusions on particular financial statement assertions (for example, transactions between
related parties). In these cases certain BSAs identify specified audit procedures which will,
because of the nature of the particular assertions, provide sufficient appropriate audit evidence in
the absence of:
(a) Unusual circumstances which increase the risk of material misstatement beyond that which
would ordinarily be expected; or
(b) Any indication that a material misstatement has occurred.
Accordingly, because of the factors described above, an audit is not a guarantee that the financial
statements are free of material misstatement (ICAB, 2004).
Introduction:
The final phase of an audit engagement is reporting the findings. To meet his or her reporting
responsibilities, the auditor must (1) have a thorough understanding of the four reporting
standards, (2) know the exact wording of the auditors standard report and the conditions that
must be met for it to be issued, (3) understand the types of departures from the standard report
and the circumstances when each is appropriate, and (4) be knowledgeable of certain other
special reporting considerations (Boynton, 2001). The four reporting standards, according to
Boynton (2001) are as:
(a) the report shall state whether the financial statements are presented in accordance with
generally accepted accounting principles;
(b) the report shall identify those circumstances in which such principles have not been
consistently observed in the current period in relation to the preceding period;
(c) informative disclosures in the financial statements are to be regarded as reasonably
adequate unless otherwise stated in the report;
(d) the report shall either contain an expression of opinion regarding the financial statements,
taken as a whole, or an assertion to the effect that an opinion cannot be expressed; the reasons
thereof should be stated. In all cases where an auditors name is associated with financial
statements, the report should contain a clear-cut indication of the character of the auditors work,
if any, and the degree of responsibility the auditor is taking.
Bangladesh Standards on Auditing 700: The Auditors Report on Financial Statements:
Bangladesh Standards on Auditing 700: The Auditors Report on Financial Statements described
the following guidelines to comply by the auditor:
The purpose of this Bangladesh Standard on Auditing (BSA) is to establish standards and
provide guidance on the form and content of the auditors report issued as a result of an audit
performed by an independent auditors of the financial statements of an entity. Much of the
guidance provided can be adapted to auditors reports on financial information other than
financial statements.
The auditor should review and assess the conclusions drawn from the audit evidence obtained as
the basis for the expression of an opinion on the financial statements.
This review and assessment involves considering whether the financial statements have been
prepared in accordance with an acceptable financial reporting framework I being either
Bangladesh Accounting Standards (BASs) or relevant national standards or practices. It may also
be necessary to consider whether the financial statements comply with statutory requirements.
The auditors report should contain a clear written expression of opinion on the financial
statements taken as a whole.
Basic Elements of the Auditors Report According to BSA 700:
The auditors report includes the following basic elements, ordinarily in the following layout:
(a) Title: The auditors report should have an appropriate title. It may be appropriate to use the
term Independent Auditor in the title to distinguish the auditors report from reports that might
be issued by others, such as by officers of the entity, the board of directors, or from the reports of
other auditors who may not have to abide by the same ethical requirements as the independent
auditor.
(b)Addressee: The auditors report should be appropriately addressed as required by the
circumstances of the engagement and local regulations. The report is ordinarily addressed either
to the shareholders or the board of directors of the entity whose financial statements are being
audited.
(c) Opening or introductory paragraph:
i. Identification of the financial statements audited;
ii. A statement of the responsibility of the entitys management and the
responsibility of the auditor;
The following matters are important in this case:
(i) The auditors report should identify the financial statements of the entity that have been
audited, including the date of and period covered by the financial statements.
(ii) The report should include a statement that the financial statements are the responsibility of
the entitys management and a statement that the responsibility of the auditor is to express an
opinion on the financial statements based on the audit.
(iii) Financial statements are the representations of management. The preparation of such
statements requires management to make significant accounting estimates and judgments, as well
as to determine the appropriate accounting principles and methods used in preparation of the
financial statements. This determination will be made in the context of the financial reporting
framework that management chooses, or is required to use. In contrast, the auditors
responsibility is to audit these financial statements in order to express an opinion thereon.
An illustration of these matters in an opening (introductory) paragraph is; We have audited the
accompanying balance sheet of the ABC Company as of December 31, 20XX, and the related
statements of income and cash flows for the year then ended. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audit
(d) Scope paragraph (describing the nature of an audit):
(i) A reference to the BSAs or relevant national standards or practices;
(ii) A description of the work the auditor performed;
The following issues are important in this case:
(i) The auditors report should describe the scope of the audit by stating that the audit was
conducted in accordance with BSAs.
Scope refers to the auditors ability to perform audit procedures deemed necessary in the
circumstances. The reader needs this as an assurance that the audit has been carried out in
accordance with established standards or practices. Unless otherwise stated, the auditing
standards or practices followed are presumed to be those of the country indicated by the auditors
address.
(ii) The report should include a statement that the audit was planned and performed to obtain
reasonable assurance about whether the financial statements are free of material misstatement.
(iii) The auditors report should describe the audit as including:
1. Examining, on a test basis, evidence to support the financial statement amounts and
disclosures;
2. Assessing the accounting principles used in the preparation of the financial statements;
3. Assessing the significant estimates made by management in the preparation of the
financial statements; and
4. Evaluating the overall financial statement presentation.
(iv) The report should include a statement by the auditor that the audit provides a reasonable
basis for the opinion.
(v) An illustration of these matters in a scope paragraph is:
We conducted our audit in accordance with Bangladesh Standards on Auditing (BSA). 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
management, as well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion
(e) Opinion paragraph: there should be an opinion paragraph containing
i. Reference to the financial reporting framework used to prepare the
financial statements (including identifying the country of origin of the financial reporting
framework when the framework used is not Bangladesh Accounting Standards); and
ii. An expression of opinion on the financial statements;
The following issues are important in this case:
(i) The opinion paragraph of the auditors report should clearly indicate the financial reporting
framework used to prepare the financial statements(including identifying the country of origin of
the financial reporting framework when the framework used is not Bangladesh Accounting
Standards) and state the auditors opinion as to whether the financial statements give a true and
fair view (or are presented fairly, in all material respects) in accordance with that financial
reporting framework and, where appropriate, whether the financial statements comply with
statutory requirements.
(ii) The terms used to express the auditors opinion are give a true and fair view or present
fairly, in all material respects and are equivalent. Both terms indicate, amongst other things, that
the auditor considers only those matters that are material to the financial statements.
(iii) The financial reporting framework is determined by BASs, with an appropriate
consideration of fairness and with due regard to Bangladesh legislation (Companies Act,
Securities & Exchange Rule, Bank companies Act etc.) To advise the reader of the context in
which the auditors opinion is expressed, the auditors opinion indicates the framework upon
which the financial statements are based. The auditor refers to the financial reporting framework
in such terms as: in accordance with Bangladesh Accounting Standards This designation
will help the user to better understand which financial reporting framework was used in
preparing the financial statements. When reporting on financial statements that are prepared
specifically for use in another country, the auditor considers whether appropriate disclosure has
been made in the financial statements about the financial reporting framework that has been
used.
(iv) In addition to an opinion on the true and fair view (or fair presentation, in all material
respects), the auditors report may need to include an opinion as to whether the financial
statements comply with other requirements specified by relevant statutes or law.
An illustration of these matters in an opinion paragraph is: In our opinion, the financial
statements give a true and fair view of (or present fairly, in all material respects) the financial
position of the Company as of December 31, 20XX, and of the results of its operations and its
each flows for the year then ended in accordance with Bangladesh Accounting Standards (BAS.)
(f) Date of the report: The auditor should date the report as of the completion date of the audit.
This informs the reader that the auditor has considered the effect on the financial statements and
on the report of events and transactions of which the auditor became aware and that occurred up
to that date. Since the auditors responsibility is to report on the financial statements as prepared
and presented by management, the auditor should not date the report earlier than the date on
which the financial statements are signed or approved by management.
(g) Auditors address: The report should name a specific location, which is ordinarily the city
where the auditor maintains the office that has responsibility for the audit.
(h) Auditors signature: The report should be signed in the name of the audit firm. The auditors
report is ordinarily signed in the name of the firm because the firm assumes responsibility for the
audit.
Types of Audit Opinions:
The opinions expressed in the auditors report may be:
1. Unqualified
2. Other than Unqualified
a) qualified
b) adverse, or
c) disclaimer of opinion.
Arens (1991) described the form and content of an audit report as the followings:
Standard Unqualified Audit Report:
The most common type of audit report is the standard unqualified audit report. It is used for more
than 90 percent of all audit reports. An unqualified audit report is expressed when the auditor is
satisfied that the conditions set out below have been met in all material respects:
the financial information has been prepared using acceptable accounting policies, and
adhering to principles specified in Statements of Accounting Standard, which have been
applied on a consistent basis;
the financial information complies with the relevant legislation and regulations so far as
they affect financial information and promulgations of the ICPAS;
the view presented by the financial information as a whole is consistent with the auditors
knowledge of the business of the entity;
there is adequate disclosure of all material matters for a true and fair presentation of the
financial information.
When the above conditions are met, the standard unqualified audit report is issued.
Departure form Statements of Accounting Standard:
It is one of the preconditions for the issuance of an unqualified opinion that financial statements
comply with statements of accounting standard. However, in rare circumstances a departure from
accounting standard may be necessary in order to present financial statements that give a true
and fair view. The preface to Statements of Accounting standard requires that in the case of any
departure, the financial statements should fully disclose and explain the departure.
Where a departure is not fully disclosed and explained in the financial statements and the effect
of the departure, in the opinion of the auditor, does not alter his opinion as to the truth and
fairness of the financial statements, the auditor should disclose and explain the departure in his
report. Such disclosure and explanation include in the report will not be construed as a
qualification of his opinion.
Emphasis of a matter:
Under certain circumstances the auditor may wish to draw the readers attention to important
matters, which are already disclosed in the financial statements, to ensure that those are not
overlooked. It is not the intention of the auditor to qualify his report by such reference but is
aimed at emphasizing the specific matter. Accordingly, it is suggested that such reference should
be made, not in the opinion paragraph of the audit report, but in a separate paragraph.
The following are examples of explanatory information the auditor may feel should be
expressed:
1. the existence of significant related party transactions;
2. important events occurring subsequent to the balance sheet date;
3. the description of accounting matters affecting the comparability of the financial
statements with those of the preceding year.
Audit Reports Other than Unqualified:
Whenever the auditor is in a state of uncertainty or is in disagreement with management on
matters that affect the financial statements materially, he must issue a report other than an
unqualified report. In these circumstances there are three types of audit reports the auditor could
choose from: qualified opinion, disclaimer of opinion and adverse opinion. Initially, in deciding
whether to qualify his opinion, the auditor should have regard to materiality of the matter in the
context of the financial statements on which he is reporting. A qualification of opinion is not
warranted if the matter is not material.
Where the auditor is of the view that the matter is of material significance to the truth and
fairness of the financial statements, he has to make a further decision as to whether or not the
matter is of fundamental importance to the statements as a whole, before selecting the
appropriate opinion to be expressed. An uncertainty becomes fundamental when its potential
impact on the financial statements could be so great as to invalidate the truth and fairness of the
financial statements as a whole. A disagreement becomes fundamental when the impact of the
misstatements is so great that the financial statements are, in the opinion of the auditor,
misleading.
Use of an Explanatory Paragraph:
When a report that is other than unqualified is issued, an explanatory paragraph should be
inserted between the scope paragraph and the opinion paragraph to explain the qualification that
affects the opinion. In the explanatory paragraph, the auditor should give a clear description of
all substantive reasons for his conclusions and, unless impractical, should include a
quantification of the possible effect on the financial statements.
The three types of audit qualifications and the circumstances under which they are issued are
discussed below.
Qualified Opinion:
There are two forms of qualified opinion subject to qualified opinion and except for
qualified opinion.
Subject to Qualified Opinion:
This opinion is relevant when the auditor is uncertain whether a particular matter which he
considers material has been fairly stated in the financial statements. The uncertainty could arise
due to scope restriction consequent to which the auditor is unable to carry out audit procedures
which he considers are essential, or due to inherent uncertainties associated with the nature of the
matter.
In a subject to qualified opinion the auditor disclaims an opinion on a particular matter in the
financial statement which he considers is of material significance. The auditor does not consider
the matter as being of fundamental importance, and he believes that the overall financial
statements do give a true and fair view. The wording of the opinion expressed indicates that the
auditor is of the view that the financial statements give a true and fair view subject to either:
(a) any adjustments that he might have found to be necessary if the scope of his audit work had
not been limited, or
(b) any adjustments that might have been necessary if the outcome of the uncertainty had been
known.
Except for Qualified Opinion:
Except for qualified opinion is issued when the auditor is in disagreement with management on
a particular matter which is considered material but not fundamental. The opinion will express
the auditors satisfaction as to the truth and fairness of the financial statements except for the
particular matter in dispute.
Disclaimer of Opinion
A disclaimer of opinion is issued in a situation when the auditors uncertainty extends to a matter
or matters of fundamental importance as a result of which he is unable to satisfy himself as to
whether the overall financial statements present a true and fair view. The necessity for
disclaiming an opinion may arise because of a severe limitation of the scope of the audit
examination, or because it is not possible to identify any particular area or amounts affecting the
true and fair view due to uncertainties is pervasive to the financial statements.
Adverse Opinion:
An adverse opinion is expressed only when the auditor believes, after a full investigation, that
the overall financial statements are so fundamentally misstated, or are misleading as a whole that
they do not present a true and fair view. It is the most extreme form of audit report and is
considered as a measure of last resort.
An adverse opinion is distinguished from a disclaimer of opinion in that the latter can arise only
from a lack of knowledge by the auditor, whereas to express an adverse opinion the auditor must
have knowledge that the financial statements do not present a true and fair view.
Findings regarding structure of the audit report issued:
Table 4.1 describes the extent of compliance of auditing standards followed by the auditors of
the sample companies:



Table: Extent of compliance as to the standard structure of the audit report:
SL
No.
Structure
Component
Description No. of audit report
complied (N=60)
%
1 Title Mentioning of Independent
Auditor in the title
2 3.33
2 Addressee Mentioning like Shareholders
of the XYZ Company (Full
name)
48 80.0
3 Opening or
Introductory
Paragraph
Identification of Financial
Statements
60 100
A statement of the responsibility,
of the management regarding the
financial statements and of the
auditor(s) regarding opinion.
60 100
4 Scope
Paragraph
(Describing
the nature of
an audit)
Reference to the BSA or relevant
national standards or practices
60 100
Requirement of planning and
performance
60 100
A description of the work the
auditor(s) performed
60 100
Reasonable basis of opinion 60 100
5 Opinion
Paragraph
Reference to the financial
reporting framework used to
prepare the financial statements
60 100
6 Date of the
report
Mentioning the date of
completion
59 98.33
7 Auditors
address
Full address with holding
number
18 30.0
City where the audit firm located 50 83.33
No address at all 0 0
8 Auditors
signature
Signature in the name of the firm 52 86.67
Signature in the name of partner 8 13.33
Signature as S/d 10 16.67
No signature at all 0 0
9 Heading of
the paragraph
Mentioning the head of the
paragraph before starting the
paragraph
20 33.33
Findings of analysis standard structure of the audit report:
From the above analysis we can infer that introductory paragraph, scope paragraph and opinion
paragraph were complied fully with the standard practice as guided. But in case of title,
addressee, date of the report, auditors address, auditors signature, heading of the paragraph
component of the audit report were not been complied to the fullest extent. The great deviation
from standard practice was identified in the title component. Only 3.33 percent audit report
titled as Independent auditors report. That is (2 audit report out of 60) companies audit report.
This companies are Monno ceramic (Audited by Muhammad Shaheedullah & co.) and another is
Alhaj Textile Mills Ltd. (Audited by Khan Wahab Shafiq Rahman & Co.) But this compliance
should be 100 percent. Auditors address were given in the audit report almost all cases but
only 20 percent audit report inserted the address of the firm with holding number which is
directed as standard practice. Auditors signature was given almost all cases but 13.33 percent of
the audit report was issued with the signature in the name of partner concerned and 86.67 percent
of the audit report was issued with the signature in the name of audit firm which should be the
standard practice. It was observed that 16.67 of the audit report was issued with the signature as
S/d which should not be the standard practice. It is worthy to mention that one audit report was
issued without any signature of the auditors, which is a major violation of the prescribed standard
for the structure of the audit report. Substantial part of the audit report studied (80 percent)
addressed to the shareholders of the concerned company with the full name of the company but
20 percent did not address to the shareholders of the concerned company with the full name of
the company, which could be attributed as the violation of the standard practice. It is a good
practice to mention the name of the paragraph before starting each paragraph in the audit report
to indicate specific segment of the audit report for the good understandability of the message of
the report to the users. But only 20 percent of the audit reports studied mentioned the name of the
paragraph before starting each paragraph.
Findings of analysis nature of the audit report:
From the above analysis we can infer that substantial part (75% of the total sample) of the audit
reports studied was issued as Unqualified. A small portion of the audit reports studied was
issued as Qualified mentioning the standard indications of qualified audit report of Except for
and Subject to in the opinion paragraph of the audit report. Olympic Industries Limited,
National Tea Company Limited, Fu-Wang Foods Limited, Zeal Bangla Sugar Mills Limited,
Meghna Cond.Milk, Gulf Foods Limited, Atlas Bangladesh, Delta Life Insurance, Islami
Insurance those companies audit reports are qualified audit report. Auditors identified the
material uncertainty in the reference notes stated with the financial statements. In Olympic
Industries Limited, auditors identify the material misstatement in the reference note no -10(b)
regarding the investment in the share of Tripti Industries Limited. In Gulf Foods Limited
auditors identified the material misstatement the companys depreciation and amortization
charges. In National Tea Company Limited, auditors identified the material uncertainty in
realizing the debtors amount in scope paragraph. They had taken the companys pre-tax profit
into consideration as would have been Tk.31699189 instead of Tk. 81993398 thereby overstating
the pre-tax profit to the extent of Tk. 50294209. In Fu-Wang Food Limited, auditors identified
the material misstatement in the ref.no.-10 that the company did not follow BAS-12 for
computation of the deferred tax liabilities or assets. In Meghna Cond.Milk, auditors identified
the material misstatement the can not maintained proper book of account. In Zeal Bangla Sugar
Mills, auditors identified the material misstatement ref. note no-11 TK.23214014 as unrealized
for more than three years. In Islami Insurance, auditors identified the material misstatement on
evaluation of fixed assets. In Atlas Bangladesh, they can not provide proper evidence of audit.
In Delta Life Insurance, auditors identified the material misstatement of their capital fund
allocation.
On the other hand, no audit report was issued as Adverse opinion, or Disclaimer.
So, it can be made on this regard for finding out the independence of the auditor engaged in
auditing for the Bangladeshi listed companies as the economic condition indicates for issuance of
more number of qualified, disclaimer and adverse audit report.




Recommendation
The following points are recommended after the study:
The auditor should give more emphasis on the guidelines suggested by BSA 700.
In carrying out their responsibilities as professionals, members should exercise sensitive
professional and moral judgments in all their activities.
In all matters relating to the assignment, independence in mental attitude is to be
maintained by the auditor or auditors.
The company should be flexible to provide proper evidence during the audit.
Conclusion
The most common way for users to obtain reliable information regarding the financial position
and the results of the operation of a business is to have an independent audit performed. The
audited information is then used in the decision-making process on the assumption that it is
reasonably complete, accurate, and unbiased. Independent audit report expresses an opinion on
the fairness of the financial statements presented by the management of the company, indicating
the weakness in the internal control system and its application ineffectiveness, if any, resulting in
improvement in strong internal auditing environment to foster the corporate governance practice
in the company.
Typically, shareholders engage the auditor to provide assurance to users that the financial
statements are reliable to use the information contained in the financial statements for making
decision. If the financial statements are ultimately determined to be incorrect, the auditor can be
sued by both the users and shareholders. Auditors obviously have considerable legal
responsibility for their work towards expressing audit report on the fairness of the financial
statements.
A measure of uniformity in the form and content of the auditors report is desirable because it
helps to promote the users understanding and to identify unusual circumstances when they occur
for taking the decision needed for each user. Auditors should work more independently with the
responsibility towards the stakeholders of the respective company to play an important role in
flourishing the progressive economy in the country while issuing their audit report to portray the
real picture of the balance sheet of the company.