Chapter 12 - Audit Reports and A description of the responsibility of

Communication management for the preparation of the financial

Fadilla Primaria Dewi (1406612256) statements;

A description of the auditors responsibility
to express an opinion on the financial
statements and the scope of the audit, that
1.1. Basic Elements of the Auditors Report
includes:
ISA 700, Forming an Opinion and Reporting
o A reference to International Standards on
on Financial Statements states: The auditor
Auditing and the law or regulation; and
shall evaluate whether the financial statements
o A description of an audit in accordance with
are prepared, in all material respects, in
those standards;
accordance with the requirements of the
An opinion paragraph containing an
applicable financial reporting framework. This
expression of opinion on the financial
evaluation shall include consideration of the
statements and a reference to the applicable
qualitative aspects of the entitys accounting
financial reporting framework used to prepare
practices, including indicators of possible bias
the financial statements (including identifying
in managements judgment.
the jurisdiction of origin of the financial
The auditors report should contain a clear
reporting framework that is not IFRS or
written expression of opinion on the financial
IPSAS,
statements taken as a whole.
The auditors signature;

Contents of the Auditors Report The date of the auditors report; and

The auditors report should be written and The auditors address.

include the following basic elements:
A title, e.g. Independent Auditors Report Title
An addressee, as required by the The most frequently used title is Independent

circumstances of the engagement, Auditor or Auditors Report in the title to

e.g.Shareholders of ABC company; distinguish the auditors report from reports

An introductory paragraph that identifies the that might be issued by others.

financial statements audited;

Addressee
 The report is usually addressed either to the presentation of these financial statements or
shareholders or supervisory board or the board the preparation of financial statements that
of directors of the entity whose financial give a true and fair view, as appropriate in the
statements have been audited. circumstances.

Opening or Introductory Paragraph Auditors Responsibility

The report should The auditors report shall state that
identify the entity whose financial the responsibility of the auditor is to express
statements that have been audited. This should an opinion on the financial statements based on
include the name of the entity and the date and the audit,
period covered by the financial statements, state that the audit was conducted in
state that the financial statements have been accordance with International Standards on
audited, Auditing,
identifying the title of each statement that explains that ISA standards require that the
comprises the financial statements, auditor comply with ethical requirements and
refer to the summary of significant that the auditor plan and perform the audit to
accounting policies and other explanatory obtain reasonable assurance about whether the
information. financial statements are free from material
misstatement.
Managements Responsibility for the
Financial Statements
The Managements Responsibility section of
the auditors report describes the Opinion Paragraph
responsibilities of those in the organization that The auditors report will include a section with
are responsible for the preparation of the the heading Opinion.
financial statements. When expressing an unmodified (unqualified)
Where the financial statements are prepared in opinion on financial statements prepared in
accordance with a fair presentation framework, accordance with a fair presentation framework,
the explanation of managements responsibility the auditors opinion shall use one of the
for the financial statements in the auditors following phrases:
report shall refer to the preparation and fair
 The financial statements present fairly, in all maintains an office that serves the client
material respects, in accordance with [the audited.
applicable financial reporting framework]; or
The financial statements give a true and fair Signature

view of in accordance with [the applicable The report should be signed in the name of the

financial reporting framework]. audit firm, or the personal name of the auditor,
or both, as appropriate.
Signature of the Auditor and Date of the
Report
The auditors report must be signed. The report Form of an Auditors Report
must be dated. The auditor shall date the report The most common type of audit report is the
no earlier than the date on which the auditor standard unmodified (historically called an
has obtained sufficient appropriate audit unqualified) audit report. It is used for more
evidence on which to base the auditors opinion than 90 percent of all audit reports. Other audit
on the financial statements including evidence reports are referred to as other than
that: unmodified reports. Other than unmodified
(a) all the statements that comprise the reports include those reports that express: an
financial statements, including the related adverse opinion, disclaimer of opinion, and
notes, have been prepared; and ( modified.
b) those with recognized authority have The form of an auditors report will generally
asserted that they have taken responsibility for be the form of the unmodified report which
those financial statements. traditionally consisted of just three paragraphs (
This informs the reader that the auditor has introduction, scope, and opinion), but now it
considered the effect on the financial may consist of several paragraphs so long as
statements and on the report of events or the basic elements are covered (Introduction,
transactions about which the auditor became Managements Responsibility, Auditors
aware and that occurred up to that date. Responsibility (including audit scope), and
Auditors Opinion).
Auditors Address
The report should name a specific location, Modified Opinion
which is usually the city in which the auditor
 An auditors report is considered to be
modified in the two different situations:
1. Matters that do not affect the Auditors
Opinion (which would mean adding an
emphasis of matter paragraph);
2. Matters that do affect the Auditors Opinion
(instances that call for either a (a) qualified
opinion, (b) disclaimer of opinion, or (c)
adverse opinion).
1.2. Types of Report Expressing Audit
Opinion
The opinion expressed in the auditors report
may be one of four types: unmodified,
qualified, adverse or disclaimer of opinion.
Standard Unmodified Opinion Auditors
Report
The auditors unmodified report should be
expressed when the auditor concludes that the
financial statements are prepared, in all
material respects, in accordance with the
identified financial reporting framework. An
auditors report containing an unmodified
opinion also indicates implicitly that any
changes in accounting principles or in the
method of their application, and their effects,
have been properly determined and disclosed in
the financial statements.
Requirements to Give Unmodified Opinion
In order to form that opinion, the auditor shall
conclude as to whether he has obtained
reasonable assurance about whether the
financial statements as a whole are free from
material misstatement, whether due to fraud or
error.
The auditor must evaluate:
whether the financial statements adequately
disclose the significant accounting policies
selected and they are consistent and
appropriate;
accounting estimates made by management
are reasonable;
information presented in the financial
statements is relevant, reliable, comparable,
and understandable;
disclosures to enable the intended users to
understand the effect of material transactions
and events on the information conveyed in the
financial statements; and
terminology used in the financial statements,
including the title of each financial statement,
is appropriate.
ualified, adverse or disclaimer of opinion.
Auditors Report Containing a Modified
Opinion
The auditor will express a qualified opinion
when:
Having obtained sufficient appropriate audit
evidence, the auditor concludes that
 misstatements, individually or in the aggregate,
are material, but not pervasive, to the financial
statements; or
The auditor is unable to obtain sufficient
appropriate audit evidence on which to base the
opinion, but the auditor concludes that the
possible effects on the financial statements of
undetected misstatements, if any, could be
material but not pervasive.
The key concepts to consider are materiality
and pervasiveness.
Information is material if its omission or
misstatement could influence the economic
decisions of users taken on the basis of the
financial statements.
Pervasive is a term used to describe the
effects on the financial statements of
misstatements or the possible effects on the
financial statements of misstatements that are
undetected due to an inability to obtain
sufficient appropriate audit evidence.
Auditors Report Containing an 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.
Auditors Report Containing a Disclaimer of
Opinion
The auditor will disclaim an opinion when he is
unable to obtain sufficient appropriate audit
evidence on which to base the opinion, and he
concludes that the possible effects on the
financial statements of undetected
misstatements, could be both material and
pervasive.
Consequence of an Inability to Obtain
Sufficient Appropriate Audit Evidence Due
to a Management-Imposed Limitation after
the Auditor Has Accepted the Engagement
If, after accepting the engagement, the auditor
becomes aware that management has imposed
a limitation on the scope of the audit that the
auditor considers likely to result in the need to
express a qualified opinion or to disclaim an
opinion on the financial statements, the auditor
must request that management remove the
limitation. If management refuses to remove
the limitation, the auditor must communicate
the matter to those charged with governance
and determine whether it is possible to perform
alternative procedures to obtain sufficient
appropriate audit evidence.
If the auditor is unable to obtain sufficient
appropriate audit evidence, the auditor shall
determine if the possible effects on the
financial statements of undetected
misstatements. If the effects could be material
but not pervasive, the auditor shall qualify the
opinion. If the auditor concludes that the
possible effects on the financial statements of
undetected misstatements could be both
material and pervasive he must withdraw from
the audit. If withdrawal from the audit before
issuing the auditors report is not practicable or
possible, the auditor should disclaim an
opinion on the financial statements. Before
withdrawing, the auditor will communicate to
those charged with governance any matters
regarding misstatements identified.
When the auditor considers it necessary to
express an adverse opinion or disclaim an
opinion on the financial statements as a whole,
the auditors report shall not also include an
unmodified opinion with respect to the same
financial reporting framework on a single
financial statement or one or more specific
elements, accounts or items of a financial
statement. To include such an unmodified
opinion in the same report in these
circumstances would contradict the auditors
adverse opinion or disclaimer of opinion on the
financial statements as a whole.
Form and Content of the Auditors Report
When the Opinion Is Modified
When the auditor modifies the opinion on the
financial statements, the auditor will include a
paragraph in the auditors report that provides a
description of the basis for the modification.
This paragraph is placed immediately before
the opinion paragraph in the auditors report
under the heading Basis for Qualified
Opinion, Basis for Adverse Opinion, or
Basis for Disclaimer of Opinion, as
appropriate.
Opinion Paragraph When the Opinion is A
Modified One
When the auditor modifies the audit opinion,
the auditor uses the heading Qualified
Opinion, Adverse Opinion, or Disclaimer
of Opinion, as appropriate, for the opinion
paragraph. When the auditor expresses a
qualified opinion, the auditor states in the
opinion paragraph that, in the auditors
opinion, EXCEPT FOR
the effects of the matter(s) described in the
Basis for Qualified Opinion paragraph,
the financial statements present fairly, in all
material respects in accordance with the
applicable financial reporting framework when
reporting in accordance with a fair presentation
framework
in accordance with the applicable financial
reporting framework when reporting in
accordance with a compliance framework.
When the modification arises from an
inability to obtain sufficient appropriate audit
evidence, the auditor shall use the
corresponding phrase except for the possible
effects of the matter(s) ... for the modified
opinion.
When the auditor expresses an ADVERSE
OPINION, the auditor will state in the opinion
paragraph that, in the auditors opinion,
because of the significance of the matter(s)
described in the Basis for Adverse Opinion
paragraph the financial statements do not
present fairly (or give a true and fair view) in
accordance with the applicable financial
reporting framework when reporting in
accordance with a fair presentation framework;
or in accordance with the applicable financial
reporting framework when reporting in
accordance with a compliance framework.
When the auditor DISCLAIMS an opinion due
to an inability to obtain sufficient appropriate
audit evidence, the auditor states in the opinion
paragraph that because of the significance of
the matter(s) described in the Basis for
Disclaimer of Opinion paragraph, the auditor
has not been able to obtain sufficient 1.3.
appropriate audit evidence to provide a basis
for an audit opinion; and, accordingly, the
auditor does not express an opinion on the
financial statements.
Description of Auditors Responsibility for
Qualified, Adverse or Disclaimer
When the auditor expresses a qualified or
adverse opinion, the auditor must amend the
description of the auditors responsibility to
state that the auditor believes that the audit
evidence he has obtained is sufficient and
appropriate to provide a basis for the auditors
modified audit opinion.
The auditor shall also amend the description of
the auditors responsibility and the description
of the scope of the audit to state only the
following:
Our responsibility is to express an opinion on
the financial statements based on conducting
the audit in accordance with International
Standards on Auditing. Because of the
matter(s) described in the Basis for Disclaimer
of Opinion paragraph, however, we were not
able to obtain sufficient appropriate audit
evidence to provide a basis for an audit
opinion.
Emphasis of a Matter Paragraph
An Emphasis of Matter paragraph is a
paragraph included in the auditors report that
refers to a matter appropriately presented or
disclosed in the financial statements that, in the
auditors judgment, is of such importance that
it is fundamental to users understanding of the
financial statements.
The Other Matter paragraph is a paragraph
included in the auditors report that refers to a
 matter other than those presented or disclosed Going Concern Disclosure
in the financial statements that, in the auditors After the auditor has carried out the
judgment, is relevant to users understanding of additional procedures deemed
the audit, the auditors responsibilities or the necessary, obtained all required
auditors report. information and considered the effect of
managements plans, he should
Uncertainties in the Emphasis of a determine whether the questions raised
Matter Paragraph regarding going concern have been
Examples of uncertainties that might be satisfactorily resolved.
emphasized include the existence of If the going concern questions are not
related-party transactions, resolved, the auditor must adequately
important accounting matters disclose in his report the principal
occurring subsequent to the balance conditions that raise doubt about the
sheet entitys ability to continue in operation
matters affecting the comparability in the foreseeable future. The disclosure

of financial statements with those of should:

previous years (e.g. change in > describe the principal conditions that

accounting methods). raise doubt;

> state that there are doubts about going
Going Concern Emphasis of Matter concern, therefore the entity may be unable to
The going concern assumption is one realize its assets and discharge its liabilities in
of the fundamental assumptions the normal course of business;
underlying preparation of financial > state that the financial statements do
statements. An enterprise is normally not include any adjustments relating to the
viewed as a going concern, that is, as recoverability and classification of recorded
continuing in operation for the asset amounts or to amounts and classification
foreseeable future. of liabilities that may be necessary should the
entity be unable to continue as a going concern.