HA3032

AUDITING

Topic 12
Audit Reports

Standards of Reporting
The final phase of an audit is the reporting of the
findings

ASA 700 The Auditors Report on a General

Purpose Financial Report establishes mandatory
requirements and provides explanatory
guidance on the form and content of the
auditors report

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Financial Statements
The financial statements on which an auditor
reports constitute a general-purpose financial

report
The disclosure and presentation requirements
for such reports are generally determined by
accounting standards and statutory and other
requirements
The Corporations Act 2001 outlines the

scope of the contents of a financial report

(s. 295)

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Who are the users of the financial report?

Fiona Campbell
Audit Partner
Ernst & Young Melbourne

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Holmes Institute 2009

Accounting Standards
The auditor reports on whether the financial
statements are in accordance with accounting

standards issued by the Australian Accounting

Standards Board (AASB)
These standards are now mandated by law
under ASA 700 and by virtue of the Corporations
Act under s. 334

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Relevant statutory and other requirements

The Corporations Act prescribes the auditors reporting

duties
An auditor who conducts an audit of the financial
statements for either a financial year or half-year, must
form an opinion under s. 307 on whether:
the financial statements are in accordance with the law,

comply with accounting standards and give a true and fair view
all information, explanations and assistance necessary for the
conduct of the audit have been provided
the financial records have been kept to enable the preparation

and audit of the financial statements

the records and registers have been kept as required by law

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Holmes Institute 2009

Relevant statutory and other requirements (cont.)

Section 308 states that the auditors report must

describe any defect or irregularity in the financial

statements and report any deficiency, failure or
shortcoming in respect of matters referred to in s. 307
The financial statements on which the auditor is to

report, include the directors declaration (s. 295) which

states that the financial statements and notes thereto
comply with accounting standards
give a true and fair view
are in accordance with the Corporations Act

In reaching an opinion on the financial statements, the

auditor will thus need to review the contents of the

directors declaration
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Expression of Opinion
ASA 700, requires the Auditors Opinion to
state whether the accounts present a true and

fair view in accordance with the applicable

financial reporting framework
The auditor must consider whether the
impression created by the financial statements
as a whole is consistent with the auditors
intimate knowledge of the entity and its financial
condition

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Types of audit opinion

Unqualified

Unmodified

Other than Unqualified

Clean audit opinion

Refer to ASA 700
Emphasis of Matter

Modified

Qualified

Refer to
ASA 701

Disclaimer

Adverse

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What does an audit opinion mean to users of the financial report?

Fiona Campbell
Audit Partner
Ernst & Young Melbourne

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Unqualified auditors report and an emphasis of matter

In this category of report, the opinion section

continues to express an unqualified opinion
However, this is followed by an emphasis of
matter paragraph to draw the readers
attention to specific circumstances
The addition of such an emphasis of matter
paragraph does not affect the auditors opinion

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Unqualified auditors report and an emphasis of matter (cont.)

ASA 701 Modifications to the Auditors report

provides examples of such emphases of matter
Examples include
significant uncertainty about an entitys going

concern status
need for additional disclosures
inconsistent information

the impact of subsequent events

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Unqualified auditors report and an emphasis of matter (cont.)

Circumstances in which a modification would

be issued, and the type of modification
appropriate to those circumstances, will
depend on
whether the modification is material but not

extreme, or
whether it is an extreme case

Table 15.1 in the textbook gives a number of

examples of types of modifications and when
used

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Circumstances in which a modification would be issued and

the type of modification appropriate in those circumstances

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Circumstances that give rise to a qualification

Scope Limitation
arises when the auditor cannot perform the

necessary procedures,
or the procedures do not provide sufficient
evidence

Figure 5.1 in the textbook provides an example

of a qualified auditors report including a

limitation on scope opinion

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Circumstances that give rise to a qualification (cont.)

Disagreement with those charged with governance

often relate to disagreement over the appropriateness of the

accounting policies selected, or the adequacy of disclosures of

sensitive matters
Examples include disagreement over accounting estimates for
doubtful debts, or disclosure issues based on fear of market
reactions

Conflict between applicable financial reporting

frameworks
in unusual circumstances, the application of accounting

policies in compliance with statutory and other requirements

may not result in a fair presentation in accordance with the
accounting standards
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Summary of modified report circumstances

Material but
Not Extreme

Extreme
Cases

Scope limitation

Except for
(qualified)

Disclaimer of
opinion

Disagreement with those charged with governance

(directors/management)

Except for
(qualified)

Adverse

Conflict between applicable financial reporting frameworks

Except for
(qualified)

Adverse

Significant Uncertainty Going Concern

Significant Uncertainty Other
Additional Disclosures with which the auditor concurs
Inconsistent Other Information

Unqualified (modified)
opinion with an emphasis of
matter

Subsequent Event resulting in a new auditors report on a

revised financial report
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Other reporting considerations for corporate entities

These considerations include:

Reporting on consolidated accounts

Comparatives
Initial engagements

Half-year statements

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Reporting on consolidated accounts

In situations where a reporting entity has one or

more controlled entities, it may be necessary for

more than one auditing firm to participate in the
examination
The auditor of a reporting entity
has the right of access to the accounting records and

registers of controlled entities

also has the right to require from their officers and
auditors such information and explanation as is needed

The opinion expressed on the consolidated

financial statements is the sole responsibility of the

principal auditor

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What is the role of the auditor in respect to the consolidation

process? How do they support management?

Fiona Campbell
Audit Partner
Ernst & Young Melbourne

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Comparatives
Comparatives refer to amounts or disclosures of

one or more previous periods presented on a

comparative basis with those of the current period
The auditor needs to consider the following:
Any qualified previous period report
Subsequent events
Additional reporting requirements must be met when there has

been a change of auditors

Unaudited previous period financial statements require the

auditor to seek evidence to ensure there are no material

misstatements

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Initial engagements
In an initial audit engagement, ASA 510 requires the

auditor to obtain sufficient appropriate audit

evidence to ensure that:
the opening balances do not contain misstatements that

materially affect the current periods financial statements

the previous periods closing balances have been correctly

brought forward to the current period or, when appropriate,

have been restated
appropriate accounting policies are consistently applied or

changes in accounting policies have been properly

accounted for and adequately disclosed

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Half-year statements
Section 302 of the Corporations Act prescribes that

disclosing entities must:

prepare half-year financial statements and a directors report
have the financial statements audited or reviewed, and obtain an

auditors report

lodge the financial statements, the directors report and the

auditors report with the Australian Securities and Investments

Commission (ASIC)

According to s. 302 of the Corporations Act, the half-year

accounts may be either audited or reviewed, although

the majority of Australian companies opt for a review
If the half-year statements are audited, then the reporting

requirements are covered by ASA 700 (ISA 700)

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Half-year statements (cont.)

If a review engagement is needed, then it should be

performed in accordance with ASRE 2410 Review of

an Interim Financial Report Performed by the
Independent Auditor of an Entity
There are no requirements for the auditors report on

half-year statements to be circulated to the entitys

members

However, the auditor should encourage distribution

of the report to members in the interests of effective

communication

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Tutorial
Audit reports
Reading:
Leung Chapter 5
Reporting on financial statements

Tutorial Questions:
Leung Chapter 5
Questions 5.10, 5.12, 5.13, 5.14, 5.18, 5.22 & 5.24

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