notes

1. PREPARED BY :
 RATNA DEWI A/P PALANIAPPAN

2.  Meaning of audit report :
 Is a signed written document which present the purpose
,scope and result of the audit. result of audit may
include findings, conclusion (opinion), and
recommendations.
 Objective: the auditor express his opinion and with
evidence in the form of a report which is referred to as
the auditor’s report.
 the auditor report is to addressed to the shareholders of
the company but it is also read by other such as
bankers, creditors, and other parties who use the
information in the financial statements.

3.  to avoid confusion to the readers, it is
important for the auditing profession to
adopt conventional and uniform wording in
auditors report.
 To avoid misunderstanding in the audit
report message that being communicated
to the users of the financial statements.
 5.1.2Type of audit report
 -unmodified report
 -modified report

4. 5.1.3 Overview type of audit report
Immaterial Unqualified with
unqualifie - modified wording or
emphasis of
d explanatory paragraph
limitation on scope disagreement matter , e.g: going concern
uncertainty
other
significant uncertainty
Material
Qualified Qualified
limitation on scope disagreement
Material and
Pervasive
Disclaimer Adverse

5. Two type of circumstances
disagreement
Auditors disagrees with management about
matters such as selection of accounting
policies or method of their application, this
representative non-compliance with
approved accounting standard by the entity.
Limitation on scope
This refers to the limitation on the
scope of the auditor’s works. this will
result in a lack of audit evidence, due to
the auditor inability to obtain the
information.

6. type of report
Adverse Opinion Qualified Opinion
It is used only when the auditor believes A qualified opinion report can result from
that the overall financial statements are a limitation on the scope of the audit or
so materially misstated or misleading that failure to follow generally accepted
they do not present fairly the financial accounting principles.
position or results of operations and cash
flows in conformity with GAAP.
Disclaimer of Opinion Unqualified Audit Report
It is issued when the auditor is unable The financial statements are presented in
to be satisfied that the overall financial accordance with generally accepted
statements are fairly presented. accounting principles.

7. •Emphasis of matter or significant uncertainly
•Audit agrees with a departure from approved accounting
standard
•Substantial doubt about going concern
•The report is a share report involving the other auditors
•Lack of consistent application of approved accounting.

8. 5.1.4 situations which resulted in each
type of the audit report being release
Materiality Significance in Terms of Type of
Level Reasonable Users’ Decisions Opinion
Users’ decisions are unlikely
Immaterial to be affected. Unqualified
Users’ decisions are likely
Material to be affected. Qualified
Highly Users’ decisions are likely Disclaimer
material to be significantly affected. or adverse

9. CONDITION MATERIALITY LEVEL TYPE OF REPORT COMMENTS
because the client refuses to allow the auditor to expand
Scope of the audit has been the scope of his audit, a disclaimer of opinion is
Highly material Disclaimer
restricted appropriate rather than a qualified as to scope and
opinion.
Highly material or
material. We need
additional The materiality of twenty percent of net earnings before
Adverse (if highly
information taxes would be sufficient for many auditors to require an
Failure to follow GAAP material)or Qualified (if
regarding the adverse opinion. That materiality question is a matter of
material)
auditor's preliminary auditor judgment.
judgment about
materiality
Lack of independence by audit personnel on the
Disclaimer engagement mandates a disclaimer for lack of
Lack of independence Not applicable independence.
The company has made a decision to follow a different
None Not applicable Unqualified financing method, which is adequately disclosed. There is
no change of accounting principle.
The auditor cannot issue an unqualified opinion on the
income statement or the statement of cash flows
because a disclaimer of opinion is necessary for the
Scope of the audit has been beginning balance sheet. The auditor may issue an
Highly material Disclaimer
restricted unqualified opinion on the ending balance sheet and a
disclaimer of opinion on the income statement,
statement of cash flows, and the beginning balance
sheet.
The auditor is able to satisfy him or herself that with the
Scope of the audit has been
Highly material Unqualified use of alternative procedures, a qualified opinion is not
restricted
necessary.

10. SHOULD
ITEM AUDITOR'S
TYPE OF CHANGE
NO. REPORT BE
MODIFIED?
1 An error correction not involving an accounting principle. no
An accounting change involving a correction of an error in
2 principle, which is accounted for as a correction of an error. yes
An accounting change involving a change in the reporting entity,
3 which is a special type of change in accounting principles. yes
An accounting change involving both a change in accounting
principle and a change in accounting estimate. Although the
effect of the change in each may be inseparable and the
accounting for such a change is the same as that for a change in
4 estimate only, an accounting principle is involved. yes
An accounting change involving a change from one generally
accepted accounting principle to another generally accepted
5 accounting principle. yes
An accounting change involving a change in an accounting
6 estimate. no
7 Not an accounting change but rather a change in classification. no
An accounting change from one generally accepted accounting
8 principle to another generally accepted accounting principle. yes

11. 1. Title of report.
- The auditor’s report should be appropriately titled so that it is clear
to the user that the financial statements have been audited.
- The title will also distinguish the auditor’s report from reports for
non-audit engagements and other statements contained in the
annual report such as the director’s report or the chairman’s
statement.

12. 2. Addressee.
- The auditor’s report should be appropriately addressed as required
by the purpose and circumstances of the engagement.
- For audit of financial statements under the Companies Act, the
auditor’s report must be addressed to the members or shareholder
of the company.
3. Introductory paragraph.
- Should state clearly that the financial statements have been
audited.
- It should also identify the financial statements that have been
audited by stating the name of the entity, title of the financial
statements and the date and period covered by the financial
statements.
- When the audited financial statements are contained in an annual
report, the auditor may identify them by referring to the page
numbers on which the financial statements are presented.

13. 4. management’s responsibility.
- The act requires the directors of the company to present at the
AGM financial statements that give a true and fair view of the
financial position and performance of the company and such
financial statements must also be prepared in accordance with
approved accounting standard.
- The auditor’s report should clearly state that the financial
statements are responsibility of the company’s directors.
5.auditor’s responsibility.
- to form an independent opinion on the financial statements based
on the audit.
- This is to distinguish the auditor’s responsibility from that of the
directors.

14. 6. Scope paragraph.
- should make reference to established auditing standards and
communicate to the members, in very general terms, what an audit
entails.
- conducted in accordance with Approved Standards on Auditing in
Malaysia, which are ISAs adopted by MIA.
- emphasis that these auditing standards require the auditor to
obtain reasonable assurance that the financial statements contain no
material misstatement.
- the scope paragraph also describes that an audit involved:
 Examination of evidence of a test basis.
 Assessing the accounting principles used in preparing the financial
statements.
 Assessing the significant estimates made by management.
 Evaluation of the overall financial statements presentations.

15. 7. Opinion paragraph.
- should contain a clear expression of opinion unless the auditor is
unable to do so.
- should contain an opinion stating whether the financial statements
give a true and fair view in accordance with an applicable financial
reporting framework.
- should indicate clearly the financial reporting framework used to
prepare the financial statements.
- The use of the phrase ‘give a true and fair view’ is to conform to
the requirement of the Act (section 174).
- should also state whether the financial statements comply with the
statutory requirements.

16. 8. Other reporting responsibilities
- to expressing an opinion on the financial statements arise mainly
from statutory or regulatory requirement.
- For example, the Act requires the auditor to express an opinion on
the accounting and other record and registers of the company, in
addition to an opinion on the true and fair view of the financial
statements.
9. Name and signature of auditor.
- normally signed in the name of the audit firm and also the personal
name of the audit partner responsible for the audit engagement.

17. 10. Date of report.
- All audit reports should be dated.
- dated as of the date on which the auditor has completed all
significant auditing procedure.
- The auditor’s report date indicates to the user the last day of the
auditor’s responsibility for the review of significant events that
have occurred after the date of the financial statements.
- should not be earlier than the date financial statements are signed
and approved by the directors and ready for issuance to the
members of the company.
11. Auditor’s address.
- should name a specific location in the country or jurisdiction where
the auditor practices.
- This is normally the city where the auditor maintains the office that is
responsible for the audit.

18.  Page 592 (example unmodified report)
- Title
- Addressee
- Management’s responsibility
- Scope paragraph
- Opinion paragraph
- Name and signature of auditor
- Address
- Date of report

20.  obtaining reasonable assurance that the financial
statements as a whole are free from material
misstatement.
 to express an opinion on the financial statements
based on the audit.
 state that the auditor believes that the audit
evidence the auditor has obtained is sufficient and
appropriate to provide a basis for the auditor’s
opinion.

21.  An audit involves performing procedures to obtain
audit evidence about the amounts and disclosures
in the financial statements.
 designed to assist the auditor in identifying
material misstatement of the financial statements
due to non compliance with laws and regulations.

23.  Limitation on Scope
a. Imposed by the entity
- the auditor would ordinarily not accept such a
limited engagement as an audit engagement,
unless required by statute.
b. Imposed by circumstances
- when the timing of the auditor’s appointment is
such that the auditor is unable to observe the
counting of physical inventories

24. a. The emphasis of matter paragraph
- would ordinarily to highlight a material
matter regarding a going concern problem.
b. significant uncertainty
- whose outcome depends on future actions or
events not under the direct control of the
entity but that may affect the financial
statements.

25. c. amendment to other information
- in a document containing audited financial
statements is necessary and the entity refuses to
make the amendment, the auditor would consider
including in the auditor’s report an emphasis of
matter paragraph describing the material
inconsistency.