AUDIT REPORTS ON FINANCIAL STATEMENTS

Auditors Report on Financial Statements

Standard Unqualified Audit Report

Modifications of the Standard Audit Report

Audit Reports on Comparative Financial Statements

INDEPENDENT AUDITORS REPORT ON GENERAL PURPOSE FS

PSA 700

Basic elements of the auditors Standard Unqualified Report

1. 2. 3. 4. 5. 6. 7. 8. 9.

Title Addressee Introductory Paragraph Managements Responsibility Auditors Responsibility Auditors Opinion Auditors Signature Date Auditors Address

Basic elements of the auditors unqualified report Title

The title of the report should clearly indicate that it is the report of an independent auditor.

Basic elements of the auditors unqualified report

Addressee The report should be addressed to those parties for whom the report is prepared.

Basic elements of the auditors unqualified report

Introductory paragraph The introductory paragraph should identify the name of the entity whose financial statements have been audited identify the title of each of the financial statements audited including the date and period covered by the financial statements refer to the summary of significant accounting policies and explanatory notes.

Basic elements of the auditors unqualified report

Managements responsibility The report should state that the management is responsible for the preparation and fair presentation of the financial statements. This includes:

designing, implementing and maintaining internal control selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Basic elements of the auditors unqualified report

Auditors responsibility state that the responsibility of the auditor is to express an opinion on the financial statements state that the audit was conducted in accordance with Philippine Standards on Auditing (PSAs) give a general description of an audit conducted. state that the auditor believes that the audit evidence obtained is sufficient and appropriate to provide a basis for the auditors opinion.

Basic elements of the auditors unqualified report

Auditors opinion

The auditors report should state that the financial statements are presented fairly in all material respects in accordance with the applicable financial reporting framework.

Basic elements of the auditors unqualified report

Auditors signature The report should be signed in the name of the audit firm and/or the personal name of the auditor as appropriate.

Basic elements of the auditors unqualified report

Date of the report The report should be dated as of the completion of all essential audit procedures. the auditor should not date the report earlier than the date on which the financial statements are signed or approved by the management.

Basic elements of the auditors unqualified report

Auditors address

The report should name a specific location where the auditor maintains his office.

MODIFICATION OF THE UNQUALIFIED REPORT

PSA 701

Modifications of the Standard Audit Report

Disagreement with Mgt. Scope Limitations

Matters Affecting the Auditors Unqualified Opinion

Uncertainties Going Concern Uncertainties Justifiable GAAP Departure Inconsistencies

Matters Not Affecting the Auditors Unqualified Opinion

Disagreement with Management

The auditor may disagree with management about certain matters such as the acceptability of accounting policies selected, the method of their application, or the adequacy of disclosures in the financial statements. If such disagreements are significant to the financial statements, the auditor should express a qualified or an adverse opinion.

Scope limitations

Scope limitations arise when the auditor is unable to perform necessary audit procedures or the auditor is unable to gather sufficient appropriate evidence about an assertion. A limitation on the scope of the auditors work may be imposed by the entity or imposed by circumstances. A scope limitation will result to either qualified or a disclaimer of an opinion

Materiality consideration

Materiality and pervasiveness (large-scale) of effect on financial statements determine the opinion to be expressed.

Effect on the audit report

Whenever the auditor expresses an opinion that is other than unqualified, a clear description of all the substantive reasons should be included in the report and, unless impracticable, a quantification of the possible effect(s) on the financial statements.

Matters Affecting the Auditors Unqualified Opinion

Matters Affecting the Auditors Unqualified Opinion

GAAP Violation

Scope Limitations

Disagreement with Mgt. Highly Material

Scope Limitations Highly Material

Material

Material

Qualified Opinion

Adverse Opinion

Qualified Opinion

Disclaimer of Opinion

Matters NOT Affecting the Auditors Unqualified Opinion

Uncertainties Adequately disclosed in the notes to financial statements

Going Concern

Unqualified opinion with emphasis of a matter paragraph

Justifiable PFRS Departure

Uncertainty

An uncertainty is a matter whose outcome depends on future actions or events not under the direct control of the entity but that may affect the financial statements. When there are significant uncertainties that are adequately accounted for and disclosed in the notes to the financial statements, the auditor should consider modifying the report by adding a paragraph to the unqualified report to emphasize the material uncertainty.

Going concern uncertainty

The auditor should evaluate information gathered during the audit to determine whether there is substantial doubt about the entitys ability to continue as a going concern. If there is a significant doubt about entitys ability to continue as a going concern for a reasonable period of time, the auditor should consider whether the going concern problems are adequately disclosed in the notes to financial statements.

Going Concern Disclosure

Adequately describe the principal conditions and events that give rise to the significant doubt including management plans to deal with these events or conditions. State clearly that there is a material uncertainty about the entitys ability to continue as a going concern and that the entity may not be able to realize its assets or discharge its liabilities in the normal course of business.

Multiple uncertainties affecting the financial statements

In extreme cases, such as situations involving multiple uncertainties that are significant to the financial statements, the auditor may consider it appropriate to issue a disclaimer of opinion instead of adding an emphasis of a matter paragraph.

Justifiable departure from PAS/PFRS.

Management may judge it necessary to depart from financial reporting standards in order to come up with a fair presentation of financial statements. If the reasons are adequately disclosed and the auditor believes that such a departure is justified the auditor should express an unqualified opinion and disclose the departure in a separate paragraph of the report.

Summary of Modifications of the Standard Unqualified Report

Effect on Financial Statements Matters that affect the Unqualified Opinion Material Highly Material or Pervasive

1. Disagreement with Management

2. Scope Limitation Matters that do not affect the Unqualified Opinion

Qualified
Qualified

Adverse
Disclaimer

1. Uncertainties
2. Going Concern Uncertainties 3. Justifiable PFRS departure

Unqualified opinion with emphasis of a matter paragraph

COMPARATIVES

PSA 710

Comparative Financial Statements

Comparative financial statements where amounts and other disclosures for the preceding period are

included for comparison with the financial statements of the current period, do not form part of the current period financial statements

Reports on Comparative Financial Statements

1.

2.

3.

Prior Period Financial Statements were audited by a continuing auditor Prior Period Financial Statements were audited by another auditor Prior Period Financial Statements were not audited

Prior Period Financial Statements audited by a Continuing Auditor

When reporting on comparative FS: the continuing auditors report should cover the current years financial statements as well as those for the prior periods presented. the auditor should update his report on the financial statements of the prior period.

Prior Period Financial Statements audited by a Predecessor Auditor

If the predecessor auditor is asked by a former client to reissue a report on prior years FS, the predecessor auditor should take steps to determine if the report on prior years FS is still appropriate.

Predecessor Auditor to Reissue the Report

If the predecessor auditor decides to reissue his report on the prior years financial statements, the report should bear the original wording and original date of the report.

Predecessor Auditor Not to Reissue the Report

If the predecessor auditor decides not to reissue his report on the prior years financial statements, the successor auditors report on the current years financial statements should be modified to make reference to the report of the predecessor auditor.

Prior Years Financial Statements were not Audited

If the prior years financial statements were not audited, the successor auditors report on the current years financial statements should indicate the fact that the prior years financial statements were not audited.

OTHER INFORMATION ACCOMPANYING FS

PSA 720

Auditors Responsibility regarding Other Information

The auditors responsibility does not extend beyond the financial statements identified in the Report. The auditor has no responsibility to corroborate the other information The auditor should read the other information

Material Inconsistency

Other information materially inconsistent with audited financial statements ( other information is correct ) Other information materially inconsistent with audited financial statements (financial statements are correct )

Material Misstatement of Fact

When Other information contains material misstatement of fact the auditor should: Discuss the matter with management Request management to consult qualified third party Notify those charged with governance

SPECIAL PURPOSE AUDIT ENGAGEMENTS

PSA 800

Reports on Special Purpose Audit Engagements

PSA 800 has defined special purpose audit reports as those reports issued in connection with the independent audit of financial statements other than the auditors report on financial statements, including:
1.

2. 3. 4.

Financial statements prepared in accordance with a comprehensive basis of accounting other than GAAP; Specified accounts, elements of accounts, or items in a financial statement; Compliance with contractual agreements; and Summarized financial statements.

Reports on financial statements prepared in accordance with a comprehensive basis of accounting other than GAAP.

Auditor may sometimes be engaged to report on financial statements that are prepared using other comprehensive basis of accounting. A comprehensive basis of accounting other than GAAP comprises a set of criteria used in preparing financial statements which applies to all material items and which has substantial support.

Reports on a component of a financial statement

The auditor may sometimes be requested to express an opinion on one or more components of financial statements. Since this type of engagement does not result to an expression of an opinion on financial statements taken as a whole, the auditors opinion should be confined only to the specific account or element of a financial statement identified in the report.

Reports on a component of a financial statement

When accepting this type of engagement The auditor may need to examine other related accounts Materiality should be related to the specific account

Reports on Compliance with Contractual Agreements

The auditor may be requested to express an opinion on an entitys compliance with certain aspects of contractual agreements, such as, loan agreements. This engagement may be accepted only if the overall aspects of compliance relate to accounting and financial matter.

Reports on Summarized Financial Statements

The auditor may be requested to report on summarized financial statements which highlight the entitys financial position and results of operations. This type of engagement may be accepted provided the auditor expressed an audit opinion on the financial statements from which the summarized financial statements were derived

END OF TOPIC