Chapter – 12: Reporting

Chapter – 12: Reporting

About reporting

Through the audit report, the auditor gives an opinion on whether

the financial statements are prepared, in all material respects, in
accordance with the applicable financial reporting framework.
 Chapter – 12: Reporting
Independent Auditor’s Report - Major heads of an audit report

1. Title and addressee

2. Auditor’s opinion
3. Basis of opinion
4. Key audit matters section
5. Emphasis of Matter paragraph
6. Other matter paragraph
7. Other information section
8. Responsibilities of management and auditors
9. Report on Other Legal and Regulatory Requirements
10. Signature, auditor’s address and date
 Chapter – 12: Reporting
Independent Auditor’s Report - Major heads of an audit report

1. Title and addressee

• The title clearly identifies the report as an Independent Auditor's Report.
• The addressee is the intended user of the report and shows to whom
the auditor owes a duty of care.
2. Auditor’s opinion - The audit opinion can be unmodified or modified.

Unmodified opinion

The auditor will give an Modified opinion

unmodified opinion when they
conclude that the financial The auditor will need to modify the opinion
statements are prepared, in all when they conclude that the financial
material respects, in statements are not free from material
Pervasive
accordance with the applicable misstatement and the client has not
financial reporting framework. complied with the applicable financial
A matter is considered 'pervasive' if
reporting framework.
it is fundamental to the financial
statements, which can render the
The auditor can give modified opinion even financials unreliable as a whole.
in cases when the auditor is unable to obtain
sufficient appropriate evidence to conclude
that the financial statements are free from
material misstatement.
 Chapter – 12: Reporting
Audit opinion

Qualified opinion Adverse opinion

An adverse opinion is issued when a misstatement is considered
• If the misstatement or lack of sufficient appropriate
material and pervasive, meaning that the financial statements do
evidence is material but not pervasive, a qualified
not give a true and fair view.
opinion will be issued.
• The material matter can be isolated while the Disclaimer of opinion
remainder of the financial statements may be relied
upon. A disclaimer of opinion is issued when the auditor has not obtained
• The opinion states that 'Except for' this matter, the sufficient appropriate evidence and the effects of any possible
financial statements give a true and fair view. misstatements could be pervasive.
 Chapter – 12: Reporting
Impact of disclaimer of opinion

Where a disclaimer of opinion is being issued:

• The statement that sufficient appropriate evidence to provide a basis for the auditor's opinion has been obtained is
not included.

• The statement that the financial statements have been audited is changed to 'we were engaged to audit the financial
statements’. [ISA 705, 19]

• The statements regarding the audit being conducted in accordance with ISAs, and independence and other ethical
responsibilities, are positioned within the Auditor Responsibilities section rather than the Basis for Disclaimer of
Opinion section. [ISA 705, A25]

• The Key Audit Matters section is not included in the report as to do so would suggest the financial statements are
more credible in relation to those matters which would be inconsistent with the disclaimer of opinion on the financial
statements as a whole. [ISA 705, 29]
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Basis of opinion section

The auditor must amend the heading 'Basis for Opinion' to 'Basis for Qualified
Opinion', 'Basis for Adverse Opinion' or 'Basis for Disclaimer of Opinion’

Where a qualified or adverse opinion is being issued, the auditor must amend
the statement '...the audit evidence is sufficient and appropriate to provide a
basis for the auditor's qualified/adverse opinion.’
 Chapter – 12: Reporting
Key audit matters section

✓ The auditors of listed companies have to determine key audit

matters and to communicate those matters in the auditor's
report.

✓ Key audit matters are those that in the auditor's professional

judgment were of most significance in the audit and are selected
from matters communicated to those charged with governance.

✓ Each key audit matter should describe why the matter was
considered to be significant and how it was addressed in the
audit.

Note that a matter giving rise to a qualified or adverse opinion, or a material uncertainty related to going concern are by
their nature key audit matters. However, they would not be included under this section. Rather, a reference to the Basis
for qualified or adverse opinion or the going concern section would be included. [ISA 701, 15]
 Chapter – 12: Reporting
Additional communications

Material Uncertainty Related to Going Concern

This section is included when there is a material uncertainty

regarding the going concern status which the directors have
adequately disclosed in the financial statements.
 Chapter – 12: Reporting
Emphasis of matter paragraph

An Emphasis of Matter paragraph is used to refer to a matter

that has been appropriately presented or disclosed in the
financial statements by the directors. The auditor's judgment
is that these matters are of such fundamental importance to
the users' understanding of the financial statements that the
auditor should emphasise the disclosure. [ISA 706, 7a]

In addition, an Emphasis of Matter paragraph will be used

where:
• The financial statements have been prepared on a basis
other than the going concern basis.
• The corresponding figures have been restated.
• The financial statements have been recalled and reissued
or when the auditor provides an amended auditor's report.
 Chapter – 12: Reporting
Other matter paragraph

An Other Matter paragraph is included in the auditor's report if the auditor

considers it necessary to communicate to the users, regarding matters other
than those presented or disclosed in the financial statements that, in the
auditor's judgment, are relevant to understanding the audit, the auditor’s
responsibilities, or the auditor's report. [ISA 706, 7b]

Examples of its use include:

 To communicate that the auditor's report is intended solely for the intended
users, and should not be distributed to or used by other parties.
 When law, regulation or generally accepted practice requires or permits the
auditor to provide further explanation of their responsibilities. [ISA 706,
A11]

Some matters include:

• To explain why the auditor has not resigned, when a pervasive inability to obtain sufficient appropriate evidence is imposed by
management (e.g. denying the auditor access to books and records) but the auditor is unable to withdraw from the
engagement due to legal restrictions. [ISA 706, A10]
• To communicate audit planning and scoping matters where laws or regulations require. [ISA 706, A9]
• Where an entity prepares one set of accounts in accordance with a general purpose framework and another set in accordance
with a different one and engages the auditor to report on both sets. [ISA 706, A13]

Content extract – Kaplan Study Text

 Chapter – 12: Reporting
Other information section

Other information refers to financial or non-financial information, other

than the financial statements and auditor's report thereon, included in
the entity's annual report.

Examples of other information include:

• Chair's report
• Operating and financial review
• Social and environmental reports
• Corporate governance statements.

The Other Information section within the auditor’s report:

• Identifies the other information obtained by the auditor prior to the date of the auditor's report.
• States that the auditor has not audited the other information and accordingly does not express an opinion or conclusion on that
information.
• Includes a description of the auditor’s responsibilities with respect to the other information.
• States either that the auditor has nothing to report or provides a description of the material misstatement if applicable.
Chapter – 12: Reporting
Heads of the audit report

8. Responsibilities of management and auditors

9. Report on Other Legal and Regulatory Requirements

10. Signature, auditor’s address and date

❖ The signature – signature of the audit firm having the name of
the engagement partner.
❖ The auditor’s address – address of specific office of the
engagement partner responsible for the report
❖ The date - date up to which the audit work has been
performed. Information arising after this date will not have
been considered by the auditor when forming the opinion.
Chapter – 12: Reporting
Going concern reporting
 Chapter – 12: Reporting
Communicating with those charged with governance

Matters to be communicated by the auditor

• The auditor's responsibilities in relation to the

financial statements audit.
• The planned scope and timing of the audit (including
clear mention of business risks that may result in
material misstatements and other matters)
• Significant findings from the audit
• Matters of auditor independence (including a
statement that the firm has complied with ethical
requirements, professional fees for audit and non-
audit services, safeguards applied to eliminate or
reduce threats to independence)
Chapter – 12: Reporting
Timing of communication
Chapter – 12: Reporting

Thank You