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Auditors report on financial statement

Auditors report on financial statement

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Published by: affanq86 on Apr 17, 2010
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The auditor’s report on financial statements
International Standard on auditing-700
 The audit is designed to allow the auditor to express an opinion. Theexpectation of both the auditor and the client is that the report will beunqualified, however, there may be reasons that the auditor does havereservations about the fairness of presentations. Auditor report aredesigned to promote clear understanding between the auditor and thefinancial statement reader, therefore, a standard format is compliedwith in all reports issued by the auditors.
Basic elements of the auditor’s reporta.Titleb.Addresseec.Opening or introductory paragraph
i.Identification of financial statements auditedii.A statement of the responsibility of the entity’smanagement and the responsibility of the auditor
d.Scope paragraph
i.A reference to the ISAs or relevant national standards orpracticesii.A description of the work the auditor performed
e.Opinion paragraph
i.A reference to the financial reporting framework used toprepare the financial statements (identifying the country of origin of the financial reporting framework when theframework used is not international accounting standard);ii.An expression of opinion on the financial statements
f.Date of the reportg.Auditor’s addressh.Auditor’s signatureNote:
a measure of uniformity in the form and content of theauditor’s report is desirable because it helps to promote thereader’s understanding and to identify unusual circumstanceswhen they occur.
It may be appropriate to use the term “independent auditor” in thetitle to distinguish the auditor’s report from reports that might beissued by officers of the entity, board of directors or by the auditor whomay not be required to abide by the same ethical requirements as theindependent auditor.
 The report is ordinarily addressed to the shareholders or the board of directors of the entity whose financial statements are being audited.
Opening or introductory paragraph
 The auditor’s report should identify the financial statements of theentity that have been audited, including the date of and periodcovered by the financial statements.  The auditor’s report should include a statement that the financialstatements are the responsibility of the entity’s management and astatement that the responsibility of the auditor is to express anopinion on the financial statements based on the audit.
we have audited the accompanying balance sheet of M.S trading(Private) Limited as at June 30, 2006 alongwith the profit and lossaccount, cash flows and the statement of changes in equity for theperiod then ended. These financial statements are the responsibility of the company’s management. Our responsibility is to express andopinion on these statements based on our audit.
Scope paragraph
It refers to the auditor’s ability to perform audit procedures deemednecessary in the circumstances. The reader’s needs this as anassurance that the audit has been carried out in accordance withestablished standards or practices. Unless otherwise stated. Theauditing standards and practices followed are presumed to be those of the country indicated by auditor’s address. The report should include astatement that audit was planned and performed to obtainedreasonable assurance about whether the financial statements are freeof material misstatement.“ we conducted our audit in accordance with the auditing standards asapplicable in Pakistan. These standards require that we plan andperform the audit to obtain
reasonable assurance
about whether theabove said statements are free of any material misstatements. Anaudit also includes assessing the accounting policies and significantestimates made by management, as well as, evaluating the overallpresentation of the above said statements.”
What is reasonable assurance?
A conclusion that the financial statements are not materially misstated.An auditor can not obtain absolute assurance because of limitationsdescribed below.
How reasonable assurance is achieved?
It is achieved by obtaining audit evidence.
Factors affecting reasonable assurance
1.Inherent limitations of an audit i.e. failure of audit procedure todetect material misstatement in financial statement because of a)the use of testing (application of procedures on samples)b)The inherent limitations of accounting and internal controlsystem.c)Persuasive nature of audit evidence rather than conclusive(persuasive one leading to an opinion, one which cause tobelieve; Conclusive final , convincing)2.Exercise of judgment by the auditor in gathering of evidence anddrawing of conclusion.3.Existence of other limitations like related parties etc.
Opinion paragraph
 The opinion paragraph should clearly indicate the financial reportingframework used to prepare the financial statements (includingidentifying the country of origin of the financial reporting frameworkwhen the framework used in not international accounting standards)and state auditor’s opinion as to whether the financial statements givea true and fair view in accordance with that financial reportingframework and, where appropriate, whether the financial statementscomply with statutory requirements.“We believe that our audit provides a reasonable basis for our opinionand, after due verification, we report thata.In our opinion, proper books of account have been kept by thecompany as required by the Companies Ordinance, 1984;b.In our opinion:i.The balance sheet and profit and loss account togetherwith the notes thereon have been drawn up in

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