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    7 views9 pages

    34 Audit Reporting

    Uploaded by

    Luke Rigel Serate
    Ezpzlmonsqzy

    Copyright:

    © All Rights Reserved
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    ‘ v ! 4 v \ ' \ ‘ash Flows, chapter 33 - Statement of Cash F ee chapter = ing was revalued From a carrying g The current = 790,000 t oe A disused f@ctOry Pe qunt of 340,000. Quartz Co. hag . is carrying amo fy sold for its carryiPe yetween the revaluation surplus qn’ il the Sehroprate transfers Det i retaines ning . cer receivables include interest receivable of py, 2, Trade and other Fé reated as investing activity, °° @o1s, 110,500), Interest collecte wuartz Co, made a bonus issue of ordinary shares ment of changes in equity forthe current years ordinary dividend. hows thar atement of financial position represent loans made jes, No loans were repaid during the current year 4. Quartz Co's state paid an interim 5, Investments in the st non-related companit {oi guy muchris the total interest collected for the year ended September 3, 20182 0 «. 62,500 bao 4. Pas00 2. How much the total tax paid forthe year ended September 30,2018 a. #140,000 © 310,000 b. P130,000 4, P160,000 4. How much is the net cash provided by operating activities forthe yer ended September 30, 2016? a P1242.700 . P1,292,700 b. P1.240,700 4d. 1,366,200 ies or ‘4. How much is the net cash provided by (or used in) investing actvis the year ended September 30, 2016? a. (1,332,500) b. P1,332,500 5. How much is the net cash provided by (or used in) fina the year ended September 30, 2016? a. 150,000 b. (P42,600) . P690,000 d. (P2,022,500) sncing activi c, ?107,400 d. (P352,600) ad i ile r ec 34 ~ Audit Reporting crapter 38 —M CHAPTER 34 AUDIT REPORTING AUDIT REPORTING 1C OVERVIEW: Tori Opter dscusses audit repo that can be issued and when is paraton ofthe reports, 18 the different types of audit reports, it appropriate to issue as well as the LEARNING OBJECTIVES: ‘After studying this chapter, you should be able to: 4. Describe and enumerate the elements of an unmodified audit report. 2. Identify modification to unmodified auditors report. 3. Identify modification to auditor’s opinion, 4._Prepare an audit report ‘This chapter focuses on audit reports issued in relation to audit of general purpose financial statements which pertains to a complete set of financi statements, including the related notes. Also, general purpose financial statements are financial statements prepared in accordance with a general purpose framework. General purpose framework AA general purpose framework is a financial reporting framework designed to meet the common financial information needs of a wide range of users (eg PERS), A financial reporting framework designed to meet the common financial information needs of a wide range of users. The financial reporting framework may be a fair presentation framework or a compliance framework. 1. Fair presentation framework refers to a financial reporting framework that requires compliance with the requirements of the framework and: i. Acknowledges explicitly or implicitly that, to achieve fair presentation of the financial statements, it may be necessary for ment to provide disclosures beyond those specifically required by the framework; ii Acknowledges explicitly that it may be necessary for management irement of the framework to achieve fair statements. Such departures are rod to be necessary only in extremely rare circumstances, vance framework refers to a financial reporting framework that requires compliance withthe requirements ofthe framework, but does nat conta the acnoedgements (OH) above sit Reporting _— Se a AUDIT REPORTS scpumary means of the audtor fo comm chapter 34 = ra serves a inicate the rie cngagement co stended users: PSA requires eygts audit engage lit a) ‘THE FINANCIA IN ON L STATE} .y AUDIT OPINIO! MENT FORMATION OT autor ae! : rrves ofthe : ‘The objectives ONT “pinion on the financial statements baseq a or a re vonclusions drawn from the audie vides evaluation ined: and mmnves clearly chat opinion through a written report, orm an opinion on whether the financial statements ane naterial respects, in accordance with the applicable ‘The auditor shall f epared, in eesncial reporting framework. i iditor shall conclude as to wh fer to form that opinion, the au ether the se arses obtained reasonable assurance about whether the finaneh) jatdor error. Such opinion should be clearly expressed in the auditors report. take into account: Inaddition, the conclusion shall ' 1. The auditor’s conclusion whether sufficient appropriate audit evidence has been obtained; i 2. The auditor's conclusion whether uncorrected misstatements are ‘material, individually or in aggregate; and 3, The evaluations of below requirements. ¥ The auditor shall evaluate whether the financial statements are prepared, in material respects, in accordance with the requirements of the applicable financial reporting framework | i ¥ In particular, the auditor shall evaluate whether, in views requirements ofthe applicable financial reporting framework a. The financial statements adequately disclose the sign! accounting policies selected and applied; b, The accounting policies selected and app! the applicable financial reporting appropriate; 6 Theaccounting estimates made by management are Tr 4 The information presented in the financials relevant reliable, comparable, and understandaP 4 eat e. The financial statements provide adequate disc! ie the intended users to understand the efter get jn the transactions and events on the information © financial statements; and (Ref: Para. A4) lied are consistent with framework and a chapter 34 ~ Audit Reporting £ The terminology used in the financial statements, including the title of each financial statement, is appropriate. ¥ The auditor’s evaluation as to whether the financial statements achieve fair presentation shall include consideration of: a. The overall presentation, structure and content of the financial statements; and b. Whether the financial statements, including the related notes, represent the underlying transactions and events in a manner that achieves fair presentation. ELEMENTS OF AN UNMODIFIED AUDITOR'S REPORT ‘The following items represent the different parts of the revised auditor's report which will be effective for audits of financial statements for periods ‘ending on or after December 15, 2016. 1. Title 2. Addressee 3. Auditor's opinion 4. Basis for conclusion 5. Going concern (if applicable) 6 7. 8 9 Key audit matters (required for listed entities) Responsibilities for the financial statements Auditor's responsibilities for the audit of the financial statements 1. Other reporting responsibilities 10, Name of the engagement partner 11. Auditor's signature 12, Auditor's address 13. Date of the auditor's report TITLE The auditor’s report should have a title that clearly indicates that it is the Feport of an independent auditor. This title would: ‘+ affirm that the auditor has met all of the relevant ethical requirements regarding independence + distinguish the independent auditor’ report from reports issued by others ADDRESSEE ‘The auditor's report should be addressed as required by the circumstances of the engagement. Ordinarily, the auditor's report on general purpose financial statements is addressed to those for whom the report is prepared, Examples of how audit reports are addressed Client Entit \ddressee of the audit report Corporation Often addressed to either the shareholders oF to those charged with governance of the entity. [Partnership | Bither_to partnership and the partners or tothe 1365 Bae canter 34 ~ Aust Reporting ee partnership iain —+ The participants or venturers LS | Vaincorporated ae {spinwen yp fo the proprietor ——_—__ eee ray 7 | ithe auditor is engaged by any party, ee | responsible party, the report is normally addr, rhe engaging party. This may include progsctt® investor, creditor, prospective creditor, ro" * TegUlatory | agencies or court of laws. Le a Ale The Teport should not be addressed only to a specific off president, chief executive officer OF chief financial officer) of the audit Because these are members of management who are Fesponsible f client financial statements audited. oie AUDITOR'S OPINION ‘The auditor's report shall include a section with the heading “ pinion paragraph ofthe auditor's report should state The eon The Se the nancial statements present fairly, in all material respon ‘accordance with the applicable financial reporting framework fo in asaitor is required by law or regulation to use different wording fe: pinion in which case the prescribed wording should be used). r other than tig Pective ‘The “Opinion” section in the auditor's report shall also: ‘a. Identify the entity whose financial statements have bee! h epee 5. State thatthe nancial statements ave been audited c._ Identify the title of each of the financial statements ints that comprise the complete set of financial statements; “me d. Refer to the summary of significant accounting pol ici explanatory notes; and oo Specify the date and period covered by the financial statements. The above items were previously included i the old auditor's report. oan ad temtinnan ion Expressing an Unmodified Opi Fair Presentation Framework then expressing an unmodified opinion on financial statements prepared eater = a fair presentation framework, the auditor’s opini”® pry otherwise required by law or regulation, use one of the wring ase, which are regarded as being equivalent. opinion, the accompanying financial statements iui in all material respects, ..] in accordance with {the apP g,, intial reporting framework}; oF opinion, the accompanying financial statements #¢ % and fair view of [..) in finan! od i plicable reporting rameword) accordance with [the PP! present cable me ial —_— 7 once FY menor yodified opinion on financial statements prepared co xe compliance framework the auditors opinion shall be wordance WY nying financial statements are prepared, in all material ote accom ance with [the applicable nancial reporting framework]. ae OR CONCLUSION : ' gaS16 FOR vg report shall include a section, directly following the Opinion she alto“ jve heading "Basis for Opinion’, that: wih Matte audit was conducted in accordance with Philippine Standards on Auditing; 4, aaurs to the section of the auditor's report that describes the Reticor’s responsibilities under the PSAS: ad rer a statement thatthe auditor is independent of the entity tncagesjance with the relevant ethical requirements relating to the in ond has fulfilled the auditor's other ethical responsibilities in auelt aivee with these requirements. The statement shall identify the jurisdiction of origin of the relevant ethical requirements Code of Ethics for Professional Accountants; and d, States whether the auditor believes that the audit evidence the stuitor has obtained is sufficient and appropriate to provide a basis for the auditor's opinion. a ‘The above items were previously included in the auditor's responsibility paragraph of the old auditor's report. GOING CONCERN Where applicable, the auditor shall report in accordance with PSA 570 (Revised). KEY AUDIT MATTERS For audits of complete sets of general purpose financial statements of listed entities, the auditor shall communicate key audit matters in the auditor's report in accordance with PSA 701. When the auditor is otherwise required by law or regulation or decides to communicate key audit matters in the auditor's report, the auditor shall do so in accordance with PSA 701. RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS The auditor's report shall include a section with the heading “Responsibilities of Management for the Financial Statements.” This section of the auditor's report shall describe management's responsibility for: ‘a. Preparing the financial statements in accordance with the applicable financial reporting framework, and for such internal Control as management determines is necessary to enable th Greparation of financial statements that are free from material Tnisstatement, whether due to fraud or error; and —— 1367 Assessing the entity’ ability to continue as @ going concg b. Ascessin AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE ‘STATEMENTS ‘The auditor's report sh Responsibilities for the Au . = ‘State that the objectives of the auditor are to: State that misstatements can arise from fraud or error, and either, M13 ang ‘ohether the use of the going concern basis of accounting ie eas well as disclosing. applicable, mannan sO a ‘planation of management's responsi to include a description of when the ie i ie e gong comer The Scssment 3 eingconcern basis of accounting is appropriate FINANCIAL clude a section with the heading “4 wd of the Financial Statements” ‘The, sections for's report shall: 1 Obtain reasonable assurance about Whether the fancy satements as 2 whole are free from material missateme whether due to fraud or error; and i,_Issue an auditor's report that includes the auditor's opinion hat reasonable assurance is a high level of assurance tig a guarantee that an audit conducted in accordance with Pes will always detect a material misstatement when it exists; and 1 Describe that they are considered material if, individual "the aggregate, they could reasonably be expected to inf the economic decisions of users taken on the bass ofthe financial statements; or 14 ii, Provide a definition or description of materiality in accordance th the applicable financial reporting framework. The Auditor’s Responsibilities for the Audit of the Financial Statements section of the auditor’s report shall further: Wor State that, as part of an audit in accordance with PSAs, ea ot exercises professional judgment and maintains pi skepticism throughout the audit; and serif Hi Describe an audit by stating the overview of the differe procedures performed, : up audi Further describe the auditor's responsibilities in @ gr! ‘engagement by stating that: i. The auditor's responsibilities are appropriate audit evidence regarding the pee ofthe entities ar business activities within th an opinion on the group financial statements; 'l The auditor is responsible for the direction, performance of the group audit; and ili, The auditor remains solely responsi opinion, at btain suck ss smancial informa ip to expres sin 24 aust? ible for the peste ‘The Auditor's Respor ies for the section of the auditor's report also shall: a State that the auditor communicates with those ificant audit matters such as the {iming of the audit and significant audit findings, Audit of the Financial Statements charged with planned scope and © For audits of financial stateme1 entities for which key au accordance with PSA. 79; nts Of listed entities and any other idit'_matters are communicated in 1, state that, from the matters to report on other matters lity to express an opinion ts. For example, auditors are required to report on Regeumentary information to comply with the requirgwets of the BIR Revenue Regulations No. 15-2010, other reporting les, the headings, shall be under Report on the them from the a AUDITOR'S SIGNATURE ‘The auditor's report shal be si essana tame of the engagement partner or both the name of the felagement partner and the firm, as appropriate. ‘The auditor ig ats Fequired to state the signing accountant’s a. License, including secondary licenses b. Tax Identification Number Privilege Tax Receipt Number 4. Registration number with the PRC/BOA igned. The auditor's signature is either in the 1369 14 — audit REDOING . 1ed by regulatory agencies chapter 3 ce. Accredi AUDITOR'S ADDRESS - shall name the location in the jurisdiction : wi here the AUDITOR'S REPORT DATE OF Sra shall be dated no earlier than the date ‘ned sulficient appropriate audit evidence on whist ancial statements, including evidence thar, vt" base ‘tements that comprise the financial statemen has obta ne atith the nts, includ vod notes, have been prepared; and Including b. Shove with the recognized authority have asserted th Jkon responsibility for those financial statements, ™*Y have MODIFICATION TO UNMODIFIED AUDITOR'S REPORT a. Matters that Do Not Affect the Auditor's 0) b. Matters that Do Affect the Auditor's Opinion Examples of circumstances that would lead to modification of _unmodified auditor's report Matters that Do Matters that Do Affect the Auditors) Auditor's Opi Opinion (Unqualified opinion is (Other than unqualified opinionis Slisenes) crear) oeeeerer Meeuie@) cee) je financial | There is a limitation om the scope of reporting framework results in | the auditor's work (Qualified or Adverse | financial statements _| Opinion! doubt about | There is a disagreement with jue as | management —_regarding a going concern or significant | acceptability of the accounting uncertainties (other than a going | selected, the method of their applicato concern problem) or the adequacy of financial statemet | adequately disclosed ied or Disclaimer Types of Modified a. Disclaimer of Opinion * Expressed when the possible effect of a limitatio material and pervasive (highly material) that the 2 been able to obtain sufficient appropriate audit evi b. Adverse Opinion * Expressed when the effect of a disagreement is so ™ Pervasive (highly material). i599 yn on scope yuditor has idence. terial amd cyaptet 34 = Ausit Reporting ~~ qualified Opinion & Expressed when the effect of any disagreement with management, or limitation on scope is not so material and pervasive. pervasive A il fl rep erm pervasive is used to describe the effects or possible effects on the Tnancial statements of a matter that, in the auditor’s judgment, are not tifned to specific elements, accounts or items ofthe financial statements, cof confined, represent or could represent a substantial proportion of the financial statements. 0 in selecting modified opi = raining Rise to the Modification | Auditor's Judgment about the Pervasiveness of the Effects or Possible Effects on the Financial Statements ‘Material and Pervasive Qualified opinion | Adverse opinion Material but Not Pervasive I statements are tated sufficient Qualified opinion | Disclaimer of opinion Summary of Wordings Used in Reporting for each Type of Opinion ‘Adverse | Disclaimer_| Opinion Renamed | Renamed to paragraph paragraph is, to “Disclaimer headed as “adverse | of Opinion” “auditor's | Opinion” | Opinion” opinion” “except | “donot | “we donot for” present | express” fairly” Basis, for Renamed | Renamed | Renamedto opinion paragraph is | to“Basis | to"Basis | “Basis for headed as for for "Basisfor | Qualified | Adverse | __ opinion” | Opinion” same ‘same same same ‘Same ‘same same | Omitted or for the audit of eal BS 1371 09 34 = Aust Report erase ocpsas Applicable to Different Types of Audit ‘Summary of qualified (Standard Audit Report) Report Commu ing Key Audit Matters In The Independent 1's Report vsitted with Emphasis of a Matter Paragraph ied Opinion Adverse Opinion Disclaimer of Opinion EXAMPLE OF AN AUDIT REPORT ON A LISTED ENTITY INDEPENDENT AUDITOR'S REPORT ‘To the Shareholders of NECPAR Company: Report on the Audit of the Financial Statements Mie ave suited the financial statements of NECPAR Company (the Conan, wich comprise the statement of financial position as at December 31 sort and the statement of comprehensive income, statement of changes in equa, and statement of cashflows for the year then ended, and notes to the fsa statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements give a true and for vew of the financial position of the Company as at December 31, 2017, and (of is financial performance and its cash flows for the year then ended in accordance with Philippine Financial Reporting Standards (PFRSs). Basis for Opinion : ‘We conducted our audit in accordance with Philippine Standards on Auditing (PSAs). Our responsibi under those standards are further described in Li Auditor's Responsi ’s for the Audit of the Financial Statements oe Our report. We are independent of the Company in accordance — ps international Ethics Standards Board for Accountants’ Code of Ethics t to our audit of the financial statements in the e with these 4 our other ethical responsibilities in accordance wil we have fulfi . sauuirements and the IESBA Code. We believe that the audit evident jon. btanedis sufficient and appropriate to provide a bass for our oP Key Audit Matters of ent, wee meg matters are those matters that, in our professional eet These encance in our audit ofthe financial statements of dro the sate "These matters were addressed in the context of our aud chapter 34 - Audit Reportin, chapter 3! statements 28 a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. [Description of each key audit matter in accordance with PSA 701.) Responsibilities of Management and Those Charged with Governance for the Financial Statements ‘Management is responsible for the preparation and fair presentation of the financial statements in accordance with PFRSs and for such internal control a management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to ‘cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company's financial reporting process, ‘Auditor's Responsibilities for the Audit of the Financial Statements Sur objectives are to obtain reasonable assurance about whether the financial fatements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance isa high level of assurance, but is not a guarantee thet an mrs aonducted in accordance with PSAs will always detect a materal srevtatement when it exists. Misstatements can arise from fraud or error eral are considered materi individually or in the aggregate, they could the cD be expected to influence the economie decisions of users token os the basis of these financial statements. Report on Other Legal and Regulatory Requirements fut audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information on taxes, duties and license fees in Note XX to the financial statemente ie Presented for Boroses of filing withthe Bureau of internal Revenue and is not 2 resaegy art lon. The information has been ur audit of the basic financial I material respects in relation Subjected to the auditing procedures apy Statements and, in our opinion, is fairly sta to the basic financial statements taken as a whole, wT i Ni ies Chapter 34 - Audit Reporting is section ofthe auditor’s report wit this section of Very depen ‘ors other reporting responsibilities.) on [Form and content the nature of the 0! agement partner on the audit resulting in this inde The engagement Pendent report is Darrell Mark Raymund, J. ‘water, BOA Accreditation No. 12344 SEC Accreditation No. 12344 PTR No. 12344 Makatea City, Metro Manila April 02, 2018 chapter 34 - Audit Reporting ee CHAPTER 34: REVIEW QUESTIONS - THEORETICAL ae eee 1 2 = Users’ confidence in the financial statements is enhanced a. When the auditor expresses an opinion on those statements b. When they contain all business transactions When an unmodified opinion is expressed 4. When they are prepared by a CPA ‘The expression “financial statements, taken a, Equally to a complete set of financial financial statement, b. Only toa complete set of financial statements. © Equally to each item in each financial statement. a 1 asa whole“ applies: statements and to an individual ‘Equally to each material item in each Financial statement. company’s external auditor expresses an unqualified opinion as a result of the audit of the company’s financial statements, readers of the audit report can assume th: a. The external au b. ‘or found no fraud. The company is financial sound and the financial statements are accurate. Internal control is effective All material disagreements between the company and external auditor the application of accounting principles were resolved in. the satisfaction of the external auditor. a To distinguish it from report that might be issued by others, such as by officers of the entity, the board of directors, or from the reports of other auditors who may not have to abide le by the same ethical requirements as the independent auditor, the auditor's report should have an appropriate & Addresses by le Signature“ Opinion Which ofthe following is included inthe introductory or opening paragraph of the auditor's report? 2. Identification ofthe financial statements audi and period covered by the financial statement '. A-statement thatthe financial statements are the responsi entity's management © statement that the audit was conducted in accordance with Philippine Standard on Auditing 4. A statement that the responsibility of the auditor is to express an ‘opinion on the financial statements based onthe audit, 1s report shoud be addressed 2 ony to the careolders ofthe ently whose fancal statement are being auited Gp tard of decors fhe erty whee Manca statements srebeing aude including the date of ty of the 10, 1, aa © Raeeral statement are being aited 44. Either to the shareholders or the board of dire tors, or y whose statements are being audited both, 1 opinion paragraph af the auditor's report IP enn the applicable financial reporting fnancolstatement are based Eapress an opinion onthe Financial statements © Both land 4. Neither | nor ‘The following statements relate to the date of the audi false? a The auditor should date the report as of the FFaMeWork on which - Hors report. Which, Completion date ofthe audit b. The date ofthe auditors report should not be earlier than the da which the nancial statements are signed or approved by mange & The date ofthe auditor's report should not be later thar tra date on whieh financial statements are signed or approved by manayeess 4. The date of the auditor's report always be later than the date of the financial statement (Le, the statement of financial postion) In which ofthe following circumstances would an auditor most likely sid an unqualified opinion? a, There is a substantial doubt about the entity’s al going concern b. Management's estimates of the effects of future events ate unreasonable © Nodepreciation has been provided in the financial statements 4. Certain transactions cannot be tested because of management’ records retention pol ‘The independent auditor refers to both PFRS and PSA when werting te standard audit report. These terms are mentioned in which paragrap to continue asa Auditor's ‘Managements —tesponsibility __responsibility ___Opinion a PERS: PERS PSA b PSA PSA. PERS. © PERS PERS PERS a PSA, PFRS PFRS ries a ‘An explanatory paragraph following an opinion paragraph des uncertainty as follows: ny “AS discussed in Note statements, the Om defendant in a lawsuit alleging infringement of certain pal vltente ‘The

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