LINSO, HAZRAPHINE S.

November 21, 2020

ACCTG 313n BSA 3
RESEARCH

Topic: AUDITOR’S REPORT

1. STANDARD UNQUALIFIED AUDITOR’S REPORT

CONTENT OF THE REPORT:

A standard unqualified opinion, also known as clean audit opinion, is the most commonly used report, which is
issued when the auditor concludes that the gathered evidence supports the fairness and completeness of all
management assertions incorporated in the financial statements. It is considered a clean report because the users
perceive this report to be free from any material misstatements. An unqualified report signifies that the auditors are
satisfied and found no problems or deficiencies with the client’s financial reporting.

The standard unqualified report typically consists of ten basic elements and remains the same for the other
types of audit reports. The following parts of an audit report are arranged accordingly:
1. An appropriate title such as “Independent Auditor’s Report” to affirm the auditor’s independence.
Referring to the sample given, the title is appropriate.
2. The addressee, which is ordinarily the client company itself, to its board of directors or its shareholders.
3. The introductory paragraph which identifies the entity whose financial statements has been audited
and also states that the financial statement have been audited. This part should also identify the title of
each of the financial statements that comprise the complete set of general purpose financial
statements, refer to the summary of significant accounting policies and other explanatory notes, and
specify the date and period covered by the financial statements.
4. The auditor’s report also contains the management’s responsibilities for the financial statements
regarding its preparation and the fair presentation of the financial statements in accordance with the
applicable financial reporting framework.
5. The next paragraph is called the auditor’s responsibility. This part explains the auditor’s responsibility
which is to express an opinion on the financial statements based on the audit. It also includes the note
that the audit was conducted in accordance with the Philippine Standards on Auditing. The auditor’s
responsibility also entails evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
6. Auditor’s opinion paragraph states the auditor’s as to whether the financial statements are presented
fairly, in all material respects, in accordance with the applicable financial reporting framework.
7. The next paragraph is the other reporting responsibilities which considers situations wherein the
auditor has additional responsibilities to report on other matters that are supplementary to the auditor’s
responsibility to express an opinion on the financial statements.
8. After the main body of the report comes the auditor’s signature which is ordinarily the manual or
printed signature of the CPA firm or the personal name of the auditor or both, which assumes
responsibility for the audit. It is followed by;
9. The date of the auditor’s report, which states that the auditor has considered the effects of the events
and transactions of which the auditor became aware and that occurred up to that date.
10. Lastly, the auditor’s address, which is ordinarily the specific location where the auditor maintains the
office that has responsibility for the audit.

In accordance to the definition of a standard unqualified report, the sample of an independent auditor’s report
given above is an unqualified opinion as the financial statements are prepared, in all material respects, in conformity
with the financial reporting provisions.
2. QUALIFIED OPINION DUE TO MATERIAL MISSTATEMENTS
CONTENT OF THE REPORT:

A qualified opinion is issued when an auditor isn’t confident about any specific process or transaction that
prevents them from issuing an unqualified, or clean, report. Auditors use this type of opinion in the same way they use
an unqualified opinion. However, they must include an exception which states the specific reasons they are not able to
present an unqualified opinion.
As stated in the first paragraph of the sample audit report, the auditor is satisfied with, in all material respects,
the presentation of the financial statements of the client, with an exception to the effects of the matter described in the
“Basis for Qualified Opinion” section of the report. There are several material misstatements included in that paragraph
that cast doubts on the presentation of the statements.
3. QUALIFIED OPINION DUE TO LIMITATION ON SCOPE
CONTENT OF THE REPORT:

A qualified opinion is issued when an auditor isn’t confident about any specific process or transaction that
prevents them from issuing an unqualified, or clean, report. Auditors use this type of opinion in the same way they use
an unqualified opinion. However, they must include an exception which states the specific reasons they are not able to
present an unqualified opinion.
As stated in the opinion section of the sample audit report, the auditor is satisfied with, in all material respects,
the presentation of the financial statements of the client, with an exception to the effects of the matter described in the
“Basis for Qualified Opinion” section of the report. The opinion resulted to being a qualified due to limitation on scope
because the auditors were unable to obtain sufficient audit evidence to confirm the carrying amounts of insurance
receivables and loans receivables for the year ended December 2016 and 2017.
4. DISCLAIMER OF OPINION
CONTENT OF THE REPORT:

A disclaimer of an opinion is issued when auditors are distancing themselves from providing any opinion at all
related to the financial statements. A client company which limited an auditor’s ability to conduct a thorough audit or to
obtain sufficient audit evidence to warrant satisfactory opinions on the matter can result to an auditor disclaiming an
opinion. Auditors that aren’t allowed an opportunity to observe or review operational procedures may feel unconfident
in expressing their opinion, so they feel that a disclaimer is necessary and appropriate.
As is stated in the disclaimer of opinion section of the report, the significant effects of the matter brought by the
basis of opinion section, the auditors were not able to obtain sufficient and appropriate audit evidence to provide a basis
for an audit opinion, which is why they did not express an opinion on the matter of the financial statements. As shown
on the basis for an opinion section, there were some accounts with inappropriate balances and the non-conduct of some
accounting standards and procedures that rendered the balances of accounts unreliable.
5. ADVERSE OPINION
CONTENT OF THE REPORT:

An adverse opinion or adverse audit report is issued when the auditors are not at all satisfied with the financial
statements of the client and discovered a high level of material misstatements or irregularities in the financial
statements. When an adverse audit report is issued, it usually implies that the financial reports constitute gross
misstatements and irregularities that creates a possibility for fraud. It gives an indication that the company’s records
were not prepared in accordance to GAAP.
As stated on the opinion section of the sample report, the adverse opinion is issued because the financial
statements was not fairly presented. This is in line with the significant effects of the matters contained in the basis for
adverse opinion section which includes non-compliance with the BSP’s regulations on loan classification and provisioning
requirements by staggering the booking of the required provisioning for a defaulted guarantee account.
Aside from that, the section following the basis for opinion, emphasizes the material uncertainty related to
going concern and states that the company’s financial position and operational performance have declined as losses
continued for the past three years.
6. AUDIT REPORTS THAT INCLUDE KEY AUDIT MATTERS
CONTENT OF THE REPORT:

There are certain circumstances when the auditor decides to communicate key audit matters in the auditor’s
report. Key Audit Matters (KAM) are defined as “Those matters that, in the auditor’s professional judgment, were of
most significance in the audit of the financial statements of the current period. Key audit matters are selected from
matters communicated with those charged with governance.” The purpose of communicating key audit matters is to
enhance the communicative value of the auditor’s report by providing greater transparency about the audit that was
performed.
As shown on the third paragraph of the report, the auditor describes the key audit matters as those were most
significant of their audit of the consolidated financial statements. These matters were considered in their audit of the
financial statements and provided the basis of forming an opinion. Key audit matters presented in the report includes
the adoption of PFRS 15, Revenue from Contracts with Customers and the Estimation of Asset Retirement Obligation.