Chapter 11:

The Auditor’s Report of

Financial Statements

1
 General Purpose Financial 2

Statements

Fair Presentation Framework Compliance Framework

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The Unmodified Report

1. Title
2. Addressee
3. Auditor’s opinion
4. Basis for Opinion
5. Responsibility for the FS
6. Auditor’s Responsibilities for the Audit of
the FS
7. Other reporting responsibilities
8. Auditor’s signature
9. Auditor’s address
10. Date of Report
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1. Title
The Unmodified Report
• To distinguish from other reports
• To emphasize the independence of the auditor
2. Addressee
• Shareholders
• Board of directors
3. Auditor’s opinion
• Identify the name of the entity whose financial
statements have been audited.
• State that the financial statements have been audited.
• Identify the title of each of the financial statements
audited including the date and period covered by the
financial statement.
• Refer to the summary of significant accounting
policies and explanatory notes.
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The Unmodified Report

4. Basis for Opinion
• State that the audit was conducted in accordance
with the Philippine Standards on Auditing.
• Refer to the section of the auditor’s report that
describes the auditor’s responsibilities under the
PSAs.
• Include a statement that the auditor is independent of
the entity and has fulfilled the auditor’s ethical
responsibilities.
• State whether the auditor believes that the audit
evidence the auditor has obtained is sufficient and
appropriate to provide as basis for the auditor’s
opinion.
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The Unmodified Report

5. Responsibility for the Financial
Statements
• Management’s responsibility for the
preparation and fair presentation of the
financial statements
• Responsibility of management in
assessing the entity’s ability to continue
as a going concern
• The responsibility of those charged
with governance for overseeing the
financial reporting process.
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The Unmodified Report

6. Auditor’s Responsibilities for the Audit of the FS
• State that the objectives of the auditor are to obtain
reasonable assurance about whether the financial
statements are free from material misstatement and issue
a report that includes the auditor’s opinion.
• State that reasonable is a high level of assurance but is
not a guarantee that it will always detect a material
misstatement.
• State that misstatement can arise from fraud and error.
• State that the auditor exercises professional judgement
and maintains professional skepticism throughout the
audit.
• Describe an audit by stating the auditor’s responsibilities.
• State that the auditor communicates with those charged
with governance the planned scope and timing of the
audit and significant audit findings
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The Unmodified Report
7. Other Reporting Responsibilities
8. Auditor’s Signature
9. Auditor’s Address
10. Date of the Report
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Modifications to the Opinion

 Material Misstatement/Departure from PFRS
• Inappropriate accounting policy selected
• Misapplication of selected accounting policy
• Inappropriate or inadequate disclosure
 Scope Limitation
• Arises when the auditor is unable to perform necessary audit procedures
required by PSA or the auditor is unable to obtain sufficient appropriate
evidence about an assertion because of:
a. Client imposed scope limitation
b. Circumstance imposed scope limitation
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Modifications to the Opinion
 Materiality and Pervasiveness Consideration
 If the magnitude of misstatement is significant
enough to affect the readers of the financial
statements but not enough to overshadow the fair
presentation of the financial statement taken as a
whole, the auditor would most likely express a
qualified opinion.
 If the auditor believes that the effect of
misstatements is highly material and there are
several items in the financial statements that are
affected by the misstatement as to render the
overall financial statements materially misleading,
the auditor would most likely express an adverse
opinion.
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Modification
to the Opinion

Material Scope
Misstatement Limitation

Material but Material and Material but Material and

not Pervasive Pervasive no Pervasive Pervasive

Qualified Adverse Qualified Disclaimer of

Opinion Opinion Opinion Opinion
 Modifications of the 12

Auditor’s Report
Material Misstatement Scope of Limitation
Qualified Adverse Qualified Disclaimer
Opinion Section Modified Modified Modified Modified
Basis for Opinion Section Modified Modified Modified Modified
Responsibilities for the No No No No
FS Section modification modification modification modification

Auditor’s Responsibilities No No Modified Modified

Section modification modification
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Piecemeal Opinion
 Is an unmodified opinion expressed on one or
more components of the financial statements
while expressing an adverse or disclaimer of
opinion on the financial statements taken as a
whole.

 Not allowed by PSA

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Going Concern
Going concern assumption is appropriate
and no material uncertainty exists.
Going concern assumption is appropriate
and material uncertainty exists.
Going concern assumption is
inappropriate.
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Key Audit Matters
• Those that significantly influenced the auditor’s judgment in
deciding on the type of opinion to express on the financial
statements.
• Those matters that, in the auditor’s professional judgment, were
of most significant in the audit of the financial statements of the
current period.
• Steps:
1. Categories the matters that were communicated with those
charged with governance.
2. Determine which of these matters required significant
auditor’s attention.
3. Which of these matters that required significant attention are
the most significant to the audit of the current period.
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Key Audit Matters
 Manner of Communicating and Documenting Key Audit Matters
 The auditor must use professional judgment in determining
the level of detail and the order of presenting key audit
matters.
 The communication of the key audit matters is not a
substitute for expressing a modified opinion on the client’s
financial statements.
 The auditor’s report should not include key audit matters
when the auditor disclaims an opinion on the financial
statements.
 In very rare instances when the auditor concludes that there
are no key audit matters to communicate and therefore this
fact should be stated in the auditor’s report.
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Emphasis of Matter Paragraphs
Significant
Uncertainty
Early Application of
New Accounting Unmodified
Standard Opinion
Major Catastrophe
Adequate with
Disclosures Emphasis
Subsequent of Matter
Discovery of Facts
Paragraph
Special Purpose FS
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Other Matter Paragraph
 Circumstances which require Other Matter paragraph include:
 Financial Statements prepared using more than one financial
frameworks
 Limiting the use of the auditor’s report
 Subsequent discovery of facts
 Reporting on Comparative Information
• Comparative Financial Statements
o Prior period FS were audited by a continuing auditor
o Prior period FS were audited by another auditor
• Corresponding Figures
Other Information Accompanying 19

Audited Financial Statements

 It is not the auditor’s responsibility to express an opinion or
any form of assurance about the reliability of the other
information included in the annual report.
 PSA 720 requires the auditor to read the other information
to consider whether there are material inconsistency or
material misstatement of fact.
 Other information section
• The auditor’s report should include a separate section
for “Other Information” when at the date of the
auditor’s report, the auditor has obtained or, for audit of
listed entities, the auditor has obtained or expects to
obtain the other information.
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Audit Group of Financial Statements
 Group Auditor - is the auditor with responsibility for
reporting on the financial statements of an entity when
those financial statements include financial information of
one or more components audited by another auditor.
 Takes sole responsibility for the audit opinion on the
group FS
 The auditor’s report on the group financial statements
shall not refer to the component auditor
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Reports on Special Purpose FS
• Examples:
1. Other comprehensive basis of accounting such as cash
basis, modified cash basis, or other basis of accounting
that has authoritative support.
2. Financial reporting provisions established by
government regulators such SEC, CDA or BSP.
3. Financial reporting provisions of a contract, such as
bond indenture, a loan agreement or a project grant.
 Audit of Single FS or Specific 22

Element of FS
 The auditor’s opinion should be confined only to the specific
account or element of a financial statement identified.
 When accepting this engagement:
• The auditor may need to examine other related accounts to be
able to express opinion.
• Materiality should be related to the specific account rather
than to the financial statements as a whole.
• The auditor’s report on a component of financial statements
should not accompany the financial statements of the entity.
 Reporting responsibility
• A separate opinion should be expressed for each engagement.
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Reporting on Summary FS
• Engagement to report on summary financial
statements may be accepted only if the auditor
has also been engaged to express an audit
opinion on the financial statements from which
the summary financial statements were
derived.
Thank you

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