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Untitled Document
Untitled Document
ISLAMABAD
(Department of Commerce)
ASSIGNMENT No. 2
★ AUDIT :
Unveiling the Truth: Different Types of Audit Reports and Their Purposes
Audit reports aren't just dry financial documents; they're the culmination of an
auditor's investigation, offering insights into a company's financial health and
adherence to regulations. These reports come in various flavours, each
serving a distinct purpose. Let's delve into the four main types:
Accounting Principles).
⦁ No material misstatements were found .
⦁ Internal controls are adequate to ensure reliable financial reporting.
⦁ Qualified Opinion:
While generally positive, this report raises specific concerns:
⦁ Auditor agrees with the overall financial statements but identifies specific
exceptions.
⦁ Exceptions might relate to uncertainties, inconsistencies, or limitations in
scope.
★ E AUDIT :
⦁ Major irregularities in the financial records.
Purpose: Raises serious red flags for stakeholders, highlighting potential
financial instability or fraud.
⦁ Adverse Opinion:
This is the strongest negative verdict, indicating:
⦁ Financial statements are materially misstated.
⦁ Internal controls are significantly deficient.
⦁ Financial information cannot be relied upon.
⦁ Adjusting Events: These are events that provide further evidence about
conditions that existed at the balance sheet date. They necessitate
adjustments to the financial statements to reflect the true state of affairs as of
that date. Examples include:
This Indicates That the inventory balance at the balance sheet date was
overstated, requiring a downward adjustment.
(20)
An auditor's evaluation of the reliability and correctness of the profit and loss
account is a multi-faceted process involving various techniques and
procedures. Here's a breakdown of their key approaches:
★ Understanding the Business and its Environment:
⦁ Evaluation of Disclosures:
customers or performing inventory
⦁ Professional is it.scepticism:
Questioning the information provided and seeking evidence to support
⦁ Materiality: Focusing on issues that could significantly affect the
financial statements.
Status:
⦁ Independent Agent: The auditor acts as an independent agent of the
shareholders, responsible for objectively examining the company's financial
statements.
⦁ Right of Access: The auditor has the right to access all books,
accounts, vou relevant documents of the company at any time.hers, and other
⦁ Attend Meetings: Auditors have the right to attend and be heard at any
general meeting of the company.
Rights:
⦁ Remuneration: The auditor is entitled to reasonable remuneration for their
services, determined by the shareholders.
⦁ Resignation: They have the right to resign from the audi engagement if
they face any undue pressure or obstruction in performing their duties.
⦁ Immunity from Liability: Auditors enjoy immunity from liability for any
loss or damage suffered by the company due to their actions, except in cases of
negligence or fraud.
Duties:
⦁ Conduct Audit and Issue Report: The auditor's primary duty is to conduct
an independent audit of the company's financial statements and issue an audit
report expressing their opinion on their fairness and accuracy.
the company's financial statements are reliable and transparent. Their duties
are crucial in upholding the integrity of the financial system and protecting the
interests of shareholders and other stakeholders.
Assumptions:
⦁ M/S Z & Co. is a manufacturing company listed on the stock exchange.
⦁ The audit for the year 2019-2020 reveals two key issues:
In our opinion, except for the matter described in the Basis for Qualified
Opinion paragraph below, the financial statements present fairly, in all material
respects, the financial position of M/S Z & Co. as of March 31, 2020 and its
results of operations and its cash flows for the year then ended in accordance
with Indian Accounting Standards (Ind AS).
⦁ Provide proper documentation and justification for the terms of the related
party transactions and consider seeking independent advice on such transactions
in the future.
Emphasis of Matter:
Our opinion is not modified in respect of any other matters. However, we draw
attention to the fact that [Name of CEO's family company] is also a significant
customer of M/S Z & Co., and the nature and volume of these transactions
could have implications for the company's independence and related party
disclosures.
Our responsibility:
Key Audit Matters:The key audit matters addressed during the audit were
the inventory valuation and the related party transactions.