CHAPTER-IV- AUDIT REPORT

DR. MESELE KEBEDE

ASSIT.PROFESSOR OF ACCOUNTING & FINANCE
DEPARTMENT OF ACCOUNTING ANAD FINANCE
WOLAITA SODO UNIVERSITY

BY: Dr. MESELE KEBEDE (PhD) 1

 REPORTING ON AUDITED FINANCIAL
STATEMENT
 Responsibilities of an Auditor
 Must have thorough knowledge /understanding of
the four reporting standards
 Know the exact wording of the Auditor’s standard
report and the conditions that must be met for it to
be issued
 Understand the types of departures from the
standard report and the circumstances when each
is appropriate
 Be knowledgeable of certain other special reporting
conditions
BY: Dr. MESELE KEBEDE (PhD) 2
 STANDARDS OF REPORTING

 Firststandard of Report
 Second Standard of Report
 Third Standard of Report
 Fourth Standard of Report

BY: Dr. MESELE KEBEDE (PhD) 3

 1. First Standards of Reporting

 The report shall state whether the financial

statements are presented in accordance with
Generally Accepted Accounting Principle (GAAP)

 Auditor to state explicitly state whether the

financial statements are presented fairly in
conformity with GAAP
BY: Dr. MESELE KEBEDE (PhD) 4
 Auditor opinion as to conformity with
GAAP should be based the judgment
 The accounting principal selected and applied have
general acceptance
 The accounting principles are appropriate in the
circumstances
 The financial statements, including the related notes,
are in formative of matters that may affect their use.
Understanding and interpretation
 The information presented in the financial statements
is classified and summarized in a reasonable manner
 The statements refect the underlining events and
transactions
BY: Dr. MESELE KEBEDE (PhD) 5
 Sources of GAAP
 Accounting Standard Board (ASB) has
established a GAAP hierarchy
 EstablishedAccounting Principles
 Other Accounting literatures

BY: Dr. MESELE KEBEDE (PhD) 6

 2. Second Standard of Report
 The report shall identify those circumstances in
which such principles have not been
consistently observed in the current period in
relation to the preceding period.
 Objectives of second Standards of Report
 To give an assurance that the comparability of
financial statements between accounting periods
has not been materially affected by change in
accounting principles
 To require appropriate reporting by the auditor
when comparability has been materially affected by
BY: Dr. MESELE KEBEDE (PhD) 7

such change
 Accounting Changes Affecting Consistency

 A change in the principle itself

 A change in the method of applying a principle
 A change in the reporting entity
 The connection of an error in principle
 A change in principle inseperabily

BY: Dr. MESELE KEBEDE (PhD) 8

 Changes not Affecting Consistency
 The consistency standard does not extent to
the effect on comparability of the following
 Accounting changes involving accounting estimates
 Corrections of errors not involving a principle
 Classifications and reclassifications
 Substantially different transactions or event
 Changed business conditions
 The introduction of new product line
 Acts of God
BY: Dr. MESELE KEBEDE (PhD) 9
 3. Third Standard of Report
 The Third Standard of Report states,
informative disclosures in the financial
statements are to be regarded as
reasonably adequate unless otherwise
standard in the report

BY: Dr. MESELE KEBEDE (PhD) 10

 Informative disclosures including
 Material matters relating to the form,
arrangement, and content of the financial
statements and the accompanying notes.

BY: Dr. MESELE KEBEDE (PhD) 11

 4. Fourth Standard of Report
 The fourth standard report is, the report shall either
contain an expression of opinion regarding the
financial statements, taken as a whole, or an assertion
to the effect that an opinion cannot be expressed.
 When an overall opinion cannot be expressed, the
reasons there for should be stated.
 In all cases where an auditor’s name is associated
with financial statements, the report should contain a
clear-cut indication of the character of the auditor’s
work, if any and the degree of responsibility the
auditor is taking. BY: Dr. MESELE KEBEDE (PhD) 12
 Objective of fourth standard audit
 To prevent misinterpretation of the degree of
responsibility the auditor is assuming when his
or her name is associated with financial
statements
 This standard directly influences the form,
content, and language of the auditor’s report

BY: Dr. MESELE KEBEDE (PhD) 13

 Expression on opinion
 Character of the Audit
 Association with financial statement
 Degree of responsibility

BY: Dr. MESELE KEBEDE (PhD) 14

 B. THE AUDITOR’S REPORT
 The four generally accepted auditing standards
of reporting are met by issuing an auditor’s
report in the appropriate form.
 A standard report is issued in a majority of
audits.
 A limited number of variations or departures
from the standard report are required to be
used in specific circumstances.
BY: Dr. MESELE KEBEDE (PhD) 15