University of Santo Tomas

Alfredo M. Velayo College of Accountancy

Espana, Manila

Issuing An Audit Report

Assurance Principles, Ethics and Good Governance

(ACC 10)
Objectives:

 Define audit report

 Determine the elements of an audit report
Determine forms of audit report
 Compare and contrast audit forms types
 Identify significant circumstances that can
affect the type of audit report to be issued
Determine the appropriate audit report for
specific circumstances
Audit Report
 Contains the audit opinion; must be in writing
 Addressed to intended users

Elements of An Unmodified Report

I. Title
II. Addressee
III. Paragraphs
i. Introductory
ii. Management’s responsibility
iii. Auditor’s responsibility
iv. Auditor’s opinion
v. Other reporting responsibility
IV. Auditor’s signature
V. Report date
VI. Auditor’s address
Elements of A Standard Audit Report
Title

Addressee

Introductory
Elements of A Standard Audit Report
Elements of A Standard Audit Report

Other Reporting Responsibility

Elements of A Standard Audit Report

Signature

Report Date
Elements of A Standard Audit Report

Address
Introduction to Forms of Report
(G-I-D-S)
GAAP (PFRS) departure
Affecting Independence
Opinion Disagreement with management
Scope limitation

(G-E-M-S)
Add Emphasis Going concern
of A Matter Early adoption
Matters Paragraph Major catastrophe
Affecting the
Special purpose
Report
framework

Not Affecting
Opinion
(Co-Ma-Re-M)
Comparative info.
Material inconsistency
Add Other Restriction of dist.
Matter More than one
framework
Matters Affecting Opinion

Extent GAAP Disagreement Scope

Departure with Limitation
Management
Immaterial Unqualified Unqualified Unqualified
Material Qualified Qualified Qualified
Pervasive/ Adverse Adverse Disclaimer
Very
Material/
Misleading
Independence – No safeguards; always deemed
pervasive so report is “Disclaimer”
Matters Affecting Opinion
GAAP Departure - Erroneous application of financial
reporting standards; Undisclosed departure

Disagreement – Unresolved issues with

Management that results to uncorrected
misstatements

Scope Limitation – No sufficient and appropriate

evidence; either client imposed or circumstantial

Independence – No safeguards; always deemed

pervasive so report is “Disclaimer”

In cases of modified opinion, a paragraph entitled

“Basis for Modified Opinion” is added to the
standard sections of the report (before the Opinion).
Going Concern and Uncertainties
Going Concern Still Appropriate
Unqualified +
EOM
Management
makes
required
disclosures Qualified or
Adverse

Going Concern Not Appropriate Multiple

Unqualified + Uncertainties
EOM
Management
switches FR Auditor may
standard? issue a
Adverse
disclaimer
Using the Work of An Auditor’s Expert
 If the opinion is unmodified, the auditor shall not
make any reference to the expert, unless required by
regulations.

If the opinion is modified, and the work of the expert is

relevant to modification, the auditor shall discuss in the
“Basis for Modification” paragraph the work of the expert
after obtaining permission from the latter.

In no case shall the auditor’s responsibility diminished

due to the reference to the expert.
Audit of Opening Balances

Extent Opening Inconsistent Scope

Balances Application of Limitation
Misstated Acctg. Policies
Immaterial Unqualified Unqualified Unqualified
Material Qualified Qualified Qualified
Pervasive/ Adverse Adverse Disclaimer
Very
Material/
Misleading
Comparative Information

Corresponding Comparative
Figure Financial
Statements
Nature PY numbers and Information in
disclosures; integral comparison with CY
part of CY FS (e.g., PY FS)
Level of Detail As relevant to CY As comparable with
information (i.e., CY FS
integral)
Example Beginning balance in 2011 Figures (PY) in
PPE lapsing 2012 FS (CY)
Reporting CY only Both CY and PY
Responsibilit
y
Comparative Information

Corresponding
Figure
Comparative Information

Comparative FS

CY FS
Comparative Information

Comparative FS

CY FS
Comparative Information - Corresponding Figure

PY FS Audited by the Same Auditor

Make no reference to
Opinion on PY
corresponding
FS is Unqualified
Figures

Modify Opinion and

Opinion on PY either (1) discuss
FS is Modified + effects of issue to CY
Unresolved FS or (2) effects to
comparability

Opinion on PY
FS is Unqualified
but subsequently Modify Opinion
discovered to be
M.M
Comparative Information - Corresponding Figure

PY FS Audited by a Predecessor Auditor

If allowed by regulation, state the following in an “Other

Matter” paragraph:

1) FS audited by Predecessor Auditor

2) Type of opinion and reasons if modified
3) Date of the report

PY FS Not Audited

State in an “Other Matter” paragraph; auditor is not

relieved obtaining SAE on opening balances.
Comparative Information – Comparative FS

PY FS Audited by the Same Auditor

 Both PY and CY FS are referred to in the opinion

 If the auditor issues a different opinion in PY FS as
issued before, the auditor should disclose substantive
reasons for modification in an “Other Matter” paragraph.

PY FS Audited by a Predecessor Auditor

If allowed by regulation, state the following in an “Other

Matter” paragraph:

1) FS audited by Predecessor Auditor

2) Type of opinion and reasons if modified
3) Date of the report
Comparative Information – Comparative FS

PY FS Audited by a Predecessor Auditor (cont’d)

Material Misstatement Exists, PY Opinion without

Modification
PY FS is amended
Communicate with and predecessor
Predecessor auditor
appropriate mngt. auditor re-issues
must be informed
level and TCG report

Current auditor
reports only on
current FS

If the predecessor auditor does not re-issue the report,

consider effect on current year opinion.
Comparative Information – Comparative FS

PY FS Not Audited

State in an “Other Matter” paragraph; auditor is not

relieved obtaining SAE on opening balances.
Material Inconsistency

Other Information
Financial or non-financial information included in the
document containing the FS.

Inconsistency
Other information contradicts information in FS that may
raise doubt in the conclusion of the auditor.

Misstatement of Fact
Unrelated other information to the FS that is incorrectly
stated. This might undermine the document containing
the FS.
Material Inconsistency
Requirements for Auditor

Auditor arranges with Mngt. And TCG to

obtain the other information before the report
date

Auditor reads other information and check for

material inconsistencies

Auditor determines whether either the FS or

other info. needs to be amended
Material Inconsistency
FS Needs to be Amended – Management
Refuses
Auditor should consider modifying the opinion.

Other Information Needs to be Amended -

Management Refuses
Communicate matter with TCG; and
• Include OM with adequate description; or
• Withhold the audit report; or
• Withdraw, if legally permitted
Material Misstatement of Fact
Discuss the matter with management

Request management to consult qualified third

parties (e.g., legal counsel)

Notify TCG in writing and obtain legal advice

Subsequent Events

Types Nature
Type I Conditions existed as at the
financial position date
Type II Conditions existed after the
financial position date

Facts Discovered – After Audit Report Date but Before FS

Issue Date
Decision Effects
Management New audit report is issued after
Amends FS performing additional procedures
New report must not be earlier than
the date of the approval of the
amended FS
Subsequent Events
Facts Discovered – After Audit Report Date but Before FS
Issue Date
Decision Effects
Management Auditor should not release the
Refuses Amends FS original report; consider
modifications
(Audit Report Released)
Notify TCG not to issue FS and
report
(Audit Report and FS Released)
Auditor to take action to prevent
reliance on the auditor’s report.
Subsequent Events

Facts Discovered – After FS Have Been

Issued
Decision Effects
Management Test revisions
Revises Review mngt. procedures to ensure
that previous holders of FS are
informed
Issue new report with EOM
New report shall not be dated
earlier than the approval date of
the amended FS
Subsequent Events

Facts Discovered – After FS Have Been

Issued
Decision Effects
Management Notify TCG that actions will
Refuses to be taken to prevent reliance
Amend to the report (e.g.,
depending on legal rights in
a jurisdiction)