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HA3032
AUDITING
Topic 12Audit Reports
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The final phase of an audit is the reporting of the
findings ASA 700 The Auditors Report on a General
Purpose Financial Reportestablishes mandatory
requirements and provides explanatory
guidance on the form and content of the
auditors report
Standards of Reporting
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Financial Statements
The financial statements on which an auditor
reports constitute a general-purpose financialreport
The disclosure and presentation requirements
for such reports are generally determined by
accounting standards and statutory and other
requirements
The Corporations Act 2001 outlines the
scope of the contents of a financial report(s. 295)
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Who are the users of the financial report?
Fiona CampbellAudit Partner
Ernst & Young Melbourne
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Accounting Standards
The auditor reports on whether the financial
statements are in accordance with accountingstandards issued by the Australian Accounting
Standards Board (AASB)
These standards are now mandated by law
under ASA 700 and by virtue of the Corporations
Act under s. 334
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Relevant statutory and other requirements
The Corporations Act prescribes the auditors reporting
duties An auditor who conducts an audit of the financial
statements for either a financial year or half-year, mustform an opinion under s. 307 on whether:
the financial statements are in accordance with the law,comply with accounting standards and give a true and fair view
all information, explanations and assistance necessary for theconduct of the audit have been provided
the financial records have been kept to enable the preparationand audit of the financial statements
the records and registers have been kept as required by law
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Expression of Opinion ASA 700, requires the Auditors Opinion to
state whether the accounts present a true andfair view in accordance with the applicable
financial reporting framework
The auditor must consider whether the
impression created by the financial statements
as a whole is consistent with the auditors
intimate knowledge of the entity and its financial
condition
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What does an audit opinion mean to users of the financial report?
Fiona CampbellAudit Partner
Ernst & Young Melbourne
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Unqualified auditors report and an emphasis of matter
In this category of report, the opinion section
continues to express an unqualified opinion
However, this is followed by an emphasis of
matter paragraph to draw the readers
attention to specific circumstances
The addition of such an emphasis of matter
paragraph does not affect the auditors opinion
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ASA 701 Modifications to the Auditors report
provides examples of such emphases of matter
Examples include
significant uncertainty about an entitys going
concern status
need for additional disclosures
inconsistent information
the impact of subsequent events
Unqualified auditors report and an emphasis of matter (cont.)
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Circumstances in which a modification would
be issued, and the type of modificationappropriate to those circumstances, will
depend on
whether the modification is material but not
extreme, or
whether it is an extreme case
Table 15.1 in the textbook gives a number of
examples of types of modifications and whenused
Unqualified auditors report and an emphasis of matter (cont.)
Ci t i hi h difi ti ld b i d d
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Circumstances in which a modification would be issued and
the type of modification appropriate in those circumstances
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Circumstances that give rise to a qualification
Scope Limitation
arises when the auditor cannot perform the
necessary procedures,
or the procedures do not provide sufficient
evidence Figure 5.1 in the textbook provides an example
of a qualified auditors report including a
limitation on scope opinion
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Disagreement with those charged with governance
often relate to disagreement over the appropriateness of the
accounting policies selected, or the adequacy of disclosures of
sensitive matters
Examples include disagreement over accounting estimates for
doubtful debts, or disclosure issues based on fear of marketreactions
Conflict between applicable financial reporting
frameworks
in unusual circumstances, the application of accountingpolicies in compliance with statutory and other requirements
may not result in a fair presentation in accordance with the
accounting standards
Circumstances that give rise to a qualification (cont.)
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Material but
Not Extreme
Extreme
Cases
Scope limitation Except for
(qualified)
Disclaimer of
opinion
Disagreement with those charged with governance
(directors/management)
Except for
(qualified)
Adverse
Conflict between applicable financial reporting frameworks Except for(qualified)
Adverse
Significant Uncertainty Going Concern
Unqualified (modified)
opinion with an emphasis of
matter
Significant Uncertainty Other
Additional Disclosures with which the auditor concurs
Inconsistent Other Information
Subsequent Event resulting in a new auditors report on a
revised financial report
Summary of modified report circumstances
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Other reporting considerations for corporate entities
These considerations include:
Reporting on consolidated accounts
Comparatives
Initial engagements
Half-year statements
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What is the role of the auditor in respect to the consolidation
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What is the role of the auditor in respect to the consolidation
process? How do they support management?
Fiona CampbellAudit Partner
Ernst & Young Melbourne
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Comparatives
Comparatives refer to amounts or disclosures of
one or more previous periods presented on acomparative basis with those of the current period
The auditor needs to consider the following:
Any qualified previous period report
Subsequent events
Additional reporting requirements must be met when there has
been a change of auditors
Unaudited previous period financial statements require the
auditor to seek evidence to ensure there are no material
misstatements
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Initial engagements
In an initial audit engagement, ASA 510 requiresthe
auditor to obtain sufficient appropriate auditevidence to ensure that:
the opening balances do not contain misstatements that
materially affect the current periods financial statements
the previous periods closing balances have been correctlybrought forward to the current period or, when appropriate,
have been restated
appropriate accounting policies are consistently applied or
changes in accounting policies have been properly
accounted for and adequately disclosed
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Half-year statements
Section 302 of the Corporations Act prescribes thatdisclosing entities must:
prepare half-year financial statements and a directors report
have the financial statements audited or reviewed, and obtain anauditors report
lodge the financial statements, the directors report and the
auditors report with the Australian Securities and InvestmentsCommission (ASIC)
According to s. 302 of the Corporations Act, the half-yearaccounts may be either audited or reviewed, although
the majority of Australian companies opt for a review If the half-year statements are audited, then the reporting
requirements are covered by ASA 700 (ISA 700)
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If a review engagement is needed, then it should be
performed in accordance with ASRE 2410 Review ofan Interim Financial Report Performed by theIndependent Auditor of an Entity
There are no requirements for the auditors report on
half-year statements to be circulated to the entitysmembers
However, the auditor should encourage distributionof the report to members in the interests of effective
communication
Half-year statements (cont.)
T t i l
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Tutorial
Audit reports
Reading:
Leung Chapter 5
Reporting on financial statements
Tutorial Questions:
Leung Chapter 5
Questions 5.10, 5.12, 5.13, 5.14, 5.18, 5.22 & 5.24