Question

ISA 700 Forming an Opinion and Reporting on Financial Statements requires auditors to produce an audit report. This report should contain a number of consistent elements so that users are able to understand what the audit report means.

Required:

Describe the content to be found in the any FOUR (4) components of an auditor’s unmodified report,and explain the purpose of each.

(b) Based on the provisions of ISA 700 Forming an Opinion and Reporting on Financial Statements, outline (i) the TWO (2) areas of management responsibilities and (ii) the auditor’s responsibility which should be clearly set out in the audit report      

(c) The auditor is required to state the set of laws and regulations which it complied with in conducting the audit. Explain why it is important to disclose this information and the possible consequence of non-disclosure of this information

Answer 1

a) ANSWER:

An audit report is an evaluation of a minor business’s whole fiscal status. Accomplished by a self-governing office professional, this text covers a business's properties and liabilities and gives the auditor’s cultured valuation of the firm’s fiscal position and future. Audit intelligence is compulsory by law if a firm is publicly traded or in an industry regulated by the Securities and Exchange Commission (SEC).

The 4 types of audit reports

Unqualified Opinion

An unqualified opinion is an audit report that is delivered when an auditor regulates that each of the economic records delivered by the small business. In count, an unqualified opinion indicates that the financial records have been preserved in agreement with the standards known as Generally Accepted Accounting Principles (GAAP). This is the greatest type of report a business can receive. An unqualified report contains a title that includes the word “independent.” This is made to prove that it was organized by an unbiased third party.

Qualified Opinion

In circumstances when a corporation's financial records have not been preserved in agreement with GAAP but no distortions are identified, an auditor will issue an authorized opinion. The writing of a qualified opinion is really alike to that of an unqualified opinion. A qualified opinion, still, will include an additional paragraph that highlights the reason why the audit report is not unqualified.

Adverse Opinion

The poorest type of financial report that can be issued to a business is an adverse opinion. This specifies that the firm’s financial records do not imitate GAAP, the financial records offered by the business have been totally distorted. Although this may occur by error, it is often an indication of fraud. When this type of report is delivered, a company must precise its financial statement and have it re-audited, as investors, lenders and other demanding parties will generally not accept it.

Disclaimer of Opinion

On sometimes, an auditor is powerless to widespread an precise audit report. This may occur for a diversity of reasons, such as a nonappearance of appropriate financial records. When this occurs, the auditor issues a disclaimer of opinion, stating that an opinion of the firm’s financial status could not be determined.

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b)ANSWER

“Auditor’s Responsibilities for the Audit of the Financial Statements”.

(a) Explain that the purposes of the auditor to:

     (i) Get sensible declaration about whether the financial statements as a whole are free from substantial misstatement, due to fraud or error.

    (ii) Concern an auditor’s report that includes the auditor’s view.

(b) Explain that sensible declaration is a high level of declaration, but is not a promise that an audit directed in agreement with ISAs will always notice a material misstatement when it happens.

(c) State that misstatements can result from fraud or error, and moreover:

       (i) Define that they are measured substantial if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. (ii) Offer a meaning or explanation of materiality in agreement with the applicable financial reporting context

Management Responsibility:

a)Formulating the economic statements in agreement with the appropriate fiscal reporting background, and for such interior control as management regulates is essential to empower the homework of financial statements that are allowed from material misstatement, due to fraud or error.

(b) Measuring the entity’s capability to restart as a going concern and whether the use of the going concern basis of accounting is appropriate as well as disclosing, if applicable, matters relating to going concern. The explanation of management’s responsibility for this assessment shall include an explanation of when the use of the going apprehension basis of accounting is suitable.