Question

Your are given with the Audit report, Identify the type of Audit report, also comment in few words about the Auditor’s opinion. ?

Audit Report

We have audited the annexed balance sheet of PAKISTAN INTERNATIONAL AIRLINES CORPORATION (the Corporation) as at December 31, 2007 and the related profit and loss account, cash flow statement and statement of changes inequity together with the notes forming part thereof, for the year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. It is the responsibility of the Corporation’s management to establish and maintain a system of internal control, and prepare and present the above said statements in conformity with the approved accounting standards and the requirements of the Pakistan International Airlines Corporation Act, 1956 and the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the above said statements. An audit also includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the above said statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that: a) In our opinion, proper books of account have been kept by the Corporation as required by the Pakistan International Airlines Corporation Act, 1956 and the Companies Ordinance, 1984; b) In our opinion: i) The balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with the Pakistan International Airlines Corporation Act, 1956 and the Companies Ordinance, 1984, and are in agreement with the books of account and are further in accordance with accounting policies consistently applied, except for the change, as stated in note 2.5.1, to the accompanying financial statements, with which we concur; ii) The expenditure incurred during the year was for the purpose of the Corporation’s business; and iii) The business conducted, investments made and the expenditure incurred during the year were in accordance With the objects of the Corporation; c) In our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan, and, give the information required by the Pakistan International Airlines Corporation Act, 1956 and the Companies Ordinance, 1984, in the manner so required and respectively give a true and fair view of the state of the Corporation’s affairs as at December 31, 2007 and of the loss, its cash flows and changes in equity for the year then ended; and d) in our opinion, no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980. Without qualifying our opinion, we draw attention to the following matters: i) Note 26.1 (a) to the financial statements, explaining the difference between the amount due as per the Corporation’s records and amounts claimed by the Civil Aviation Authority in respect of which a reconciliation and settlement exercise is currently in progress through the Ministry of Defence; and ii) Note 1 to the financial statements, which indicates that the Corporation incurred a net loss of Rs.13,399 (2006: Rs.12,763) million during the year ended December 31, 2007, resulting in accumulated losses of Rs.37,160 (2006: Rs.24,563) million at the close of the year, and, as of that date, the Corporation’s current liabilities exceeded its current assets by Rs.38,798 (2006:Rs.22,672) million. The mitigating factors, however, relating to the above situation, including support from the Government of Pakistan, as discussed in note 1, override the existence of any material uncertainty about the Corporation’s ability to continue as a going concern. Accordingly, these financial statements have been prepared on a going concern basis Ford Rhodes Sidat Hyder & Co, Chartered Accountants

Answer 1

Solution:

There are four types of Audit Reports

- Unqualified Audit Report : Clean audit report where auditor has not found any material misstatements

- Qualified Audit Report - Company records do not confirm to GAAP but no misrepresentation. Will contain a paragraph that will highlight why audit report is not unqualified.

- Adverse Report - Gross misrepresentation in the financial statements.

- Disclaimer Report - Issued when auditor is not able to complete audit report as he does not find sufficient evidence to support his opinion.

The above report is an Unqualified report which has an emphasis of matter paragraph to highlight a matter affecting the financial statements. The auditors opinion is not qualified in this respect.

The report mentions that proper account have been maintained as per applicable accounting standards. Although company has accumulated losses and Current Asstes less than CL, there is no problem in terms of identifying it as a going concern.

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