Chapter 6 -Audit report
- 1. Eelo University Faculty of Management science AUDIT REPORT Principles of Auditing Chapter - 6 © Buyera Saidi – Senior lecturer – Eelo University
- 2. What is an audit report ? The audit report is the end product/result of an audit and can be used by the recipient person or organization as a tool for financial reporting, investing, altering operations, enforcing accountability, or making decisions. An audit report is the formal opinion of audit findings. An effective audit report is essential to making sure the results of your audit are presented in a way that is useful to the party receiving the audit.
- 3. © Buyera Saidi – Senior lecturer – Eelo University
- 4. UNMODIFIED/UNQUALIFIED OPINION: Unmodified opinion is expressed to the financial statements that prepared in all material respect and complying with the applicable framework. This opinion is issued once auditors obtain sufficient and appropriate audit evidence to the financial statements as the result of their testing. The auditor is not providing absolute assurance on the financial statements that is why it uses words “in all material respect”. All material respect here means there is no material misstatement in the financial statements, but there might be an immaterial (something negligible/small) misstatement. It is okay to have immaterial misstatement in the financial statements as it is not lead users of FS to make the wrong decision. To form an unmodified opinion, ISA 700 is the reference to follow. © Buyera Saidi – Senior lecturer – Eelo University
- 5. QUALIFIED OPINION: Qualified opinion is the type of modified audit opinion where auditors make a conclusion after their testing that there is material misstatement found in the financial statements; however, those misstatements are not pervasive. Pervasive here is a bit subjective as it is based on auditor’s judgment. But, as said in standard, misstatement is pervasive to financial statements if those misstatements are not effecting the financial statements and users’ decision making. The auditor may issue a qualified opinion on the opening balance of financial statements of the previous year’s financial statements that were not audited by them. In terms of seriousness, the qualified audit opinion is serious than unqualified, yet it is better than adverse and disclaimers. © Buyera Saidi – Senior lecturer – Eelo University
- 6. ADVERSE OPINION: The adverse opinion is issued to the financial statements where auditors examined and concluded that those financial statements are materially misstated and pervasive. Adverse opinion is more serious than unqualified and qualified. This opinion is the message to users of financial statements that they should not rely on these financial statements in their decision making. This opinion is a bit different from a qualified opinion. For a qualified opinion, the auditor found material misstatement in the financial statements, but those misstatements are not pervasive. In Adverse opinion, misstatements are both material and pervasive. © Buyera Saidi – Senior lecturer – Eelo University
- 7. DISCLAIMER OF OPINION: The auditor issues the disclaimer of opinion where they could not obtain and unable to access the audit evidence for individual items or in aggregation in the to support their testing. Auditor believes that for those items that they are not able to access and obtain information could be materially misstated and pervasive. © Buyera Saidi – Senior lecturer – Eelo University
- 8. AUDIT REPORT FORMAT Audit Report Format is the standardized format prescribed by the concerned authority using which independent auditor as appointed by the company in this regard, give its views and comments on the company’s financial condition as well as internal accounting after analysis the various documents of the company.
- 9. The audit report format includes; 1. Title 2. Addressee 3. Introductory Paragraph 4. Management’s Responsibility 5. Auditor’s Responsibility 6. Opinion 7. Basis of the Opinion 8. Other Reporting Responsibility 9. Signature of the Auditor 10. Place of Signature 11. Date of Audit Report
- 10. 1 – TITLE The title should mention – ‘Independent Auditor’s Report’. The addressee should mention as to whom the report is being presented. 2 – ADDRESSEE © Buyera Saidi – Senior lecturer – Eelo University
- 11. 3 – INTRODUCTORY PARAGRAPH A statement that the financial statements described in the report have been audited. 4 – MANAGEMENT’S RESPONSIBILITY Here the audit reports should mention the Management’s Responsibility to the integrity of the financial statements which gives an overview of the financial condition, cash flows of the Company and financial performance. The responsibility also includes the maintenance of accounting records to prevent frauds. It is their responsibility to formulate and execute necessary financial controls to ensure the accuracy of the financial records. It should mention that the financial statements are the responsibility of the organization’s management. © Buyera Saidi – Senior lecturer – Eelo University
- 12. 5 – AUDITOR’S RESPONSIBILITY The most important content in an Audit Report is the Auditor’s Opinion. This mentions the impression derived after auditing the financial statements. The Auditor responsibility is mentioned to show an unbiased opinion on the financial statements and issue an audit report. The report is based upon Standards on Auditing. The Standards require that the auditor complies with ethical requirements. It is the auditor’s responsibility to plan and execute the audit to procure assurance regarding the financial statements. 6 – OPINION © Buyera Saidi – Senior lecturer – Eelo University
- 13. 7 – BASIS OF THE OPINION The basis on which the opinion has been achieved as reported. Facts of the basis should be mentioned. 8 – OTHER REPORTING RESPONSIBILITY Any other responsibility relating to reporting exists, the same should be mentioned. This may include Regulatory requirements. 9 – SIGNATURE OF THE AUDITOR The Auditor needs to sign the audit report thereby confirming the authenticity of the report. © Buyera Saidi – Senior lecturer – Eelo University
- 14. 10 – PLACE OF SIGNATURE The name of the city in which the report is signed. 11 – DATE OF AUDIT REPORT The date on which the audit report is signed/reported. Audit Report Example - Next slides
- 15. Independent Auditor’s Report To the Members of inftin Company Report on the Financial Statements We have audited the accompanying consolidated balance sheets of Inftin Company as of December 31, 2019, and the related statements of income, comprehensive income, retained earnings, changes in stockholders’ equity and cash flows for the year then ended, and a synopsis of the accounting policies and other information. We also have audited the Firm’s internal control over financial reporting as of December 31, 2019. © Buyera Saidi – Senior lecturer – Eelo University
- 16. Management’s Responsibility for the Financial Statements These financial statements are the responsibility of the Iftin’s management. The Iftin’s Board of Directors is responsible for the matters with respect to the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Firm in accordance with accounting principles generally accepted in Somalia. © Buyera Saidi – Senior lecturer – Eelo University
- 17. Auditor’s Responsibility Our responsibility is to express an opinion based on our audit on these financial statements. The audit has been conducted in accordance with the auditing standards generally accepted in Somalia. The standards necessitate us to plan and perform the audit to gain assurance on the authenticity of the financial statements and to ensure that it is free from any misstatements or possible frauds. The audit includes inspection of the amounts and disclosures in the financial statements. The audit will provide a reasonable basis for our opinion. © Buyera Saidi – Senior lecturer – Eelo University
- 18. Auditors opinion In our opinion, the financial statements referred to above present justly, the financial position of Iftin Company as of December 31, 2019, conforms to the accounting principles generally accepted in Somalia. Also in our opinion, the Firm maintained effective internal control over financial reporting as of December 31, 2019. Signature Place Date Buyerasaidi Borama 31st /12/2019 © Buyera Saidi – Senior lecturer – Eelo University