Audit reporting and finalisation

Home Forums Ask ACCA Tutor Forums Ask the Tutor ACCA F8 Exams Audit reporting and finalisation

This topic contains 2 replies, has 3 voices, and was last updated by avatar helloraj 4 years, 3 months ago. This post has been viewed 216 times

Viewing 3 posts - 1 through 3 (of 3 total)
  • Author

  • avatar
    lucia silweya
    • Topics: 1
    • Replies: 0

    I need to get the understadning of how the various terms can be used, such as adverse opinion, disclaimer, modified opinion and, qualified and unqualified report.

    Avatar of gromit
    • Topics: 1
    • Replies: 1874

    See my reply on


    • Topics: 1
    • Replies: 3

    There are several different possible forms of audit report, depending on the situation. For this exam, there are 6 forms that you need to understand.
    The different outcomes are in groups, as follows:Unmodified report
    This is the standard report that is the outcome for the vast majority of companies. In this situation:

    ? The auditors believe the Financial Statements are true and fair
    ? The auditors believe the Financial Statements were properly prepared
    ? There is nothing else the auditors wish to report.

    Modified reports
    There are 5 modifications to know:
    1. A qualification due to a disagreement with something in the Financial Statements.
    2. A qualification due to a limitation of scope on the audit.
    3. An adverse opinion – where the auditors disagree with the truth and fairness of the Financial Statements overall.
    4. A disclaimer of opinion, where a limitation is so large that the auditors are unable to give an opinion at all.
    5. An Emphasis of Matter, where there is nothing wrong with the Financial Statements, and no limitation on the scope of the audit work … but there is something major that the auditors wish to draw to the shareholders¶ attention.
    1. Qualification due to disagreement
    When there is a single material mistake in the Financial Statements (or a small number of individual mistakes), the overall Financial Statements remain true and fair.
    The auditor reports that, Except for the effect of the error(s), the Financial Statements give a true and fair view.
    There are many examples that would lead to this opinion, for example:
    ? Failure to provide for a material doubtful debt
    ? Material error in the calculation of depreciation
    ? The treatment of a material expense as an asset.
    2. Qualification due to limitation of scope
    With a limitation of scope, the auditor was unable to fully carry out his work due to a lack of the usual evidence. Whilst he is happy that the overall Financial Statements show a true and fair view, he has concerns about possible material errors with a particular balance (or balances).
    The auditor reports that, Except for any adjustments that might have been necessary, had the auditor seen the evidence, the Financial Statements give a true and fair view.
    Examples include:
    ? The auditor was unable to attend the year-end stocktake (e.g. due to being appointed auditor after the year end)
    ? There are lots of cash transactions (where there is not a lot of documentary evidence).
    3. Adverse opinion
    This is a form of disagreement that is so strong, it affects the opinion of the Financial Statements as a whole (pervasive).
    The most common form of this in the exam is a disagreement that the company is a going concern. As such, the auditor is disagreeing with the entire basis of preparation of the Financial Statements, which is likely to result in disagreement with many of the figures in the Financial Statements.
    The auditor reports that the Financial Statements do not give a true and fair view.
    4. Disclaimer of opinion
    This is a form of limitation of scope that is so strong, the auditor feels unable to report on the overall truth and fairness of the Financial Statements.
    Imagine turning up to an audit client to be told that all of the accounting records were lost the previous day in a fire, and that there are no back-ups. Without any evidence, the auditor is unable to do an audit, so cannot give an opinion.
    The auditor reports that “we are unable to form an opinion”.
    5. Emphasis of matter
    Sometimes the auditor is happy that the Financial Statements are true and fair, and that all evidence has been received. However, there remains something that the auditor wishes to draw to the attention of those reading the Financial Statements:
    ? There is a very important Disclosure Note which the shareholders must ensure they have read (typically involving going concern threats)
    ? There is a mistake / inconsistency in the unaudited documents attached to the Financial Statements (“Other Information”).

Viewing 3 posts - 1 through 3 (of 3 total)

You must be logged in to reply to this topic.