The Auditor’s Report - Revisited
1 The purpose of the audit
Remember that the aim of an audit is to be able to report to the members on whether or not the financial statements present fairly the company's financial position and performance. All the planning, evaluation of internal control and substantive procedures were carried out for this purpose. The auditor’s report was discussed in Chapters 5 and 6 so that you got an early insight into where the audit process was heading. It is important to briefly remind you of the possible outcomes from the audit.
2 Outcome of the audit process
Use a complete reporting answer: explain the issue; show its effect on named balances and profit where relevant; assess materiality; decide misstatement or inability to obtain evidence; assess pervasiveness; state the exact opinion; and identify the affected report section.
There are two sources of difficulty:
Material misstatements
Lack of sufficient appropriate audit evidence
Unmodified audit opinion
Neither of these difficulties has arisen
Qualified audit opinion (except for)
One or both has arisen. The problem is material but not pervasive, so the problem can be isolated. The financial statements present fairly, in all material respects, except for…
Adverse opinion
One or more material misstatements that are so serious as to be pervasive so that the financial statements, as a whole, do not present fairly ...
Disclaimer of opinion
A lack of sufficient appropriate audit evidence that is so serious as to be pervasive so that the auditor cannot form an opinion on the financial statements as a whole.
Additions to the auditor’s report
Remember also that there can be additions to the auditor’s report that do not affect the opinion. These are:
Material uncertainty related to going concern
Draws attention to material uncertainty that has been adequately disclosed.
Emphasis of matter paragraph
Draws attention to a matter already properly disclosed in the financial statements.
Other matter paragraph
To communicate a matter that is not presented or disclosed in the financial statements which is relevant to the user's understanding of the audit, the auditor's responsibilities or the auditor's report.
Other information paragraph
Typically, drawing attention to a statement in the directors’ report or chairman’s report which contradicts with what is in the financial statements.