Acfn 723 Chapter 7 - 2019

Acfn 723: Advanced Auditing
Addis Ababa University

College of Business and Economics
Department of Accounting & Finance
• Module Title: Advanced Auditing

• Module Code: ACFN 723
• Credit Value: 2 Cr hours [4.5 ECTS]
• Instructor: Dr. P. Laxmikantham
Acfn 723: Advanced Auditing/PLK

Chapter 7
Reports on Audited
Financial Statements

Chapter 7 - Contents
Reports on audited financial statements
(ISA 200, ISA 450, ISA 700, ISA 705)
• Reporting on the financial statement audit:
– Standard audit report with an unmodified opinion
– Audit reports with modified opinion
– Conditions requiring audit reports with modified
opinion
– Reporting on comparative information
– Reporting on specialized areas

Standard Audit Report with an
Unmodified Opinion
An audit report with an unmodified opinion is issued when
the auditor concludes that the financial statements are
prepared, in all material respects, in accordance with the
applicable financial reporting framework.
Nine Elements
1. Report title
2. Addressee
3. Introductory paragraph
4. Management’s responsibility
5. Auditor’s responsibility
6. Auditor’s opinion
7. Auditor’s signature
8. Date of audit report
9. Auditor’s address
Standard Audit Report with an
Unmodified Opinion
The Auditor’s Standard Report with an Unmodified Opinion
(continued)
Standard Audit Report with
an Unmodified Opinion
(continued)

Emphasis of Matter Paragraph
and Other Matter Paragraph
An emphasis of matter An other matter

paragraph does not affect paragraph does not affect
the auditor’s opinion the auditor’s opinion
because it can only be because it relates to a
included in the audit matter other than those
report if the matter is required to be presented
appropriately presented or disclosed in the
or disclosed in the financial statements.
financial statements.

A matter, although appropriately presented or disclosed in

the financial statements, that is of such importance that it is
fundamental to users’ understanding of the financial
statements.
• The emphasis of matter paragraph is included immediately

after the opinion paragraph in the audit report and the heading
‘Emphasis of Matter’ is ordinarily used.
• The paragraph includes a clear reference to the matter being

emphasized and to where relevant disclosures that fully
describe the matter can be found in the financial statements.
• The auditor should indicate that the auditor’s opinion is not

modified in respect of the matter emphasized.

Emphasis of Matter Paragraph for
Going-Concern Problems
Audit Report with Unmodified Opinion and with an Emphasis of Matter
Paragraph for Going-Concern Problems

An emphasis of matter paragraph is used only if

the matter is of such importance that it is
fundamental to users’ understanding of the
Auditing standards give these examples:

• An uncertainty relating to the future outcome of
exceptional litigation or regulatory action.
• Early application (where permitted) of a new accounting
standard that has a pervasive effect on the financial
statements in advance of its effective date.
• A major catastrophe that has had, or continues to have,
a significant effect on the entity’s financial position.

Other Matter Paragraph
• The term ‘other matter’ is used because the matter

communicated is a matter other than those that are
presented or disclosed in the financial statements.
• The other matter must relate to the understanding of

the audit, the auditor’s responsibilities or the auditor’s
report.
• An other matter paragraph is headed ‘Other Matter’ and

the paragraph is included in the audit report
immediately after the opinion paragraph and any
emphasis of matter paragraph.

Other Matter Paragraph
Audit Report with an Other Matter Paragraph for Prior Period
Corresponding Figures Audited by a Predecessor Auditor

Conditions of Modification
Results from the auditor’s

Scope
inability to obtain sufficient
Limitation
appropriate evidence
Departure from Results when financial

Applicable statements are prepared or
Financial Reporting presented in a manner that
Framework conflicts with the applicable
financial reporting framework

Types of Audit Reports with
Modified Opinion
Qualified
‘except for’
Disclaimer
Adverse

Effects of Materiality and
Pervasiveness
Pervasive effects on the financial statements are those

that:
1. Are not confined to specific elements, accounts or
items of the financial statements;
2. If so confined, represent or could represent a
substantial proportion of the financial statements;
or
3. In relation to disclosures, are fundamental to users’
understanding of the financial statements.
Applying this guidance requires a lot of auditor

judgement!
An Overview of Audit Opinions
An Overview of Audit Opinions

Scope Limitation:
Disclaimer of Opinion
Audit Report with a

Disclaimer of Audit
Opinion: Scope
Limitation

Scope Limitation:
Qualified Opinion
Audit Report with a Qualified Opinion: Scope Limitation

Departure from Applicable Financial
Reporting Framework: Qualified Opinion
Audit Report with a Qualified Opinion: Departure from the Financial Reporting Framework, and with the Inclusion
of an Emphasis of Matter Paragraph: Uncertainty Relating to a Pending Exceptional Litigation Matter

Reporting Framework: Qualified Opinion
Audit Report with a Qualified Opinion: Inadequate Disclosure of Going-Concern
Problems

Reporting Framework: Adverse Opinion
Audit Report with an Adverse Opinion: Departure from the Financial Reporting Framework

Special Reporting Issues
Reports on comparative
information.
Other information in
documents containing
audited financial
statements.
Reports on specialized
areas.

Reporting on
Comparative Information
Corresponding figures are comparative

information where amounts and other
disclosures for the prior periods are an integral
part of the current-period financial statements,
and are intended to be read only in relation to
current-period figures.
Comparative financial statements are considered

separate financial statements and are included
for comparison with the financial statements of
the current period.

Corresponding Figures:
Audit Report with a Qualified Opinion
Corresponding
Figures: Audit
Report with a
Qualified
Opinion

Comparative Financial Statements:
Audit Report with an Unmodified Opinion
Comparative Financial Statements: Audit Report with an Unmodified Opinion

Other Information in Documents
Containing Audited Financial Statements
A client may publish documents, such as annual reports, that
contain other information in addition to the audited financial
statements and the audit report.
The auditor’s reporting responsibility is restricted to
information identified in the audit report. The auditor has no
obligation to perform any audit procedures to corroborate the
other information.
However, the auditor is required to read the other information
to identify material inconsistencies, if any, with the audited
Annual Reports
Report for Material
Inconsistency
Audit Report with an Other Matter Paragraph for Material Inconsistency

Reporting on Specialized Areas
Reporting on Reporting on
Financial Statements Single Financial
Prepared in Statements or
Accordance with a Elements of a
Special Purpose Financial
Framework. Statement.
Reporting on
Summary
Financial
Statements.

Special Purpose Frameworks
Special
Purpose
Frameworks
Tax Basis Cash Basis
Regulatory Basis Contract Basis

Audit Report on Financial Statements
prepared on a Tax Basis
Audit Report for Special Purpose Financial Statements

A Single Financial Statements or
Elements of a Financial Statement
In some situations an auditor may be engaged to

audit a single financial statement or elements of a
financial statement such as accounts and items.
General Basis of Special

Purpose Accounting Purpose
Framework Framework

Reporting on Summary Financial
Statements
Auditor’s Report on Summary Financial Statements

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Acfn 723: Advanced Auditing

Addis Ababa University

• Module Title: Advanced Auditing

Acfn 723: Advanced Auditing/PLK

Acfn 723: Advanced Auditing/PLK

Acfn 723: Advanced Auditing/PLK

Acfn 723: Advanced Auditing/PLK

An emphasis of matter An other matter

Acfn 723: Advanced Auditing/PLK

A matter, although appropriately presented or disclosed in

• The emphasis of matter paragraph is included immediately

• The paragraph includes a clear reference to the matter being

• The auditor should indicate that the auditor’s opinion is not

Acfn 723: Advanced Auditing/PLK

Acfn 723: Advanced Auditing/PLK

An emphasis of matter paragraph is used only if

Auditing standards give these examples:

Acfn 723: Advanced Auditing/PLK

• The term ‘other matter’ is used because the matter

• The other matter must relate to the understanding of

• An other matter paragraph is headed ‘Other Matter’ and

Acfn 723: Advanced Auditing/PLK

Acfn 723: Advanced Auditing/PLK

Results from the auditor’s

Departure from Results when financial

Acfn 723: Advanced Auditing/PLK

Acfn 723: Advanced Auditing/PLK

Pervasive effects on the financial statements are those

Applying this guidance requires a lot of auditor

An Overview of Audit Opinions

Acfn 723: Advanced Auditing/PLK

Audit Report with a

Acfn 723: Advanced Auditing/PLK

Acfn 723: Advanced Auditing/PLK

Acfn 723: Advanced Auditing/PLK

Acfn 723: Advanced Auditing/PLK

Acfn 723: Advanced Auditing/PLK

Acfn 723: Advanced Auditing/PLK

Corresponding figures are comparative

Comparative financial statements are considered

Acfn 723: Advanced Auditing/PLK

Acfn 723: Advanced Auditing/PLK

Comparative Financial Statements: Audit Report with an Unmodified Opinion

Acfn 723: Advanced Auditing/PLK

Audit Report with an Other Matter Paragraph for Material Inconsistency

Acfn 723: Advanced Auditing/PLK

Acfn 723: Advanced Auditing/PLK

Tax Basis Cash Basis

Regulatory Basis Contract Basis

Acfn 723: Advanced Auditing/PLK

Acfn 723: Advanced Auditing/PLK

In some situations an auditor may be engaged to

General Basis of Special

Acfn 723: Advanced Auditing/PLK

Acfn 723: Advanced Auditing/PLK

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