Audit Report 1 By:- Haris Hanif

Audit Report 2 By:- Haris Hanif

AUDIT REPORT (ISA 700) Standard

Contents (Section of AUDIT REPORT) Explanations (purpose)

1. Title This indicates that this is the independent
auditor’s report.
2. Addressee This refers the appropriate recipients of the
auditor’s report who are members, shareholders.
3. Auditor’s opinion paragraph This is the concluding opinion of the auditor on
financial statements that it represents true and
fair view.
4. Basis for opinion paragraph This is the description that professional standards
were applied during the audit and that sufficient
and appropriate evidence were gathered on
financial statements and audit report can be relied
upon.
5. Going Concern*** When there is material uncertainty over the going
concern assumptions and properly and completely
disclosed in notes, this paragraph highlights the
attention of the users to that disclosed paragraph.
6. Key audit matters (ISA-701) This section describes the matters which according
to the auditor’s judgment are most significant and
should be included in the audit report.
(mandatory only for listed companies)
7. Other information (ISA-720) To clarify that management is responsible for the
other information such as the Chairman's
statement. The auditor's opinion does not cover
the other information and the auditor's
responsibility is only to read the other information
and report in accordance with ISA 720.
8. Responsibilities of management for To clarify that management is responsible for
Financial statements preparing the financial statements and for the
internal controls. Included to help minimize the
expectations gap.
9. Responsibilities of auditor for financial To clarify that the auditor is responsible for
statements expressing reasonable assurance as to whether the
financial statements give a true and fair view and
express that opinion in the auditor's report. The
section also describes the auditor's responsibilities
in respect of risk assessment, internal controls,
going concern and accounting policies. Included to
help minimize the expectations gap.

10. Other reporting responsibilities This is the reporting responsibility of the auditor
other than financial statements, which are in
accordance with the requirement of the local
legislation.

Audit Report 3 By:- Haris Hanif

 11. Name of Engagement Partner The name of the audit engagement partner who is
responsible for expressing the audit opinion.
12. Auditor’s signature The signature of the audit engagement partner
expressing the opinion, along with the firm logo.
13. Auditor’s address The official address of the audit firm, in case of any
queries.
14. Date of audit report The date when the audit report had been signed.

ISA 701 (Key Audit Matters)

Key Audit Matters:-
These are the matters which according to the auditors’ judgment are most significant and should be
included in the standard audit report. Normally the contents of the KAM are selected from the matters
communicated to those charged with governance.

The purpose of including these matters is to assist users in understanding the entity, and to provide a
basis for the users to engage with management and those charged with governance about matters
relating to the entity and the financial statements.

The contents of the KAM are tailored according to the scenarios of the organization. The major point to
note that this does not modify the report/opinion of the auditor.

Matters that may be included in the KAM paragraph are:-

 High risky areas.

 Effect of accounting estimates.
 Fraud risk areas.
 Or any other significant matter which auditor believes to be material and shall be included.

Identification the contents of the KAM paragraph require the professional judgment of the auditor and
considering some factors for this, like:-

 Nature of the matter

 Complexity of the matter
 Significance of the matter
 Impact on the financial statements
 Relevance for the shareholders.

NOTE:- KAM is NOT the substitute of EOM and OM (ISA 706)

Audit Report 4 By:- Haris Hanif

ISA 720 (Other Information)
Other information is financial and non-financial information (other than the financial statements and
the auditor's report thereon) included in an entity’s annual report.

Examples of other information include the following:

 A report by management or those charged with governance on operations

 Financial summaries or highlights
 Employment data
 Planned capital expenditures
 Financial ratios
 Names of officers and directors
 Selected quarterly data
 Explanation of critical accounting estimates and related assumptions

An annual report is a document, or combination of documents, prepared typically on an annual basis by

management or those charged with governance in accordance with law, regulation or custom.

Other information is said to be misstated when other information is incorrectly stated or otherwise
misleading.

ISA 720 states that the auditor shall read the other information to identity material inconsistencies with
the audited financial statements. If a material inconsistency is identified, the auditor shall determine
whether the audited financial statements or other information is misstated.

(a) Financial statements are materially misstated.

i. Discuss with the management and ask management to correct the financial
statements, if corrected then conduct the review.
ii. If not corrected, then consider the impact on the audit report, modifications as
per ISA 705
(b) Other information is materially misstated.
i. Discuss with the management and ask the management to correct the other
information, if corrected the review the corrections.
ii. If not corrected, then communicate this matter to those charged with
governance and also consider the impact on the audit report, or either way
withdraw from the audit engagement (where this permitted legally).

Audit Report 5 By:- Haris Hanif

ISA 706
Emphasis of Matter paragraph (EOM)

An emphasis of matter paragraph is a paragraph included in the auditor's report that refers to a matter
appropriately presented or disclosed in the financial statements that, in the auditor's judgement, is of
such importance that it is fundamental to users' understanding of the financial statements.

Emphasis of matter paragraphs are used to draw readers' attention to a matter already presented or
disclosed in the financial statements that the auditor feels is fundamental to their understanding,
provided that the auditor has obtained sufficient appropriate audit evidence that the matter is not
materially misstated. The matter should be other than going concern disclosures.

Note that an emphasis of matter paragraph is not used when the issue has been covered as a key audit
matter. The auditor must choose whether a matter is simply a KAM, or whether it needs an emphasis of
matter paragraph.

Place of EOM in the Audit report

Other Matter Paragraph (OM)

An other matter paragraph is a paragraph included in the auditor's report that refers to a matter other
than those presented or disclosed in the financial statements that, in the auditor's judgement, is
relevant to users' understanding of the audit, the auditor's responsibilities or the auditor's report.

Other matter paragraphs are used where the auditor considers it necessary to draw readers' attention
to a matter that is relevant to their understanding of the audit, the auditor's responsibilities or the
auditor's report.

Examples include:

Place of OM in the Audit report

Audit Report 6 By:- Haris Hanif

Levels of Misstatements

Audit Report 7 By:- Haris Hanif

ISA 705
Auditor issues 3 types of modified opinions:-

(1) QUALIFIED OPINION:-

(2) ADVERSE OPINION:-

(3) DISCLAIMER OPINION:-

NOTE:-
Auditor may NOT obtain sufficient and appropriate audit evidence.

The auditor's inability to obtain sufficient appropriate audit evidence is also referred to as a
limitation on the scope of the audit and could arise from:

 Circumstances beyond the entity's control (eg accounting records destroyed)

 Circumstances relating to the nature or timing of the auditor's work (eg the timing of the
auditor's appointment prevents the observation of the physical inventory count)
 Limitations imposed by management (eg management prevents the auditor from
requesting external confirmation of specific account balances)

TWO reasons of modified opinions and THREE types of modified opinions:-

(1) Financial statements are Misstated (2) Auditor is unable to obtain sufficient and
appropriate audit evidence

Audit Report 8 By:- Haris Hanif

NOTE:-

Audit Report 9 By:- Haris Hanif