CHAPTER 13
AUDITOR’S REPORT
PSA 700 (Revised) – Forming an Opinion and Reporting in Financial Statements
PSA 705 (Revised) – Modifications to The Opinion in The Independent Auditor’s Report
PSA 706 (Revised) – Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s
Report
Auditor’s objective
1.
Form an opinion on the financial statement based on an evaluation of the conclusions drawn from the
audit evidence obtained; and
2.
Express clearly that opinion through a written report that also describes the basis for the opinion.
The standard also requires a clear-cut statement by the auditor of the nature of the audit and the degree to which
the auditor limits his or her responsibility.
Applicable Financial Reporting Framework

Auditors judgment is made in the context of the applicable financial reporting standards

The auditor has the responsibility t determine whether the financial reporting framework designed to
meet the common financial information needs of a wide range of users. May be fair presentation
framework or compliance framework.

The term “fair presentation” is used to refer to a financial reporting framework that requires
compliance with the requirements of the framework and
1.
Acknowledges explicitly or implicitly that, to achieve fair presentation of the FS,
it may be necessary for the management to provide disclosures beyond those
specifically required by the framework
2.
Acknowledges explicitly that it may be necessary for the management to depart
from requirement of the framework to achieve fair presentation of the FS. Such
departures are expected to be necessary only in the extreme rare circumstances.

The term “compliance framework” is used to refer to a financial reporting framework that requires
compliance with the requirements of the framework but does not contain acknowledgements.
Forming an Opinion on the Financial Statements
In order to form an opinion, the auditor shall conclude as to whether the auditor has obtained
reasonable assurance about whether the FS as a whole are free from material misstatements. Whether due to
fraud or error.
a.
Auditor’s conclusion in accordance with PSA 330, whether sufficient appropriate audit evidence has
been obtained.
b.
Auditor’s conclusion in accordance with PSA 450, whether uncorrected misstatements are material.
Individually or in aggregate; and
c.
The evaluations mandate by PSA 700 (revised)


This evaluation shall include consideration of the qualitative aspects of the entity’s accounting
practices, including indicators of possible bias in management’s judgment.
a.
The FS adequately disclose the significant accounting policies selected and
applied.
b.
The significant accounting policies selected and applied are consistent with the
applicable financial reporting framework and are appropriate.
c.
The accounting estimates made by the management are reasonable.
d.
The information presented in the FS is relevant, reliable, comparable and
understandable.
e.
The financial statements provide adequate disclosures to enable the intended
users to understand the effect of the material transactions and events on the
information conveyed in the FS and;
f.
The terminology used in the FS, including the title of each FS is appropriate.
The auditor’s evaluation shall include:
a.
Overall presentation, structure and content of the financial statement
b.
Whether the FS, including the related notes, represent the underlying transactions
and events in a manner that achieves fair presentation
The auditor shall evaluate whether the FS adequately refer to or described the applicable financial
reporting framework.
Basic Sections of the Auditor’s Standard Report
The phrase “Independent Auditor’s Report”
1.Title
2.Addressee
The Auditor’s report should be addressed as required by the
circumstances of the engagement. Addressed to those for whom
the report is prepared. Often either to the shareholders or to
those charges with governance of the client.




3.Auditor’s Opinion
Unmodified opinion – “presented fairly in all material
aspects…in accordance with. applicable financial reporting
framework
The auditor’s opinion shall be that the accompanying FS
are prepared. Applicable framework is not PFRS issued
by FRSC. The auditor’s opinion shall identify the
jurisdiction of the origin of the framework.
4.Basis for Opinion

First section and shall have the heading “Opinion”
a.
b.
c.
d.
Identify the entity whose FS have been audited
State the FS have been audited
Identify the title of each statement compromising the FS
Refer to the notes including the summary of significant accounting policies
e.
Specify the date of, or period covered by,
Directly follow the opinion. Heading “Basis for Opinion”
a.
b.
c.
d.
5.Going Concern
6.Key Audit Matter (KAM)
Incorporated entity
Partnership
Unincorporated joint venture
Proprietorship
Outside party
State that the audit was conducted in accordance with PSA
Refer to the section of the auditor’s report that describes the auditor’s
responsibilities under PSA’s
Include a statemen that the auditor is independent of the entity in
accordance with the relevant ethical requirements relating to the audit and
has fulfilled the auditor’s other responsibilities.
State whether the auditor believes that the audit evidence the auditor has
obtained is sufficient and appropriate.
The auditor shall conclude on, the appropriateness of the
management’s use of the going concern basis of accounting.
For audit of complete sets, auditor shall communicate KAM.
KAM are selected from matters which are communicated
with those charge with governance. Matters which are
discussed then evaluated by the auditor.
Three matters which PSA requires the auditor to take into account.
a.
b.
c.
7.Responsibilities of Management and Those
Charge with Governance for the Financial
Statements
8.Auditor’s Responsibilities for the Audit
of the Financial Statements
Areas which were considered to be susceptible to higher risk of material
misstatement or which were deemed to be significant. PSA 315 revised.
Significant auditor judgment in relation to areas of the FS that involves
significant management judgment. Might include accounting estimates
which have been identified by the auditor as having a high degree of
estimation uncertainty
Effect of the audit of significant events or transactions that have taken
place during the period.
Heading “Responsibilities of the Management for the
Financial Statement”
The Auditor’s report shall use the term that is appropriate in the context of the legal
framework in the particular jurisdiction and need not refer specifically to management.
a.
Preparing the FS in accordance with applicable financial reporting
framework
b.
Assessing the entity’s ability to continue as a going concern.
The auditor’s report shall also identify those responsible for the oversight of the financial
reporting process, when those responsible for such oversight are different from those who
fulfill the responsibilities. This section shall also refer to “Those Charge with
Governance”
Heading: “Auditor’s Responsibilities for the Audit of the
Financial Statements
This section shall state that the objectives of the auditor are:
a.
Obtain reasonable assurance
b.
Issue an auditor’s report that includes the auditor’s opinion.
Reasonable assurance is a high-level assurance but is no guarantee that an audit
conducted in accordance with PSA’s will always detect MM when it exists.
9.Other Reporting Responsibilities
10.Name of the Engagement Partner
11.Signature of the Auditor
12.Auditor’s Address
13.Date of the Auditor’s Report
Addition to the auditor’s responsibilities under PSA, shall be addressed
separate section in the auditor’s report. Heading: “Report on Other Legal
and Regulatory Requirements”
Included in the auditor’s report. In rare cases that the auditor intends not to
include the name of the engagement partner the auditor’s report shall
discuss this intention with those charged with governance to inform the
auditor’s assessment of the likelihood and severity of a significant personal
security threat.
The auditor’s report shall be signed.
Shall name the location in the jurisdiction where auditor practices
Shall be dated no earlier that the date on which the auditor has
obtained sufficient appropriate evidence on which to base the auditor’s
opinion on FS.
Forms of Audit Report

Contains a clear-cut indication of the character of the auditor’s work and the degree of responsibility
the auditor is taking for the FS.

If the auditor concludes that, based on the audit evidence obtained, the FS as a whole are not free
from material MM; or is unable to obtain sufficient appropriate evidence, the auditor shall modify
the auditor’s report, shall discuss the matter with management.

When prepared in accordance with a compliance framework, the auditor is not required to evaluate
whether the FS achieve fair presentation.
Modified Opinions

The nature of the matter giving rise to the modification, that is, whether the FS are materially misstated
or, in the case of an inability to obtain sufficient appropriate audit evidence, may be materially
misstated.

The auditor’s judgment about the pervasiveness of the effects or the possible effects of the matter on
the FS.
Type of Audit Report
Description
Qualified Opinion
Expressed when unqualifies cannot be expressed but that the effect
of any misstatement, individually or in aggregate or due to inability of
the auditor to obtain sufficient appropriate evidence are material but
not pervasive.
Expressed when the effect of a misstatement both material and
Adverse Opinion
pervasive to the FS that the auditor concludes that a qualification of
the report is not adequate to disclose the misleading or incomplete
nature of FS.
Disclaimer
Expressed when the possible effect of an auditor’s inability to obtain
sufficient appropriate audit evidence is both material and pervasive.
The Unqualified Opinion
Implies that the auditor is satisfied that the FS is presented fairly, in all material respects, an entity’s
financial position.
Additional Paragraphs to the Auditor’s Report
Emphasis on Matter Paragraph – Matter appropriately presented or disclosed in the financial
statements that, in the auditor’s judgment, is of such importance that it is fundamental to users understanding of
the FS. Consider it necessary to draw users’ attention to a matter presented.
a)
The auditor would not be required to modify the opinion
b)
Natter has not been determined to be KAM to be communicated in the auditor’s report
When the auditor includes Emphasis of Matter
a.
Include paragraph within a separate section
b.
Include in the paragraph a clear reference to the matter being emphasized and to
where relevant disclosures that fully describe the matter can be found in the FS.
Emphasis on Matter may be necessary
a.
Financial reporting framework would be unacceptable
b.
Alert users that the FS are prepared in accordance with special purposes framework
c.
When facts become known to the auditor after the date of auditor’s report and the
auditor provides a new or amended auditor’s report.
Other Matter Paragraph – Matter other than those presented and disclosed in the FS, in the auditor’s
judgment is relevant to users understanding of the audit
Inability to Obtain Sufficient Appropriate Audit Evidence
May sometime occur either as imposed by the entity or as a result of circumstances beyond control of
the auditor. Termed as “scope limitation” or “limitation on scope”
Uncorrected Material Misstatements
PSA 450 defines misstatements as a difference between the amount, classification, presentation or disclosure of a reported FS item and the
amount, classification, presentation or disclosure that is required for the item to be in accordance with the applicable financial reporting framework.
Material Misstatement of FS may arise in relation to.
a.
The appropriateness of the selected accounting policies
b.
The application of the selected accounting policies
c.
The appropriateness or adequacy of disclosures in the FS.
Comparative Information
The auditor should determine whether the comparatives comply in all material respects with the
financial reporting framework applicable to the Fs being audited.
Financial Reporting Framework for comparative information
1.
Corresponding Figures – amounts and other disclosures for the prior period are included as an
integral part of the current FS, and are intended to be read only in relation to the amounts and other
disclosures relating to the current period referred to as “current period figures”. Presented amounts is
dictated primarily by its relevance o the current period figures.

Not presented as complete FS capable of standing alone, the auditor’s opinion shall
not refer to the corresponding figures except when required by PSA 705
2.
Comparative Financial Statements – amounts and other disclosures for the prior period are
included for comparison with the FS of the current period but if audited are referred to in the
auditor’s opinion. Information is comparable with Fs of the current period.

Considered separate FS. The level of information included in those FS. The level of
information included approximates that of the FS of the current period.
Prior Period Financial Statements Audited by a Predecessor Auditor
The auditor shall state in an other matter paragraph
a.
That the FS of the prior period were audited by a predecessor auditor
b.
The type of opinion expressed by the predecessor auditor and if the opinion was modifies, the
reasons thereof; and
c.
The date of that report
Unless the predecessor auditor’s report on the prior period’s FS is reissued with the FS
If the auditor concludes that a MM exists that affects the prior period FS on which the
predecessor previously reported without modification, the auditor shall communicate the misstatement
with the appropriate level of management and those charged with governance and request that the
predecessor auditor be informed. If the prior period FS are amended, and the predecessor auditor
agrees to issue a new report on the amended FS of the prior period, the auditor shall report only on
the current year period.
Prior Period Financial Statements Not Audited
The auditor shall state in an Other Matter paragraph that the comparative FS are unaudited. Such
a statement does not, however relived the auditor of the requirement to obtain sufficient appropriate audit evidence
that the opening balances do not contain misstatements that materially affect the current period’s FS.
Audit of Group Financial Statements
The objectives of the auditor are:
a.
To determine whether to act as the auditor of the group FS
b.
To communicate clearly with component auditors about the scope and timing of their work on financial
information related to components and their findings. And
c.
To obtain sufficient appropriate audit evidence about the financial information of the components and
the consolidation process to express an opinion whether group Fs are prepared, in all material
respects in accordance with the applicable financial reporting framework.
Summary of Terms
1.
Component – refers to an entity or business activity for which group or component management
prepares financial information.
2.
Component auditor – performs work on financial information related to a component for the group
audit.
3.
Component management – responsible for preparing the financial information of a component
4.
Group – all components whose financial information is included in the group FS. Always has more
than one component.
5.
Group audit – audit of group Fs
6.
Group audit opinion – audit opinion on the group FS
7.
Group engagement partner – partner or other person in the firm who is responsible for the group
engagement and its performance, and for the auditor’s report on the group Fs that is issued on behalf
of the firm. Where joint auditors conduct the group audit, the joint engagement partners and their
engagement teams collectively constitute the group engagement partner and the group engagement
team. Responsible for the direction, supervision and performance of the group audit
engagement in compliance with professional standards and regulatory and legal requirements,
and whether the auditors report that is issued is appropriate in the circumstances
8.
9.
10.
11.
Group engagement team – refers to partners, including the group engagement partner and staff who
establish the overall group audit strategy, communicate with component auditors, perform work on the
consolidation process, and evaluate the conclusions drawn from the audit evidence as the basis for
forming an opinion on the group FS
Group financial statements – FS that include the financial information of than one component. Also
refers to combined FS aggregating the financial information prepared by components that have no
parent but are under common control.
Group management – responsible for preparing and presenting group FS
Significant component – component identified by the group engagement team
a.
That is of individual financial significance to the group
b.
That due to its specific nature or circumstances is likely to include significant risks of MM
if the group FS
The auditor’s report on the group FS shall not refer to a component auditor, unless required by law or
regulation to include such reference. If such reference is required by law or regulation, the auditors
report shall indicate that the reference does not diminish the group engagement partner’s firm’s
responsibility for the group audit opinion.