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Topic 6 - Audit Report - Students printing
Kiểm toán (Trường Đại học Kinh tế Thành phố Hồ Chí Minh)
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Course tittle:
Learning objectives of Topic 6
Principles of Auditing
6.1. Understand the concept, structure and qualitative
characteristics of the auditor's report
2. Identify the different types of auditor's reports
Topic 6
3. Describe the circumstances under which an auditor
would issue each type of report
Audit Report
(Audit completion)
4. Identify the reasons for departures from a standard
unmodified auditor's report (material misstatements and
limitations imposed on the scope of the audit; and understand
the factors giving rise to these reasons)
Lecturer: Nguyễn Hoàng Tố Loan
Auditing Department, School of Accounting, UEH
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Contents of Topic 6
Prescribed Reading
Session
10
Topic 6
Audit
Report
Materials
Textbook (1): Chapter 11,12
Textbook (2): Chapter 6
Exercises
Notes
Textbook (1): Chapter 11,12
Workbook: Chapter 6
Audit planning
1. Completion and review before issuing
the auditors report.
Relevant Guidance (Quy định có liên quan)
2. The auditor’s report
ISA/VSA550
Related Parties
ISA/VSA560
Subsequent Events
2.1. Definition
ISA/VSA570
Going Concern
2.2. Structure and qualitative
ISA/VSA580
Written Presentations
ISA/VSA700
Forming an Opinion and Reporting on Financial Statements
ISA/VSA705
Modifications to the Opinion in the Independent Auditor's Report
2.4. Form and content of the
modified audit opinion
ISA/VSA706
Emphasis of Matter Paragraphs and Other Matter Paragraphs in the
Independent Auditor's Report
2.5. Emphasis of matter & Other matter
Audit performance
Audit completion
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2.3. Types of auditor’s opinion
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1. Completion and review before issuing the auditor’s report
2.1. Definition of the Auditor’s Report
1. Applying analytical procedures at or near completion of the audit.
What is Audit Report?
2. Assessing the appropriateness and sufficiency of audit evidences.
3. Evaluating the effects of unadjusted/uncorrected misstatements.
4. Perform these following procedures:
Ø subsequent events review (sự kiện sau ngày kết thúc niên độ);
Ø examining related-party transactions, (giao dịch với các bên liên quan)
Ø assessing the appropriateness of the going concern assumption (giả định hđ liên tục)
The audit statement means the written report made by
practicing auditors, auditing firms, branches of foreign
auditing firms in Vietnam after the completion of the audit,
giving opinions on financial statements and other contents
which have been audited under the audit contract.
5. Obtain “management presentation letters”
6. Reviewing of working papers, FSs, and other information contained in the
annual report.
Law No.: 67/2011/QH12
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2.2. STRUCTURE OF AN AUDITOR’S REPORT
2. THE AUDITOR’S REPORT
1. Reference number of an Auditor’s report
Reminding
ISA 200: Objective of an audit of the financial report is to
enable the auditor to express an opinion as to whether the
financial report is prepared, in all material respects, in
accordance with an applicable financial reporting framework.
2. Title
3. Addressee
4. Introductory paragraph
5. Management’s Responsibility for the FSs
(or Responsibility of those charged with governance)
6. Auditor’s responsibility
7. Auditor’s opinion
What is Audit Report?
8. Auditor’s signature
9. Date of auditor’s report
10. Auditor’s address
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2.2. STRUCTURE OF AN AUDITOR’S REPORT
2.2. STRUCTURE OF AN AUDITOR’S REPORT
VSA 700
1. Reference number of an Auditor’s report
Số hiệu phát hành theo từng năm của doanh nghiệp kiểm toán
2. Title
3. Addressee
Ghi rõ “Báo cáo kiểm toán Độc lập” (phân biệt với báo cáo khác)
Ghi rõ người nhận, thường là cổ đông, Ban quản trị hoặc Ban
Giám đốc của đơn vị
4. Introductory paragraph
This is the reference number of an Auditor’s report issued by the audit firm.
(2) Title
The title of the report mentions it is “Independent Auditors’ report”.
à This clearly indicates that the auditor’s report is the report of an independent
auditor and distinguishes this report from report issued by others.
5. Management’s Responsibility for the FSs
(or Responsibility of those charged with governance)
6. Auditor’s responsibility
(3) Addressee (người nhận)
7. Auditor’s opinion
The auditor’s report is normally addressed to those for whom the report is
prepared, often to shareholders, or those charged with governance (the
board of directors) of the Company.
8. Auditor’s signature
9. Date of auditor’s report
10. Auditor’s address
(1) Reference number of an Auditor’s report
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2.2. STRUCTURE OF AN AUDITOR’S REPORT
Examples:
(4) Introductory paragraph
It should identify the entity whose FS have been audited and should state
that the FS have been audited. It should also:
Ø Identify the title of each of the FS that comprise the complete set of FS.
Ø Identify the page number on which auditor’s report and FS are presented.
Ø Specify the date and period covered by the FS.
Ø State the issuing date of the FS.
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2.2. STRUCTURE OF AN AUDITOR’S REPORT
Examples of Introduction paragraph
(6) Auditor's responsibility
Example of
Amazon.com, Inc.
v The auditor’s the responsibility is to express an opinion on the FS based on the audit.
v The auditor needs to:
Ø Make reference to the audit standards were used (eg., ISAs, or VSAs),
Ø State the objective of an audit,
Ø Provide information of performing procedures to obtain audit evidence about the
amounts and disclosures in the FS,
Ø State that the audit evidence the auditor has obtained is sufficient and appropriate to
Example of
HAGL group
provide a basis for the auditor's opinion
Ø Assess the risks of material misstatement of the FS, whether due to fraud or error,
including the assessment of internal control,
Ø Evaluate the appropriateness of the accounting policies used, the reasonableness of
the accounting estimates made by management, as well as the overall presentation
of the FS.
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2.2. STRUCTURE OF AN AUDITOR’S REPORT
(5) Management's responsibility for the financial statements
Eg HAGL
group
v The auditors should state that management is responsible for the preparation
and the fair presentation of the FS in accordance with the applicable financial
v They are also responsible for designing, implementing and maintaining internal
control relevant to the preparation and fair presentation of FS that are free from
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the separate financial statements. The procedures selected depend on the auditors' judgment, including
the assessment of the risks of material misstatement of the separate financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the
Company's preparation and fair presentation of the separate financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the separate financial statements.
material misstatement, whether due to fraud or error.
Management's responsibility
The Company's management is responsible for the preparation and fair presentation of the Company's
separate financial statements in accordance with Vietnamese Accounting Standards, Vietnamese
Enterprise Accounting System and the statutory requirements relevant to preparation and presentation of
separate financial statements, and for such internal control system as management determines is
necessary to enable the preparation and presentation of the separate financial statements that are free
from material misstatement, whether due to fraud or error.
Auditors' responsibility
Our responsibility is to express an opinion on these separate financial statements based on our audit.
We conducted our audit in accordance with Vietnamese Standards on Auditing. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the separate financial statements are free from material misstatement.
reporting framework.
Eg HAGL
group
An example of Auditor's responsibility
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our qualified audit opinion.
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2.2. STRUCTURE OF AN AUDITOR’S REPORT
2.3. AUDIT OPINION
(7) Auditor’s opinion
Types of audit opinions
v It is the primary paragraph of the auditor’s report content. The auditors express the
auditor’s opinion on the FSs.
Audit Opinion
For eg. An unqualified opinion that the FS give a true and fair view or are presented fairly, in
all material respects, in accordance with applicable financial reporting framework.
Ý kiến không chấp nhận toàn phần
v They also give a reference of the financial reporting framework used to prepare the FSs
Unmodified
Opinion
(Eg, VASs, IFRS, US GAAP,…)
Modified Opinion
Ý kiến chấp nhận toàn phần
(8) Auditor's signature
Ý kiến ngoại trừ
à The signature identifies the CPA firm or practitioner who performed the audit, or both.
Qualified
Opinion
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Ý kiến trái ngược
Adverse
Opinion
Ý kiến từ chối đưa ra ý kiến
Disclaimer of
Opinion
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Except for : Ngoai tru
2.2. STRUCTURE OF AN AUDITOR’S REPORT
2.3.1 Unmodified (Unqualified) opinion
(9) Date of auditor’s report
This type of opinion is expressed when the auditor is satisfied in all material respects that:
à The auditor’s report is dated as of the date the auditor signs the report.
à To inform users that the auditor has considered the effect of events and transactions that
occurred up until that date; and about which the auditor was aware.
v The auditor has concluded that they have obtained reasonable assurance that
the financial report as a whole is free from material misstatement, whether due to fraud or error.
(10) Auditor's address
Uncorrected misstatements are immaterial, both individually and in aggregate
à The auditor’s report also shows the name of the audit firm, and their location if contact isn
à This also means that the auditor has concluded that:
necessary.
v That the financial report is prepared, in all material respects, in accordance with the requirements
of the applicable financial reporting framework (ISA/VSA 700),
Eg HAGL
group
v Sufficient appropriate audit evidence has been obtained,
Khuôn khổ
Bằng chứng
v Any changes in accounting policies and their effects have been considered and disclosed on the
notes to FSs.
Chính sách kế toán
v The financial information complies with relevant regulations and statutory requirements.
Tuân thủ quy định
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2.3.2 Modified opinion
Example of Unmodified Opinion
Circumstances giving rise to a modified opinion
Eg Vinamilk
The
nature
of
matter
“giving
rise to a
modified
opinion”
FSs are materially misstated due to
“Disagreements with management”
(regarding the applications of accounting policies & disclosures)
Be unable to obtain sufficient appropriate
evidence (“Limitations on scope”).
How to determine the type of opinion expressed?
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2.3.2 Modified opinion
Circumstances giving rise to a modified opinion
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à Determine the type
of opinion expressed:
Modifications affecting the auditor’s opinion
Choose the
appropriate audit opinion
The auditor’s opinion should be modified when:
v The auditor concludes, based on the audit evidence obtained, that the
financial report is not free from material misstatements, or;
v The auditor is unable to obtain sufficient appropriate evidence to
conclude that the financial report is free of material misstatements
(ASA/ISA 705.6).
Qualified
Opinion
Adverse
Opinion
Disclaimer
of Opinion
è The auditor should take all reasonable steps to overcome the issues giving
rise to the material misstatement (disagreements with management) or the
issues causing the auditor to be unable to obtain sufficient appropriate
evidence (limitations on scope). Ko hop tac
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vThe “nature of matter giving rise
to a modified opinion”: whether
the FSs are materially misstated
or an inability to obtain sufficient
appropriate audit evidence.
vAuditor’s judgment regarding the
effects of materiality and the
pervasiveness on FSs.
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Sai sót có ảnh hưởng lan toả
What are “Material misstatements”?
ISA 705.A3
VSA 705
v VSA/ISA 450 defines a misstatement as the difference between the
amount, classification, presentation or disclosure of an item reported by
an entity in the financial report and the way that item is required to be
treated in accordance with the applicable financial reporting framework.
Ảnh hưởng lan toả (Textbook 2 – trang 239):
v Therefore, a material misstatement in the financial report may arise in
relation to:
Ø hoặc chúng có thể đại diện cho 1 phần quan trọng của BCTC;
Ø là ảnh hưởng mà chúng không chỉ giới hạn ở 1 số yếu tố, 1 số tài khoản hoặc
khoản mục cụ thể;
Ø hoặc liên quan đến thuyết minh chủ yếu mà để người sử dụng hiểu được BCTC.
Ø The appropriateness of the accounting policies selected
Ø The application of those accounting policies, or
Ø The appropriateness or adequacy of disclosures in the financial
report
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What are “Pervasive misstatements”?
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The Scope of the Audit Has Been Restricted (Scope Limitation)
Bị giới hạn về phạm vi kiểm toán
ISA 705.5
v Effects are considered to be pervasive if they:
Ø Are not confined (limited) to specific elements, accounts or items of the
financial report
Ø If so confined, represent or could represent a substantial proportion of
the financial report, or
Ø In relation to disclosures, are fundamental to users’ understanding of
the financial report
For all the types of modified opinions, a basis for modification
paragraph is inserted just before the opinion paragraph.
ISA 705.A8
v When the auditor has not accumulated sufficient appropriate evidence to conclude
whether FSs are stated in accordance with the appropriate financial reporting
framework, a scope restriction exists.
v A limitation on the scope of the auditor’s work may arise for one of the following
three reasons:
Ø Circumstances beyond the control of the entity
Ø Circumstances related to the nature or timing of the auditor’s work, or
Ø Limitations imposed by the entity.
Examples:
• management’s refusal to permit the auditor to confirm material receivables or to physically
examine inventory,
• the auditor is not appointed until after the client’s year-end, it is impossible to physically observe
inventories,
• accounting documents got destroyed in a fire.
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Choose the appropriate audit opinion
(Materially/Pervasively)
The nature of matter giving rise
to a modified opinion
The FSs are materially misstated
(disagreements with management)
Eg HAGL
group
An example of QUALIFIED OPINION
Auditor’s judgment regarding the effects
of materiality and pervasiveness on FSs.
Misstatements are
Misstatements are
material but
not pervasive
material and
pervasive
Qualified opinion
Adverse opinion
Qualified opinion
Disclaimer of opinion
An inability to obtain sufficient
appropriate audit evidence
(scope limitations)
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Types of Modified opinion
Types of Modified opinion
(1) QUALIFIED OPINION
(2) ADVERSE OPINION
ISA 705.7
v A qualified opinion is expressed when:
ISA 705.8
v An adverse opinion should be expressed when:
Ø The auditor, having obtained sufficient appropriate audit evidence,
concludes that misstatements are material but not pervasive to the FSs; or
ØThe auditor is unable to obtain sufficient appropriate evidence on which to
base the opinion, but concludes that the possible effects on the FSs
could be material but not pervasive.
Ø The auditor, having obtained sufficient appropriate audit evidence,
Ø and, concludes that misstatements are the effect of the misstatements, individually or in the
aggregate, are both material and pervasive to the FS as a whole.
à The most common situation in which they are issued is where
the accounts are prepared on a going concern basis and the auditor concludes
that it is highly improbable that the entity will continue as a going concern.
-->The most common types of qualified opinions issued relate to
material departures from a specific accounting standard or material disagreements
over the carrying value of a specific asset or liability and its potential effect on
profit.
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An example of ADVERSE OPINION
Eg Tracksafe
Ltd
Eg Trail
Ecosystem
Example of a disclaimer of opinion
(statement of inability to form an opinion)
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Types of Modified opinion
(3) DISCLAIMER OPINION
ISA 705.9
v A disclaimer of opinion, also referred to as an inability to form an opinion, is
expressed when:
Ø the auditor is unable to obtain sufficient appropriate evidence to form an
opinion,
Ø and concludes that the possible effect of undetected misstatements on the
financial report could be both material and pervasive.
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2.4 Form and content of the auditor’s when
the audit opinion is modified (1)
1. Basis for modification paragraph
v This provides a description of the matter giving rise to the modification.
v The auditor shall place this paragraph immediately before the Opinion
paragraph in the auditor's report and use the heading
"Basis for Qualified opinion", "Basis for Adverse Opinion", or "Basis for
Disclaimer opinion", as appropriate.
v This may include a description and quantification of the financial effects of the
misstatement, unless impracticable.
If not practicable, the auditor shall also state in the basis for modification
paragraph.
v The auditor shall include in the basis for modification paragraph the reasons
for an inability to obtain sufficient appropriate audit evidence, if any.
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2.4 Form and content of the auditor’s when
the audit opinion is modified (2)
2.5. “Emphasis of matter”
& “Other matter”
2. Change the title of Opinion paragraph
The auditor shall use the heading "Qualified opinion", "Adverse opinion", or
"Disclaimer of opinion", as appropriate, for the opinion paragraph.
3. Amend the description of the auditor's responsibility when a Qualified or
Adverse opinion is issued
To state that the auditor believes that the audit evidence the auditor has obtained
is sufficient and appropriate to provide a basis for that opinion.
4. Amend the introductory paragraph of the Disclaimer of Opinion
ISA 706: “Emphasis of Matter Paragraphs and Other
Matter Paragraphs in the Independent Auditor's Report”
To state that the auditor was engaged to audit the FSs. The auditor also amends
the description of the auditor's responsibility and the description of the scope of
the audit.
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2.4 Form and content of the auditor’s when
the audit opinion is modified (3)
Emphasis of matter
Example of amendment to the auditor responsibility paragraph
"Our responsibility is to express an opinion on the financial statements based on
conducting the audit in accordance with International Standards on Auditing.
Because of the matter(s) in the Basis for Disclaimer of Opinion paragraph,
however, we were not able to obtain sufficient appropriate audit evidence to
provide a basis for an audit opinion."
v In certain limited circumstances it is appropriate for the auditor to draw
attention to or emphasise a matter that is appropriately presented or
disclosed in the financial report and is considered relevant to users of
the auditor’s report, but which, because of its nature, does not affect the
auditor’s opinion.
v The major examples would be where there is a disclosure in the
notes to the financial report that the auditor considers to be complete
and adequate, but important enough to bring to users’ attention.
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Emphasis of matter
To draw user’s
attention to a
matter
appropriately
presented or
disclosed
in the FSs
Example: “Emphasis of Matter’ paragraph
relating to inherent uncertainties”
In the auditor’
judgment, that matter
is of such important
that it is fundamental
to user’s
understanding of the
FSs
The auditor has
obtained sufficient
appropriate audit
evidence that the
matter is not
materially misstated
in the FSs
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Circumstances giving rise to Emphasis of Matter
Other matter
ISA 706 outlines circumstances in which Emphasis of Matter (EoM) can be
issued:
Ø Uncertainty relating to the future outcome of exceptional litigation or
regulatory action
Ø Early application of a new accounting standard that has a pervasive
effect on the financial report in advance of its effective date, and
Ø A major catastrophe that has had, or continues to have, a significant
effect on the entity’s financial position.
Eg., currently, approximately 80% of auditor’s reports in Australia containing
EoM paragraphs relate to uncertainty regarding going concern status.
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Subsequent
Events
FS
Comparability
Material
Uncertainties
Related Party
Transactions
v The ability to include an Other Matter (OM) paragraph in the auditor’s
report allows auditor to draw user’s attention to any other matters, not
presented or disclosed in the financial report, that the auditor believes
are sufficiently important to be highlighted.
v Circumstances giving rise to an OM paragraph are relevant to
enhancing user’s understanding of:
Ø the audit,
Ø the auditor’s responsibilities or the audit report,
Ø reporting on more than one set of FSs,
Ø restriction on distribution or use of the auditor’s report.
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Other matter
Exercise: Patel, a CPA firm, has completed the audit of the FSs of Bell as of and
for the year ended December 31, 2019. Patel also audited and reported on the Bell
FS s for the prior year. Patel drafted the following report for 2019.
Those matters are
relevant to user’s
understanding of the
audit, the auditor’
responsibility or the
auditor’s report
To draw user’s
attention to any
matter(s)
other than those
presented or
disclosed
in the FSs
We have audited the balance sheet and statements of income and retained earnings of
Bell Corporation as of December 31, 2019. We conducted our audit in accordance
with generally accepted accounting standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of misstatement.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly the financial
position of Bell Corporation as of December 31, 2019, and the results of
its operations for the year then ended in conformity with generally accepted auditing
standards, applied on a basis consistent with those of the preceding year.
This is NOT
prohibited by
law/regulations
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Choose appropriate audit opinion
Patel, CPA
(Signed)
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Consider these following questions
1. Are there any material misstatements in the FSs?
No (there is No MM)
Unmodified
audit opinion
Other Information
q Bell is a private corporation.
Yes, there are MMs
MMs are NOT pervasive
2. The pervasiveness of MMs?
Qualified
audit opinion
MMs are pervasive
3. The auditor’s ability to obtain sufficient
appropriate audit evidence?
unable to obtain sufficient
appropriate audit evidence
Disclaimer of
opinion
q Patel was unable to perform normal accounts receivable confirmation procedures for
accounts that are material, but not pervasive, to the financial statements. Unfortunately, Patel
was not able to perform alternative procedures to support the existence of the receivables.
q Bell Corporation is the devaluation of inventory due to the nature of inventory of fashionable
items.
This is a reasonable possibility that Bell’s inventory account may be needed to make a
provision of 15.000 USD. This amount is higher than overall materiality of 10.000 USD.
Because management does not want to provide any information of this devaluation, the case
is not discussed in the financial statements.
Scope limitation
sufficient appropriate AE
Adverse
audit opinion
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Required:
a. Identify and explain any items included in “Other Information” that need not be part of the auditor’s report.
b. Does the current audit opinion provide a true and fair audit opinion?
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If it does not, suggest your recommendation on the more appropriate audit opinion.
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