Audit Reports
Chapter 3
There are four types of audit reports:
(1) Unqualified: Clean opinion or report ‫ خالي من التحفظات‬, ‫ مطلق‬, ‫تام‬
(2) Qualified ‫متحفظ‬
(3) Adverse ‫رأي معاكس‬
(4) Disclaimer ‫امتناع عن ابداء الرأي‬
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Parts of the Standard Unqualified Audit Report
‫اجزاء التقرير المطلق‬
1. Report title ‫عنوان التقرير‬
The title should include the word ‘independent’
2. Audit report address ‫لمن يوجة التقرير‬
To its stockholders
3. Introductory paragraph ‫فقرة المقدمة‬
It’s the first paragraph does three things
•
•
•
The CPA firm has done an audit
It tests the financial statements that were audited
States that the statements are the responsible of management
and the auditor’s responsibility is to express an opinion.
4. Scope paragraph ‫فقرة نطاق التدقيق‬
•
States that the audit is designed to obtain reasonable assurance
about whether the statements are free from material misstatments
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Parts of the Standard Unqualified Audit Report
‫اجزاء التقرير المطلق‬

A test base indicate that sampling was used rather than an audit
transactions and amounts on the statements.
5. Opinion paragraph ‫فقرة ابداء الرأي‬
states that the auditor conclusions based on the result of the
audit. The phrase “ in our opinion” indicates that there may be some
information risk associated with the financial statement, although the
statements have been audited.
6. Name of CPA firm ‫اسم شركة التدقيق‬
7. Audit report date‫تاريخ تقريرالتدقيق‬
the date of completion the audit work.
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Conditions for Standard
Unqualified Audit Report
1. All financial statements are included.
2. The three general standards have been
followed in all respects on the engagement.
3. Sufficient evidence has been accumulated
to conclude that the three standards of
field work have been met.
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Conditions for Standard
Unqualified Audit Report
4. The financial statements are presented in
accordance with generally accepted
accounting principles.
5. There are no circumstances requiring the
addition of an explanatory paragraph or
modification of the wording of the report.
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Four Categories of Audit
Reports
1. Standard unqualified ‫ خالي من التحفظات‬, ‫ مطلق‬, ‫تام‬
2. Unqualified with explanatory paragraph
or modified wording ‫تام مع فقرة ايضاح او كلمات معدلة‬
3. Qualified ‫تقرير متحفظ‬
4. Adverse or disclaimer ‫تقرير معاكس او امتناع‬
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Sarbanes-Oxley Act
This Act requires the auditor of a public
company to attest to management’s
report on the effectiveness of internal
control over financial reporting.
PCAOB Auditing Standard 2 requires
the audit of internal control to be integrated
with the audit of the financial statements.
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Sarbanes-Oxley Act
Combined Report on Financial Statements and
Internal Control Over Financial Reporting
1. Introductory paragraph
2. Scope paragraph
3. Definition paragraph
4. Inherent limitations ‫التقيدات المتوارثة‬paragraph
5. Opinion paragraph
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Unqualified Report with Explanatory Paragraph
five circumstances when an unqualified report with
an explanatory paragraph or modified wording is appropriate
1. Lack of consistent application of generally
accepted accounting principles
‫قصور في تطبيق المعايير المحاسبية بشكل ثابت‬
2. Substantial doubt about going concern
‫شك كبير حول استمرارية الشركة‬
3. Auditor agrees with a departure from promulgated
‫ تشريعات رسمية‬accounting principles ‫في ظروف غير طبيعية‬
4. Emphasis of a matter
5. Reports involving other auditors
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Substantial Doubt About Going Concern
‫شك مادي كبير حول استمرارية الشركة‬
1. Significant recurring operating losses
or working capital deficiencies. ‫خسائر تشغيلية متكررة اوعجز مهم‬
‫في راس المال التشغيلي‬
2. Inability of the company to pay its
obligations as they come due. ‫عدم مقدرة الشركة على دفع التزاماتها‬
‫عندما يحين موعد سدادها‬
3. Loss of major customers, the occurrence
of uninsured catastrophes. ‫ الحدث كراثة غي مؤمنة‬,‫خسارة كبار العمالء‬
4. Legal proceedings, legislation that might
jeopardize the entity’s ability to operate.
‫ تشريعات تعرض مقدرة الشركة واستمرارية التشغيل‬,‫قضية قانونية مرفوعة ضد الشركة‬
‫للخطر‬
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Auditor Agrees with a Departure
from a Promulgated Principle
The auditor must be satisfied and must state
and explain, in a separate paragraph or
paragraphs in the audit report, that adhering ‫االلتزام‬
to the principle would have produced a
misleading result in that situation.
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Emphasis of a Matter
Under certain circumstances, the CPA may
want to emphasize specific matters regarding
the financial statements, even though the
CPA intends to express an unqualified opinion.
‫تحت ظروف معينة ربما المدقق يريد ان يؤكد على حدث محدد له عالقة‬
.‫بالقوائم المالية بالرغم من ان نية المدقق اصدار تقرير نظيف‬
‫هذه الظروف مثل احداث مهمة الحقة لتاريخ الميزانية‬
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Reports Involving Other
Auditors
1. Make no reference in the audit report
2. Make reference in the report
(modified wording report)
3. Qualify the opinion
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Learning Objective 5
Identify the types of audit reports
that can be issued when an
unqualified opinion is not justified.
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Departures from An
Unqualified Opinion
1. Scope limitation
2. GAAP departure
3. Auditor not independent
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Qualified Opinion ‫الرأي المتحفظ‬
A qualified opinion report can result from
(1) a limitation on the scope of the audit or
(2) failure to follow generally accepted
accounting principles.
The auditor use ‘ except for’ in the opinion paragraph
The scope of the audit has been restricted, When the auditor
has not accumulated sufficient evidence
To conclude whether financial statement are stated in
Accordance of GAAP
‫ عندما اليستطيع المدقق تجميع‬,‫نطاق او مجال التدقيق مقيد من قبل الشركة او ظروف اخرى‬
.‫ادلة كافي لتكوين رأي فيما اذا القوائم المالية تم اعدادها وفق المعايير المحاسبية المتعارف عليها‬
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Adverse Opinion ‫رأي معاكس‬
It is used only when the auditor believes
that the overall financial statements are
so materially misstated‫ تحريف مادي‬or misleading
that they do not present fairly the financial
position or results of operations and cash
flows in conformity ‫ طبقا ل‬with GAAP.
‫يستخدم عندما يعتقد المدقق ان هناك تحريف مادي او تظليل ادى الى عدم عرض‬
‫ كما انها لم تعرض التدفق النقدي‬.‫المركز المالي ونتيجة عمليات الشركة بشكل عادل‬
‫بشكل يتفق مع المبادىء المحاسبية المتعارف عليها‬
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Disclaimer of Opinion
‫امتناع عن ابداء الرأي‬
It is issued when the auditor is unable ‫غير قادر‬
to be satisfied that the overall financial
statements are fairly presented.
The adverse opinion report can arise ‫ ينشأ‬only when the
Auditor has knowledge, after an adequate investigation,
Of the absence of conformity.
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how materiality affects audit reporting
decisions ?
Materiality ‫تعريف المادية‬
A misstatement ‫ التحريف‬in the financial
Statements can be considered material if
knowledge of the misstatement would affect
a decision of a reasonable user of
the statements.
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Levels of Materiality
Amounts are immaterial. ‫المقاديير المحرفة غير مادية‬
Amounts are material but do not overshadow ‫اليلقي بتاثيرة‬
the financial statements as a whole.
Amounts are so material or so pervasive ‫ يعم‬,‫ يتغلغل‬that
overall fairness of the statements is in question.
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Relationship of Materiality to
Type of Opinion
Materiality Significance in Terms of
Type of
Level
Reasonable Users’ Decisions Opinion
Users’ decisions are unlikely
Immaterial to be affected.
Unqualified
Material
Users’ decisions are likely
to be affected.
Qualified
Highly
material
Users’ decisions are likely
to be significantly affected.
Disclaimer
or adverse
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Discussion of Conditions
Requiring Departure
 Auditor’s scope has been restricted
 Statements are not in conformity with GAAP
 Auditor is not independent
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Auditor’s Decision Process
Determine whether any condition exists
requiring a departure from a standard
unqualified report.
 Decide the materiality for each condition
 Decide the appropriate type of report
 Write the audit report
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More Than One Condition Requiring
a Departure or Modification
The auditor is not independent.
There is a scope limitation.
There is a substantial doubt about
the company’s ability to continue
as a going concern.
There is a deviation in the statements’
preparation in accordance to GAAP.
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Number of Paragraphs
in the Report
Type of Report
Standard unqualified
Unqualified with explanatory paragraph
Unqualified shared report with other auditors
Qualified – opinion only
Qualified – scope and opinion
Disclaimer – scope limitation
Adverse
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