CHAPTER 14 AUDIT REPORTING

Audit process pertains to the auditor’s responsibility to communicate the results of the
engagement through a written report. Written report is the main output of the audit that is
made available to the users to enhance their confidence in the information presented by
an entity. It is important that the auditor appropriately completes the required procedures
and obtains sufficient and appropriate evidence to manage the risk of forming and
expressing an incorrect opinion to the users.

Audit Reporting
*Key Elements of an Audit Engagement

Management Audit Report

and Those and Other Financial
Auditor Reporting Statements
Charged with
Governance Responsibilities User

Materiality

Audit Risk
PFRS/GAAP/ Sufficient
Assertions in
Others ( Suitable Appropriate Cost- Benefit
Fs
Criteria) Evidence Constant

Professional
Skepticism
General-Purpose Financial Statement
-Financial statements prepared in accordance with a general-purpose framework and shall
be composed of complete set of financial statements.
Complete set of financial statements shall include:
a. Statement of financial position as at the end of the period
b. Statement of profit or loss and other comprehensive income
c. Statement of changes in equity for the period
d. Statement of cash flows for the period.
e. Notes, comprising a summary of accounting policies and other explanatory note
f. Comparative information in respect of the preceding period, and
g. A statement of financial as at the beginning of the preceding period when an entity
applies an accounting policy retrospectively.

General-Purpose Framework
-financial reporting framework designed to meet the common financial information needs
of a wide range of users.

Fair Presentation Framework

a. Supplementary disclosures
- Acknowledges explicitly or implicitly that, to achieve fair presentation of the
financial statements.
b. Departure from the Framework
- Acknowledges explicitly that it may be necessary for management to depart from a
requirement of the framework to achieve fair presentation of the financial statements.
Compliance Framework
Requires strict compliance with the requirements of the framework, no required
acknowledgements for supplementary disclosures or departure from the reporting
framework.

FORMATION OF OPINION
States that “The auditor shall form a opinion on whether the financial statements are
prepared, in all material respects, in accordance with the applicable financial reporting
framework.”
Reasonable assurance must be reached by considering the following:
*Evidence
Whether sufficient and appropriate has been obtained.
*Misstatements
Whether uncorrected misstatement, which are misstatements that the
auditor has accumulated during the audit and that has not been corrected.
*Framework
Whether the financial statements are prepared, in all material respects, in
accordance with the requirements of the applicable financial reporting.
Expression of Opinion
Expressed by the auditor, depending on the evidence obtained.
Types of Audit Reports
Unmodified or Unqualified
Expressed if sufficient and appropriate evidence has been obtained that the financial
statement are fairly presented.
Qualified
Expressed if there is a material limitation in scope or material non-compliance with the
reporting framework but overall financial statements remain fairly presented.
Adverse
Expressed if there is material non-compliance with the reporting framework that
pervasively affects the financial statements.
Disclaimer of Opinion
Expressed if there is a material limitation in the scope of the audit that pervasively
affects the financial statements.

Standard Audit Report

Audit opinion shall be expressed in the form of a written report.
Parts of the Standard Audit Report (TAOB-MASAD)
Title
Should indicate that it is a report of an independent auditor.
Addressee
Depends on the circumstances of the engagement.
Auditor’s Opinion
Identify the entity whose financial statements have been audited
State that the financial statements have been audited
Identify the title of each statement comprising the financial statements
Refer to the notes, including summary of significant accounting policies.
Specify the date of , or period covered by, each financial statement
Express the opinion formed on the financial statements.
Basis for Opinion
State that the audit was conducted
Section of the auditor’s report
Identify the jurisdiction of origin of the relevant ethical requirements
Audit evidence the auditor has obtained is sufficient and appropriate
Responsibilities of Management
Preparing the financial statements in accordance with the applicable financial report
Determine necessary to enable the preparation of financial statements
Assesing entity’s ability to continue as a going concern
Disclosing, if applicable, matters relating to going concern
Auditor’s Responsibilities
Overall objectives
Level of assurance
Causes misstatements may be either due to fraud or error
Materiality based on the applicable financial reporting framework
Exercise of professional judgement and maintenance of professional skepticism
Description of the audit process
Name and Signature of the Auditor
Auditor’s report shall be signed
Auditor’s Address
Auditor’s report shall name the location in the jurisdiction
Date of the Report
Report shall be dated no earlier than the date which the auditor has obtained sufficient
appropriate audit evidence

Types of Modified Opinion

Qualified opinion
Adverse opinion
Disclaimer opinion

Pervasive
Context of misstatements, to describe the effects on the financial statements of
misstatements.

Key Audit Matter (KAM)

Auditor’s professional judgement, were of most significance in the audit of the financial
statements of the current period.
 Additional Communications in the Auditor’s Report

ADDITIONAL
COMMUNICATIONS

EMPHASIS OF
KEY AUDIT OTHER MATTER
MATTER
MATTERS (KAM) PARAGRAPH (OMP)
PARAGRAPH(EMP)

Communicating KAM in the Auditor’s Report except when

1. Law or regulation precludes public disclosure about the matter.
2. The auditor determines that the matter should not be communicated in the auditor’s
report because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
3. The auditor would be required to modify the opinion as a result of the matter.

Format of Key Audit Matters

HEADING

INTRODUCTORY PARAGRAPH

KEY AUDIT REFERENCE TO THE RELATED

MATTERS DISCLOSURE IN THE FINANCIAL
STATEMENTS

ERFEAUDITOR’S CONSIDERATIONS IN
DETERMINING THE KEY AUDIT MATTER

AUDITOR’S RESPONSE TO THE KEY

AUDIT MATTER
Emphasis of Matter Paragraph (EMP)
included in the auditor’s report that refers to a matter appropriately presented or
disclosed in the financial statement

Format of Emphasis of Matter Paragraph

HEADING

EMPHASIS OF
REFERENCE TO THE MATTER OF BEING
MATTER
EMPHASIZED
PARAGRAPH

INDICATION THAT THE MATTER

DOESN’T MODIFY THE OPINION

Circumstances that may require an emphasis of matter paragraph

EARLY
UNCERTAIN APPLICATION OF
GOING CONCERN
OUTCOME OF NEW ACCOUNTING
ASSUMPTION
LITIGATION STANDARD

SPECIAL PURPOSE SUBSEQUENT MAJOR

FINANCIAL DISCOVERY OF CASTASTROPHE
STATEMENTS FACTS (TRAGEDY)

Other Matter Paragraph (OMP)

included in the auditor’s report that refers to a matter other than those presented or
disclosed in the financial statements
Circumstances that may require Other Matter Paragraph

MATERIAL
RESTRICTION ON
COMPARATIVE INCONSISTENCY IN
DISTRIBUTION OR
INFORMATION OTHER
USE OF REPORT
INFORMATION

REPORTING ON MORE
INABILITY TO SUBSEQUENT THAN ONE SET OF FS
WITHDRAW FROM DISCOVERY OF PREPARED USING
THE ENGAGEMENT FACTS DIFFERENT
FRAMEWORK

Additional Reporting Considerations for the Report on the Audited Financial

Statements
Comparative Information
Initial Audit Engagements
Group Audit Engagements
Other Information
Using the work of an expert

Audit Reporting under Comparative Financial Statement Approach

refers to both the current period and prior financial statements.

Reporting on Initial Audit Engagements

Unaudited and audited by a previous auditor referred to as an initial audit engagement.

Opening balances
Account balances that exist at the beginning of the period.

Elements of a group Audit

Component Component Component

A B C

Component Component
D E
 Group Management

GROUP AUDIT
Group Group Group
Group Financial Financial Financial
Engagement Team Statements Statements Statements

Group Engagement
Partner Sufficient Suitable
Appropriate Criteria
Evidence
Group Engagement Work of Component Auditors
Staff
Consolidation Procedures

Group pertain to all components

Components is an entity or business activity
Group financial statements is a information of more than one component
Audit of group financial statement is group audit
Group audit is performed by Group Engagement Team
Group Engagement Partner a partner or other person in the firm who is responsible
for the group financial statement
Component Auditor who performs on financial information related to a component
for the group audit.
Other Information
pertains to a financial or non- financial information

A. Audit Procedures over Other Information

Discuss the annual report with management
Obtain the annual report in a timely manner
Read the annual report
Determine any material inconsistency
Consider the impact of material inconsistency
B. Responding to a material inconsistency
C. Responding to a material misstatement of fact.

Material misstatement of fact

Other information exists when such information, not related to matters appearing in the
audited financial statements
Assessing the Work of the Expert
Source data used
Assumptions and methods used and consistency with prior periods
Results of the expert’s work.

Reference to an Expert in the Auditor’s Report

is the opinion to be issued modified
if yes, No reference will be made to the work of the expert
if no, Will the audit include a disclaimer of opinion
if yes, No reference will be made to the work of the expert
if no, Is the modification related to the work of the expert
if yes, It may be appropriate, in explaining the nature of the modification, to refer
to or describe the work of the expert.

Illustrative auditor’s report on financial statement with supplementary information

that is integral to the financial statements
Section for the report on the audit of financial statements
Section for the report on supplementary information

Illustrative auditor’s report on financial statement with supplementary information

that is not integral to the financial statements
Section for the report on the audit of financial statements
Section for the key audit matters
Section for the report on supplementary information
Inclusion of the name of engagement partner.