AUDIT REPORTING

WHAT IS AUDITING
 the systematic process of
ascertaining the validity and
reliability of information about
economic actions and events and
communicating the results to
interested users.
WHAT IS AUDIT REPORTING
 Is communicating the evidence gathered
regarding the information presented in the
financial report, taken as a whole, as to
whether it reflects the true and fair view of
the financial position of the organisation at a
given date, for example:
 Are details of what is owned and what the
organisation owes properly recorded in the
statement of financial position?
 Are profits or losses properly assessed?
PURPOSE OF AN AUDIT REPORT
 The purpose of the audit report
is to provide an opinion as to
whether or not the annual
accounts give a true and fair
view of the entity’s financial
position.
 Give interested users assurance.
ELEMENTS OF AN AUDIT REPORT
Title –
 should be clearly stated E.g. ‘Independent
audit report’
 indicates that audit has been conducted
according to relevant ethical requirements
Addressee –
 should be addressed to concerned people
i.e. generally addressed to those charged
with governance & shareholders
Introductory paragraph –
 name of entity whose Financial Statement have
been audited
 fact that financial statements have been audited
 title of each Financial Statement i.e. Statement Of
Financial Position, Statement Of Comprehensive
Income, Statement Of Cash Flows
 reference to accounting policies & explanatory
notes
date & period of audit covered
Management’s responsibility for
the financial statements –
 should clearly state Management
Responsibility for preparation &
presentation of Financial Statements.
 It includes - designing & implementing
internal controls, selecting & applying
appropriate accounting policies &
making reasonable accounting
estimates.
 Auditor’s responsibility –
 audit was carried out in accordance with International
Standards on Auditing.
 reasonable care was exercised while planning audit
procedures
 audit ensures that Financial Statements are free from
material misstatement
 audit procedures followed by auditor depend on his
judgement
 audit involves evaluation of whether proper accounting
policies have been used
 auditor believes that sufficient audit evidence has been
obtained
Opinion paragraph –
 should state auditor’s
observations on the Financial
Statements.
 Auditor can express either a
qualified, unqualified or
adverse opinion
 Other reporting responsibilities –
 Report on Other Legal and Regulatory
Requirements.

Signature of the auditor –

 The auditor’s report must be signed, this is
normally the personal name of the auditor
or, if a partner is signing on behalf of the
audit firm, then the signature is of the
name of the firm.
 Date of the auditor’s report -
 Date when auditor has obtained
sufficient appropriate audit
evidence

Auditor’s address –
 The auditor’s report shall name the
location where the auditor
practises.
TYPES OF OPINIONS

Unqualified Opinion
Qualified Opinion
Adverse Opinion
Disclaimer Opinion
 UNQUALIFIED OPINION
 is issued when an auditor determines that each of the
financial records provided by the business is free of any
material misrepresentations. (True and Fair)
 It indicates that the financial records have been
maintained in accordance with the standards known as
Generally Accepted Accounting Principles (GAAP). This is
the best type of report a business can receive.
 Shows that the auditor has Sufficient Appropriate Audit
Evidence
 It contains all elements of the audit report.
QUALIFIED OPINION

 In situations when a company’s financial

records have not been maintained in
accordance with GAAP but no
misrepresentations are identified, an auditor
will issue a qualified opinion. The writing of a
qualified opinion is extremely similar to that
of an unqualified opinion. A qualified
opinion, however, will include an additional
paragraph that highlights the reason why
the audit report is not unqualified.
ADVERSE OPINION

 This indicates that the firm’s financial

records do not conform to GAAP.
 the financial records provided by the
business have been grossly
misrepresented. (are not true and fair)
 Although this may occur by error, it is
often an indication of fraud.
DISCLAIMER OF OPINION


It is issued when Sufficient
Appropriate Audit Evidence can
not be obtained.
 Contains 6 elements of the
audit report (title, address,
addressee, Date, signature,
Introductory paragraph.)
WHY CHANGE THE AUDITORS
REPORT NOW?
 The auditors report is the key deliverable,
communicating the results of the audit process.
Investors and other financial statements users
have asked for a more informative auditor’s report
to provide more relevant information to users.
 Research, public consultations and stakeholder
outreach including global roundtables indicate that
enhanced auditor reporting is critical to influencing
the perceived value of the financial statements
audit.
WHAT IS CHANGING?
 ISA720 (revised) The Auditors’ responsibilities
relating to other information
 ISA700 (revised) Forming an Opinion and Reporting
on financial statements
 ISA701 (new) Communicating Key audit Matters in the
Independent Auditor’s report.
 ISA570 (revised) Going concern
 ISA705 (revised)Modifications to the opinion in the
Independent Auditor’s report
 ISA260 (revised)Communication with those Charged
with Governance
WHAT ARE THE INTENDED
BENEFITS?
 Enhanced communication between auditors and investors
as well as those charged with corporate governance.
 Increased user confidence in audit reports and financial
statements.
 Increased transparency, audit quality and enhanced
information value.
 Increased attention by management and financial
statement preparers to disclose referencing the audit
report.
 Renewed auditor focus on matters to be reported that
could result in an increase in professional scepticism.
 Enhanced financial reporting in the public interest.
 NBThe new and revised
auditor reporting
standards are effective for
audits of financial
statements for periods
ending on or after
WHAT HAS CHANGED? KEY
OUTLINES
 International standards on auditing (ISA700) revised,
the auditors’ responsibilities relating to other
information.
 The revised ISA aims to clarify and increase the
auditors involvement with other information defined in
the standard as financial and non financial information
other than the audited financial statements that is
included in entities’ annual reports. It also includes
new requirements related to auditor reporting on other
information that complement the changes arising from
the IAASB’S new and revised auditor reporting
standards issued earlier this year.
ISA700 (REVISED)
forming an opinion and reporting on financial
statements
 This revised ISA deals with the auditor’s
responsibility to form an opinion on the financial
statements as well as the form and content of the
auditors report issued as a result of an audit of
financial statements. This ISA applies to an audit of
complete set of general purpose financial
statements.
 ISA700 is effective for audits of financial
statements for periods ending on or after
December 15, 2016.
ISA701(NEW)
Communicating key audit matters (KAM) in the independent
auditors report
 It deals with the auditor’s responsibility to communicate
key audit matters (KAM) in the auditors report.
 The ISA applies to audit of complete set of general purpose
financial statement of listed entities. It also applies when
the auditor is required by law or regulation to communicate
KAM for other entities or when the auditor decides to
communicate KAM on a voluntary basis. ISA 701 is effective
for audits of financial statements for periods ending on or
after December 15, 2016.
ISA570 (REVISED)
Going concern
 It deals with the auditors
responsibilities in an audit of financial
statements relating to going concern
and the implications for the auditors
report. ISA570 is effective for audits of
financial statements for periods ending
on or after December 15, 2016.
ISA705 (REVISED)
Modifications to the opinion in the Independent
auditors report
 This standard has been revised to conform to the
enhanced auditor reporting requirements in
ISA700(revised), forming an opinion and reporting
on financial statements changes to this ISA. It
relates primarily to how the form and content of
the auditors report is affected when the auditor
expresses a modified opinion. It is effective for
audits of financial statements for periods ending
on or after December 15, 2016.
ISA706 (REVISED)
Emphasis of matter paragraphs and other
matter paragraphs in the independent
auditors report
 Revisions to this ISA are as a result of new
ISA701. ISA706 deals with the auditors
responsibility to communicate with those
charged with governance in an audit of
financial statements.
 ISA706 (revised) is effective for audits of
financial statements for periods ending on or
after December 15, 2016
ISA260 (REVISED)
Communication with those charged with
governance
 Revisions to this ISA are as a result of new
ISA701, communicating key audit matters in the
independent auditors report. ISA260 (revised)
deals with the responsibility to communicate
with those charged with governance in an audit
of financial statements. ISA260 revised is
effective for audits of financial statements for
periods ending on or after December 15, 2016
COMPARISON OF THE NEW AND OLD
AUDITORS REPORT
 The major difference on the new and old
Auditors’ reports is on presentation as shown
in the above slide.
 In the new report the opinion is now a more
detailed opinion than was in the old report
where it is summarised.
 On other matters in the new auditors’ report,
the auditor is obliged to disclose or report key
audit matters. Unlike in the old report where
it was discretional.
COMPARISON OF THE NEW AND
OLD AUDITORS REPORT
OLD REPORT NEW REPORT
Date Date
Management responsibility Opinion
Auditors responsibility Basis of Opinion
Other matters Management Responsibility
Opinion Auditors Responsibility
Basis Other matters that is key audit
matters KAMs
Details Key Old New Changes
Report Report
Position Position

The Date 1 1 Remained the same

The 2 4 Management is charged or convicted for material

Management’ misstatements in the Financial Statements.
s
Responsibiliti
es

The Auditors 3 5 The Auditor is held accountable on his opinion given

Report on the Financial statements

Other Matters 4 6 Auditor should report on going concern issues.

Basis Of 5 3 The procedures to carry out the Audit

Opinion

Opinion 6 2 The opinion is now detailed

NB: the new auditors report is
there to enhance
accountability on those who
are entrusted in preparation
of financial statements and
the auditors as well in
carrying out an audit.
 Since auditing is a profession that
goes about its work behind the
scenes, investors and other
financial statements users have
demanded more transparency and
insight into the audit thereby
prompting the inclusion of the
following:
Key audit matters
 New section to communicate key
audit matters (KAMs) which are
those matters that, in the auditor’s
judgement, were of most
significance in the audit of the
current period financial statements.
Name of the engagement partner
 In South Africa, the engagement
partner has been identified in the
auditor’s report for many years, as
this is a requirement of the Code of
Professional Conduct for Registered
Auditors. However, this is now a
global requirement.
Independence and ethics
 An affirmative statement about the
auditor’s independence and fulfilment of
relevant ethical responsibilities, with
disclosure of the jurisdiction of origin of
those requirements or reference to the
International Ethics Standards Board for
Accountants’ Code of Ethics for
Professional Accountants
Going concern
 Enhanced auditor reporting on going concern, including:
 Specific descriptions of the responsibilities of
management and the auditor for going concern; and
 When a material uncertainty exists and is adequately
disclosed in the financial statements, a separate section
included in the auditor’s report (previously this was
included as an emphasis of matter paragraph)
 Furthermore, the auditor is now required to challenge the
adequacy of disclosures for “close calls“ i.e. when events
or conditions were identified that may cast significant
doubt on an entity’s ability to continue as a going
concern but due to management’s plans, it was
concluded that no material uncertainty exists.
Other information
 Inclusion of a section relating to other information that explains
management’s responsibility for the other information, identifies
the other information obtained or expected to be obtained,
explains the auditor’s responsibilities and work effort in relation to
other information and either that there is nothing to report or a
statement describing any uncorrected material misstatements.
This section is included as follows:
 Listed entities – where the auditor has obtained, or expects to
obtain, the other information;
 Other entities – where the auditor has obtained some or all of the
other information
Responsibilities of the auditor, management
and those charged with governance
 Enhanced description of the responsibilities of the
auditor and key features of an audit, and
improved descriptions of the responsibilities of
management and those charged with governance
particularly relating to going concern.
 Furthermore, the auditor is now permitted to
present these descriptions in an appendix to the
auditor’s report or, where law, regulation or
national auditing standards expressly permit,
refer to a website of an appropriate authority.
Restructure of the report
 The “Opinion” section is
required to be presented first,
followed by the “Basis for
Opinion” section unlike in the
previous report.