KOLEJ TEKNOLOGI YPC-iTWEB

Programme: BSc (Hons) Accounting and

Finance
Coursework 1
Coursework 1
6004YPCAFA
Mr. Wong
B123054

639960

Contents
1.0

Introduction...................................................................................................4

2.0

Audit reports..................................................................................................4

1.1

The necessary for auditors of large plcs to produce more detailed in

audit reports.........................................................................................................5
2.0

Impacts of enhanced audit report.................................................................7

2.1

Risk and materiality issues of enhanced audit reports..............................7

2.2

Beneficial of enhanced audit reports.........................................................9

3.0

Conclusion..................................................................................................10

4.0

References..................................................................................................11

1.0 Introduction
The aim of this coursework is to identify and outline necessity for auditors of
large plcs to produce more detailed audit reports and particularly on risk and
materiality issues and beneficial for users of accounts if enhanced reporting.
Through the process of doing this coursework, the author have been done a lot
of relevance research and information that could help for this coursework. It
helps the author understand deeper of obligation of an auditor and what should
include in the audit reports. This coursework lead the author observes or
measure what she had learn and noticed that how important of an auditor for a
company which to supervise or monitor the firm. Besides, it is also to identify and
evaluate the risks of material misstatement, whether due to fraud or error, at the
financial statement.

2.0 Audit reports

According to (Alvin A.Arens, Randal J. Elder, Mark S. Beasley, Noor Afza
Amran, Faudziah Hanim Fadzil, Nor Zalina Mohammad Yusof, Mohamad Naimi
Mohamad Nor and Rohami Shafie, 2006), auditors duty is to report on financial
statements that are set out in the Companies Act 1965, which under section 174
and described about power and duties of auditors. Besides, section 174(2)
requires the auditor to report to the members of the company on the accounts
presented at the annual general meeting. An audit reports as recorded in the
annual report, examines to check the compliance of an organizations financial
statements with General Accepted Auditing Standard which an official evaluation
of a companys financial status, with the combine of an auditors opinion and
collected data on the companys financial transactions and status. It is an
ordinary process for companies to use while evaluating their records and
providing financial information present to future investors.

1.1 The necessary for auditors of large plcs to produce

more detailed in audit reports
The necessary in audit reports, it should be sufficiently similar with the
facilitate users comparison of the underlying economic state of affairs of different
entities. When move away from a fully standardized report and opinion, it will
inevitably incurred incur some changes. Financial reporting and auditing also
required significant exercise of professional judgment. In order to be doable,
those solutions that proposed must result in economic decision and contribute to
market confidence. Other than that, information that is subjective such as two
auditors should give the same fact pattern and information that could come with
different conclusions and issue substantively different reports will not meet this
criterion.
Besides, the adoption of different approaches that achieve the objectives
of additional reporting may be necessary in the short-term. To the extent
possible, the content of the core elements and audit opinion on the financial
statements should

be

the

same

for all audit reports. Some limited

accommodation may be needed in circumstances when law or regulation or

national auditing standards dictate particular wording or structure. For any
proposed additional auditor reporting, however, the focus may need to be on the
objective or aim of that reporting rather than the way that it must be done
because of underlying differences in financial reporting, corporate reporting and
corporate governance frameworks.
In addition, information about the specific audit performed would be
helpful. For example, some are interested in the level of materiality applied in an
audit, any significant internal control deficiencies found, areas of significant
difficulty encountered in the audit and the resolution, or other areas of significant
audit judgment. At a minimum, given the lack of objective criteria on which to
determine what should be reported, the meaning and significance of such
disclosures would be difficult users to trade off. However, a short written report

can never fully convey the basis and context of those judgments. Auditors report
such matters to those charged with governance like audit committees or
supervisory boards, but as part of a two ways and dynamic dialogue that
provides the context necessary to make it meaningful.
In author opinion, believe that certain core content of the auditors report
should also be retained as useful information in communicating key concepts.
Enhancements can be made to this wording that would be value to users,
including explanation of how the concept of materiality is applied in audits
generally and matters relevant to auditor independence. Explaining the nature
and extent of the auditors involvement with other information in the annual report
would be useful as well. These matters may contribute to the expectations gap
and,

therefore,

further

explanation

of

them

could

usefully

address

misconceptions.
Furthermore, another area of particular concern about close call which
as regard of going concern, such as circumstances when events or
circumstances raise doubt, triggering additional work effort, but the auditor is
ultimately able to conclude that a material uncertainty does not exist. The close
call would meet the requirement or identifying key audit matters because
evaluating whether a material uncertainty exists could involve the auditor
attention. Going concern is concept that an organization will continue in
operation in the foreseeable future and that its assets are therefore to be
accounted for on the basis of continued use rather than on the basis of market or
liquidation value regarding (Arnot, 2004). The International Auditing and
Assurance Standards Board (IAASB) is also proposing requirements for auditors
to include specific statements about going concern in their reports. In particular:
a statement by the auditor regarding the appropriateness of managements use
of the going concern basis of accounting in preparing the financial statements;
and a statement whether the auditor has identified a material uncertainty that
may cast significant doubt on the entitys ability to continue as a going concern.
In addition, the International Auditing and Assurance Standards Board (IAASB)

are proposing an explicit statement in the auditors report on Other Information,

based on the auditors work effort specified by the International Standard on
Auditing (ISA).
Users are generally aware that the auditor has some responsibilities to
consider these matters as part of their audits, and have called for greater
transparence about what those responsibilities are and the outcome of the
auditors work. The proposals therefore simply make explicit in the auditors
report what is now only implicit. Furthermore, the International Auditing and
Assurance Standards Board (IAASB) proposes that the auditors report include
an explicit statement about the auditors independence from the audited entity
and, for listed entities, to disclose the name of the engagement partner in the
auditors report. It also proposes clarification of respective responsibilities for the
financial statements and the audit, while permitting some of the standardized
working describing an audit to be placed in an appendix to the auditors report
or, in appropriate circumstances, to be relocated to the website of an appropriate
authority regarding of (Chairman, 2013).

2.0 Impacts of enhanced audit report

Segments above shown that what are the necessary extra information or
improvements should add into the audit reports. There are, however, aspects
that may have implications for what should add into audit reports. The most
significant implications for the audit reports of unlisted entities are described
below.

2.1 Risk and materiality issues of enhanced audit reports

The main risk will be the content of the auditors report. It is a fully new
standard to establish about the requirements and guidance for the auditors
determination and communication of key audit matters in the auditors report.
According to ( Brian Bluhm, Deputy Chair, and Phil Cowperthwaite, 2013), key
audit matters which are selected from matters communicated with those charged

with governance that are required to be communicated in the auditor reports.

Auditors of financial statements of unlisted entities will also be required or decide
to communicate key audit matters in the auditors report.
For instance, law and regulation may also require auditors in a particular
jurisdiction to communicate key audit matters. Moreover, the auditors of other
unlisted entities may wish to use the new mechanism of key audit matters on a
voluntary basis. Where key audit matters are communicated for audits of
financial statements of unlisted entities either voluntarily or when required by law
or regulation then such matters should be determined and communicated in the
same manner as for listed entities. ISA 700 has been revised to establish new
required reporting elements, including a requirement for the auditor to include an
explicit statement of auditor independence and disclose the source of relevant
ethics requirements, for all audits including those of unlisted entities. Similarly,
ISA 570, Going Concern, has been amended to establish auditor reporting
requirements applicable to all audits. The IAASB believes it is in the public
interest for this to have universal application.
Lastly, concern is expressed that the proposed audit report would be too
long. However, it is argued that stakeholders are asking for clarity and this is the
only way in which that demand can be satisfied. The proposed changes are not
mutually exclusive, and there may be practical challenges, unintended
consequences and other impediments that may result from enhanced auditor
reporting, including increased costs. The first proposal of auditor commentary is
one which could potentially require more work and raise the cost of compliance.
The remaining four proposals are considered unlikely to require a significant
increase in audit fees. The IAASBs intention is for the current scope of an ISA
audit to be maintained. Although certain changes, like the auditor commentary
proposal, could indicate a pervasive need to increase the scope of audit
procedures beyond those currently required, and this could require new auditing
standards regarding of (John Hodge CA and Zowie Murray CA, 2012).

2.2 Beneficial of enhanced audit reports

Users are ability to read, understand and use additional information
provided. Users can be better understand corporate reporting, and therefore
make more informed decisions, may be enhanced by having more relevant
information about the entity, including information about critical issues facing the
entity. However, some hold the view that additional information may confuse,
rather than improve, users understanding of the entity by adding to the often
already complex and comprehensive array of information users receive. A key
goal is to improve the quality of information provided to users rather than simply
the quantity.
Besides, in an audit of financial statements, the auditors judgment as to
matters that are material to users of financial statements is based on
consideration of the needs of users as a group; the auditor does not consider the
possible effect of misstatements on specific individual users, whose needs may
vary widely. The evaluation of whether a misstatement could influence economic
decisions of users, and therefore be material, involves consideration of the
characteristics of those users. Users are assumed to have an appropriate
knowledge of business and economic activities and accounting and a willingness
to study the information in the financial statements with an appropriate diligence.
In addition, it also lead understand that financial statements are prepared and
audited to levels of materiality. Recognize the uncertainties inherent in the
measurement of amounts based on the use of estimates, judgment, and the
consideration of future events and make appropriate economic decisions on the
basis of the information in the financial statements.
Expanding the auditors reporting responsibilities, either internally to those
charged with governance or externally, may for example increase the auditors
focus on issues critical to users understanding of the entity. This may in turn
enhance perceptions of audit quality. Some have suggested that additional
reporting by the auditor without a change in the current audit scope should not
significantly increase costs. However, others believe that such additional

reporting would, of itself, increase costs. That has led some to suggest that if the
auditor is not able to recover any increased costs through their fees, it may
create pressure to reduce work in other areas, which could have a detrimental
effect on audit quality. Some have cautioned that additional reporting in the form
of auditor commentary may widen the expectations gap, as may the option to
change the structure and format of the auditors report, as discussed in Section
III. On the other hand, greater transparency about the audit performed may not
only enhance users understanding of the audited financial statements, but also
affect their perceptions of the quality and value of the audit. For example, if users
are informed about areas of the audited financial statements that required
exercise of significant auditor judgment, they presumably would have a better
understanding of the auditors opinion on the financial statements as a whole.

3.0 Conclusion
Through this report, it notices that how important is the auditor toward an
organization. It have established rule that the auditors are to play a vigilant and
objective role in ensuring the shareholders interest and the management of the
company have acted within reason. It is the shareholders who primarily depend
on the good faith and efficiency of the company's auditor to ensure that
company's actions in the day-to-day operations are verified. It is hoped that the
standards of corporate governance can be increased and improved to meet the
demands of the challenging global market to prevent case of Enron and
WorldCom happens.
(2162 words)

4.0References

Brian Bluhm, Deputy Chair, and Phil Cowperthwaite, 2013. Strengthening

Organizations, Advancing Economies. IAASB Proposals for Enhancing
the Auditors Report: Potential Impact on Audits of Unlisted Entities, p. 1.

Alvin A.Arens, Randal J. Elder, Mark S. Beasley, Noor Afza Amran,

Faudziah Hanim Fadzil, Nor Zalina Mohammad Yusof, Mohamad Naimi
Mohamad Nor and Rohami Shafie, 2006. Auditing and Assurance
Services in Malaysia. 11th ed. Malaysia: Pearson.

Arnot, A., 2004. Reporting a Going Concern. p. 1.

Chairman, 2013. The Evolving Role of Auditors and Auditor Reporting.

Colombia: International Auditing and Assurance Standards Board .

John Hodge CA and Zowie Murray CA, 2012. Chartered Accountants.

Enhanced auditor reporting, p. 2.