Audit Reports

Audit Report
The audit report is the final step in the audit process and the means by which the auditors communicate their opinion about the financial statements Corporate Law and auditing standards sets out the requirements governing the format and content of the audit report

Parts of the Standard Audit Report

Basic elements of the audit report include: Title Addressee Section describing audit scope -Managements ultimate responsibility for preparation of the financial statements - Auditor has conducted an independent audit in order to express an opinion - Audit conducted in accordance with Auditing standards - Audit procedures have been carried out on a test basis Section expressing auditors opinion on the financial report Auditors signature Auditors address and Date of audit report

Parts of the Standard Audit Report

Two basic types of audit reports are issued; 1. Unqualified report or 2. Qualified report

Un Qualified Report
An unqualified report is issued when the auditor is satisfied that the financial statements present fairly the financial statements present fairly the financial position, financial performance and cash flows of the entity in accordance with accounting standards. Most reports are unqualified as most problems are resolved with management prior to the report. Applies to quality of financial statements not to quality of entity as investment or credit risk

Conditions for Standard Unqualified Audit Report

1. All financial statements are included. 2. Sufficient evidence has been accumulated 3. The financial statements are presented in accordance with generally accepted accounting principles. 4. There are no circumstances requiring the addition of an explanatory paragraph or modification of the wording of the report.

Unqualified Report with Explanatory Paragraph

1. Lack of consistent application of generally accepted accounting principles 2. Substantial doubt about going concern 3. Auditor agrees with a departure from promulgated accounting principles 4. Emphasis of a matter 5. Reports involving other auditors

Substantial Doubt About Going Concern

1. Significant recurring operating losses or working capital deficiencies. 2. Inability of the company to pay its obligations as they come due. 3. Loss of major customers, the occurrence of uninsured catastrophes. 4. Legal proceedings, legislation that might jeopardize the entitys ability to operate.

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 to the principle would have produced a misleading result in that situation.

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

Emphasis of matter
Auditor may add an emphasis of matter section to the audit report whilst still expressing an unqualified opinion of the financial report Purpose is to draw attention to relevant information to users of the audit report. Circumstances;
Additional disclosures with which the auditor concurs Inherent uncertainty (going concern) that is adequately disclosed Inconsistent other information included with the audited financial reports Subsequent events

Qualified Report
Where the auditor is unable to resolve problems or disagreements with management a qualified report will be issued. Circumstances leading to qualification of an audit report include; - Disagreement with management - Conflict between applicable financial reporting frameworks - Limitation of scope

Conditions for Qualified Audit Report

Issues Examples Immateria l Material Fundament al or Extreme Adverse opinion statements are not fairly presented misleading and minimal information value to users

Disagreement with management

Appropriateness of accounting policies selected E.g. management may not depreciate building arguing that value has been maintained or increased since acquisition contravention of IAS 16 2. Application of accounting standard or appropriateness e.g. disagreement over provision for doubtful debts amount 3. Adequacy of disclosures e.g. company being sued for damages but no disclosure as a contingent liability

1.

Unqualifie d opinion

Except for opinionexcept for the qualified aspect the statements are fairly presented

Conditions for Qualified Audit Report

Issues Examples Immaterial Material Fundame ntal or Extreme Adverse opinion

Conflict between applicable reporting frameworks Limitation of scope

Application of an accounting policy is allowed or required by statue but does not result in a fair presentation in accordance with accounting standards

Unqualified opinion

Except for opinion

Auditor is unable to collect sufficient appropriate evidence from audit procedures to enable them to form a conclusion

Unqualified opinion

Except for opinion

Inability to form an opinion auditor is unable to give an opinion due to limitations on the audit process

Conditions for Qualified Audit Report

Issues Examples Immaterial Material Fundament al or Extreme Adverse opinion statements are not fairly presented misleading and minimal information value to users

Disagreement with management

Appropriateness of accounting policies selected E.g. management may not depreciate building arguing that value has been maintained or increased since acquisition contravention of IAS 16 2. Application of accounting standard or appropriateness e.g. disagreement over provision for doubtful debts amount 3. Adequacy of disclosures e.g. company being sued for damages but no disclosure as a contingent liability

1.

Unqualified opinion

Except for opinionexcept for the qualified aspect the statements are fairly presented

Qualified Opinion

A qualified opinion report can result from a limitation on the scope of the audit or failure to follow generally accepted accounting principles.

Adverse Opinion

It is used only when the auditor believes that the overall financial statements are so materially misstated or misleading that they do not present fairly the financial position or results of operations and cash flows in conformity with GAAP.

Disclaimer of Opinion

It is issued when the auditor is unable to be satisfied that the overall financial statements are fairly presented.

INTRODUCTORY PARAGRAPH
Statement that Financial statements were audited Financial statements are managements responsibility Auditors responsibility is to issue opinion We have audited the accompanying consolidated balance sheet of The Procter & Gamble Company as of June 30, 2010 and the related consolidated statements of earnings, retained earnings, and cash flows for the period ended June 30, 2010. These financial statements are the responsibility of the companys management. Our responsibility is to express an opinion on these statements based on our audits.

SCOPE PARAGRAPH
Statement that Audit conducted in accordance with IAS IAS requires planning, performing audit to obtain reasonable assurance financial statements free from material misstatements Audit includes Examining evidence on test basis Evaluating accounting principles & estimates Evaluating overall financial presentation We conducted our audits in accordance with the International Accounting Standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

OPINION PARAGRAPH
Statement of opinion Whether financial statements present fairly in all material respects Financial position Results of operations Cash flows In conformity with IAS In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the companies at June 30, 2010, and the results of their operations and their cash flows for the period ended June 30, 2010, in conformity with International Accounting Standards.

QUALIFIED OPINION
Except for effects of a matter, financial statements present fairly in all other material respects Statements depart materially from IAS Management unable to justify material change in accounting principle Scope of audit materially limited
In our opinion, except for the effects of the accounting treatment for good will as discussed in the preceding paragraph, the financial statements referred to above present fairly ..

ADVERSE OPINION
Managements financial statements do not present fairly Financial statements depart from IAS Management unable to justify change in accounting principle Effects of departure so highly material that qualified opinion unwarranted
In our opinion, because of the effects of the matter discussed in the preceding paragraph, the financial statements referred to above do not present fairly in conformity with generally accepted accounting principles .

DISCLAIMER OF OPINION
Auditor does not express opinion Scope limitation so material auditor does not have reasonable basis to reach opinion Auditor is not independent of management
Because of the possible material effect of the matters discussed in the preceding paragraph, we are unable to express, and we do not express, an opinion on the financial statements referred to above.