The audit report communicates the auditor's opinion on the financial statements and sets out requirements for its content and format. The standard audit report includes basic elements like the title, addressee, management and auditor responsibilities, scope of the audit, and opinion. There are two main types of reports - unqualified and qualified. An unqualified report means the financials fairly represent the entity. A qualified report is issued if problems cannot be resolved with management.

1. Audit Report
Statement of Financial Analysis - BBA
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

2. Parts of the Standard Audit Report
Statement of Financial Analysis - BBA
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

3. TYPES of Audit Report
Statement of Financial Analysis - BBA
Two basic types of audit reports are issued;
 Unqualified report or
 Qualified report

4. Un Qualified Report
Statement of Financial Analysis - BBA
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

5. Conditions for Standard
Unqualified Audit Report
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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.

6. Unqualified Report with Explanatory Paragraph
Statement of Financial Analysis - BBA
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

7. Substantial Doubt About Going Concern
Statement of Financial Analysis - BBA
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 entity’s ability
to operate.

8. Auditor Agrees with a Departure
from a Promulgated Principle
Statement of Financial Analysis - BBA
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.

9. Emphasis of matter
Statement of Financial Analysis - BBA
 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

10. Qualified Report
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 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

11. Conditions for Qualified Audit Report
Issues Examples Immaterial Material Fundamental
or Extreme
Disagreement
with
management
1. 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
Unqualified
opinion
‘Except for ‘
opinion-
except for
the qualified
aspect the
statements
are fairly
presented
Adverse
opinion –
statements
are not fairly
presented –
misleading
and minimal
information
value to users
Statement of Financial Analysis - BBA

12. Conditions for Qualified Audit Report
Issues Examples Immaterial Material Fundamental
or Extreme
Conflict
between
applicable
reporting
frameworks
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’
Adverse
opinion
Limitation of
scope
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
Statement of Financial Analysis - BBA

13. 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.
Statement of Financial Analysis - BBA

14. 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.
Statement of Financial Analysis - BBA

15. Disclaimer of Opinion
It is issued when the auditor is unable
to be satisfied that the overall financial
statements are fairly presented.
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16. INTRODUCTORY PARAGRAPH
• Statement that
– Financial statements were audited
– Financial statements are management’s responsibility
– Auditor’s 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 company’s management. Our
responsibility is to express an opinion on these statements based on
our audits.
Statement of Financial Analysis - BBA

17. 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.
Statement of Financial Analysis - BBA

18. 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.
Statement of Financial Analysis - BBA

19. 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 …..
Statement of Financial Analysis - BBA

20. ADVERSE OPINION
• Management’s 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 ….
Statement of Financial Analysis - BBA

21. 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.
Statement of Financial Analysis - BBA