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uditReports
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Parts of the Standard
Unqualified Audit Report
1. Report title
2. Addressee3. Introductory paragraph
4. Scope paragraph
5. Opinion paragraph6. Name & signature of auditor firm
7. Audit report date
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Report of the Auditors to the Members ofABC BERHAD (Company No: 12345-X)We have audited the financial statements set out on pages 10 to 55. These
financial statements are the responsibility of the Companys directors.
It is our responsibility to form an independent opinion, based on our audit,on the financial statements and to report our opinion to you, as a body, inaccordance with Section 174 of the Companies Act, 1965 and for no other
purpose. We do not assume responsibility to any other person for thecontents of this report.
We conducted our audit in accordance with applicable Approved Standardson Auditing in Malaysia. Those standards require that we plan and performthe audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by the directors, as well asevaluating the overall presentation of the financial statements. We believe
that our audit provides a reasonable basis for our opinion.
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In our opinion:a) the financial statements have been properly drawn up in accordancewith the provisions of the Companies Act, 1965 and applicable MASBApproved Accounting Standards in Malaysia so as to give a true andfair view of:i) the financial position of the Group and of the Company at 31December 2005 and of the results and the cash flows of the Group and
of the Company for the year then ended; andii) the matters required by Section 169 of the Companies Act, 1965 tobe dealt with in the financial statements; andb) the accounting and other records and the registers required by theAct to be kept by the Company and by its subsidiaries of which we
have acted as auditors have been properly kept in accordance with theprovisions of the Act.
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We are satisfied that the financial statements of the subsidiaries thathave been consolidated with the financial statements of the Companyare in form and content appropriate and proper for the purposes of thepreparation of the consolidated financial statements and we havereceived satisfactory information and explanations required by us forthose purposes.
The auditors report on the financial statements of the subsidiarieswere not subject to any qualification material to the consolidatedfinancial statements and did not include any comment required to bemade under Section 174(3) of the Act.
AUDIT FIRM
AUDIT PARTNER
DATE
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Four Categories
of Audit Reports
Standard unqualified
Qualified
Modified unqualified
report -Emphasis of matter
Adverse or disclaimer
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Modified Unqualified Report
(with Explanation)
1. Going concern uncertainty
2. Significant uncertainty due to pending
litigation
3. Non-compliance with approved accounting
standards but auditor agrees4. Emphasis of matter
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Going Concern Uncertainty
1. Significant recurring operating losses
or working capital deficiencies2. 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
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Going Concern Uncertainty -
Disclosure
- Identify principal conditions that caused the
going concern uncertainty
- Describe managements plans
- State that there is a material uncertainty
relating to going concern conditions, & entity
may not be able to realise its assets/discharge
its liabilities in the normal course of business
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Going Concern Uncertainty
Disclosure example
After opinion paragraph.
Without qualifying our opinion, we draw attention to
Note X in the financial statements which indicates that the
company incurred a net loss of RMXXX during the year
ended 31.12.2005 and as of that date, the companys
current liabilities exceeded its total assets by RMXXX.
These conditions, along with other matters set forth in Note
X indicate the existence of a material uncertainty which
may cast significant doubt about the companys ability
to continue as a going concern.
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Significant uncertainty due to
pending litigation
After opinion paragraph.
Without qualifying our opinion, we draw attention to
Note X to the financial statements. The company is the
defendant in a lawsuit alleging infringement of certain
patent rights and claiming royalties and punitive damages.
The company has filed a counter claim, and preliminary
hearings and discovery proceedings on both actions are in
progress. The ultimate outcome of the matter cannot
presently be determined, and no provision for any liability
that may esult has been made in the financial statements.
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Auditor agrees with non-compliance
with approved accounting standards
- S.166A(4) of CA65directors need not
comply with a standard if they think that the
true & fair view would be affected
- Directors should:
(a) disclose this non-compliance in a Note
(b) disclose the financial effect of non-
compliance in a Note
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Auditor agrees with non-compliance
with approved accounting standards
Auditors report. Auditors should state:
(a) If standard was complied with, will the FS be true &
fair? (No)
(b) If No, to give the reasons for his opinion
(c) If the directors have disclosed the particulars of the
financial effect of non-compliance, to give his opinion
(d) If the directors have not disclose (c), to disclose the
quantified financial effect of the non-compliance
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Emphasis of a Matter
Under certain circumstances, the auditor may
want to emphasize specific matters regardingthe financial statements, even though the
auditor intends to express an unqualified opinion.
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Departures from an
Unqualified Opinion
1. Scope limitation
2. Departure fromaccounting standards
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Qualified Opinion
A qualified opinionreport canresult from a limitation on the
scope of the audit or failure to
follow generally accepted
accounting principles.
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Disclaimer of Opinion
It is issued when the auditor is unable
to be satisfied that the overall financialstatements are fairly presented.
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Adverse Opinion
It is used only when the auditor believes
that the overall financial statements areso materially misstated or misleading that
they do not present fairly the financial
position or results of operations and cashflows in conformity with accounting standards.
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Materiality
A misstatement in the financial statementscan be considered material if knowledge of
the misstatement would affect a decision
of a reasonable user of the statements.
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Levels of Materiality
Amounts are immaterial.
Amounts are material but do not overshadow
the financial statements as a whole.
Amounts are so material or so pervasive that
overall fairness of the statements is in question.
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Relationship of Materiality
to Type of Opinion
Materiality
Level
Significance in Terms of
Reasonable Users Decisions
Type of
Opinion
Users decisions are unlikely
to be affected.Immaterial Unqualified
Users decisions are likelyto be affected.Material Qualified
Users decisions are likely
to be significantly affected.
Highly
material
Disclaimer
or adverse
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Materiality Decisions
Scope
limitation
Audit report
UnqualifiedQualified scope
and opinionDisclaimer
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Scope Limitation
Qualified opinion
Introductory paragraph
Except as discussed in the following paragraph, we conducted our audit in
accordance with ... (scope paragraph)
We did not observe the counting of the physical inventories as of 31
December 2005, since that date was prior to the time we were initially
engaged as auditors for the Company. Owing to the nature of the Companys
records, we were unable to satisfy ourselves as to inventory quantities by
other audit procedures.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary had we been able to satisfy ourselves
as to physical inventory quantities, the financial statements give a true and ...
(opinion paragraph).
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Scope LimitationDisclaimer
We were engaged to audit the accompanying balance sheet of the ABC
Company as of 31 December 2005, and the related statements of income and
cash flows for the year then ended. These financial statements are the
responsibility of the Companys management.(Omit the sentence stating the responsibility of the auditor).
(The paragraph discussing the scope of the audit would either be omitted or
amended according to the circumstances.)
(Add a paragraph discussing the scope limitation as follows:)
We were not able to observe all physical inventories and confirm accounts
receivable due to limitations placed on the scope of our work by the
Company. Because of the significance of the matters discussed in the
preceding paragraph, we do not express an opinion on the financial
statements.
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Materiality Decisions
Non-compliance with
accounting standards
Audit report
UnqualifiedQualified
opinion onlyAdverse
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Disagreement - Qualified opinion
We have audited ... (introductory paragraph).
We conducted our audit in accordance with ... (scope paragraph).
As discussed in Note X to the financial statements, no depreciation has beenprovided in the financial statements which practice, in our opinion, is not in
accordance with the Malaysian Financial Reporting Standards. The provision for
the year ended 31 December 2005, should be xxx based on the straight-line
method of depreciation using annual rates of 5% for the building and 20% for the
equipment. Accordingly, the fixed assets should be reduced by accumulateddepreciation of xxx and the loss for the year and accumulated deficit should be
increased by xxx and xxx, respectively.
In our opinion, except for the effect on the financial statements of the matter
referred to in the preceding paragraph, the financial statements give a true and ...(opinion paragraph).
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DisagreementAdverse
We have audited ... (introductory paragraph).
We conducted our audit in accordance with ... (scope paragraph).
(Paragraph(s) discussing the disagreement).
In our opinion, because of the effects of the matters discussed in the preceding
paragraph(s), the financial statements do not give a true and fair view of (or do
not present fairly) the financial position of the Company as of 31 December
2005, and of the results of its operations and its cash flows for the year thenended in accordance with Malaysian Financial Reporting Standards and
do not comply with ....
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Auditors Decision Process
Determine whether any condition exists
requiring a departure from a standardunqualified report.
Decide the materiality for each condition.
Decide the appropriate type of report.
Write the audit report.
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Scope limitation
Immaterial Material
Level of Materiality
ExtremelyMaterial
Unqualified
report
Qualified scope, additional
paragraph, and qualifiedopinion (except for)
Disclaimer
of opinion
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Non-compliance with
accounting standards
Immaterial Material
Level of Materiality
ExtremelyMaterial
Unqualified
report
Additional paragraph
and qualified opinion(except for)
Adverse
opinion
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Other information in documents
containing the audited FS (ISA 720)
Material inconsistency
- When other information differs/contradicts the audited FS
- E.g. Per audited FS, sales increase by 10%, but per Chairmans
statement, sales increase by only 5%Need to revise either the FS or the other information.
Material misstatement of fact
- inaccuracy/misstatement in other information
- E.g. Chairmans name is wrong
Need to read other info to identify inconsistenciesbecause it
may indicate a inconsistency in the audited FS
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Other information in documents
containing the audited FS (ISA 720)
Effect on auditors report
- If FS require amendment + entity refuses to amend
disagreementqualified/adverse opinion
- If FS is correct & other information is wrong + entity refuses toamendemphasis of matter paragraph describing the material
inconsistency, maybe legal advice
- Material misstatement of factdiscuss with managementif
mgt refuses to amendnotify top management/directors or
obtain legal advice
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Facts discovered after the date of the auditors
report (ISA 560 Subsequent Events)
Facts discovered before the FS are issued
- If FS are amendedissue a new auditors report (new date)
ensure subsequent events review performed up to date of new
auditors report- If management refuses to amend the FSnotify the directors
not to issue the FSbut if FS were subsequently released
take action to prevent reliance of auditors report (notify client,
regulatory agencies (CCM, SC), other relevant person/s
Facts discovered after the FS have been issued
- Request that client issue an immediate revision to the FSthen
issue new auditors report with emphasis of matter paragraph,
stating reason for the revised FSshould also ensure that
client informs relevant FS users (regulatory authorities, etc)
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Facts discovered after the date of the auditors
report (ISA 560 Subsequent Events)
Facts discovered after the FS have been issued
(Contd.)
- If client refuses to co-operatenotify theBOD & take steps to prevent reliance on
auditors report by notifying FS usersshould
also disclose the effect of the info on auditors
report.
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Private Exempt Auditors Certificate
- Annual reports submitted together with annual
audited FS
- But a private exempt company (PEC) can attachan auditors statement instead of the FS,
provided that the current liabilities do not
exceed current assets.
- Refer Exhibit 18-11 (Page 541)
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Reporting non-compliance with laws &
regulations & breaches of CA65
- Report to management/directors
- If it has a material effect on the FS
qualified/adverse opinion
- If scope limitation was imposed
qualified/disclaimer opinion
- Confidentiality ineffective if reporting is
required by law- Must report on all breaches of CA65 to CCM if
the matter cannot be dealt with in the auditors
report or by notifying the directors
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Special Purpose Audits
FS prepared on other comprehensive basis of
accounting
- Income tax basis, cash/modified cash basis,regulatory basis, price-level adjusted
- Auditors reportdisclose basis of accounting,
ensure that FS are approximately titled,
limitation on distribution
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Special Purpose Audits
Reporting on a component of FS
- e.g. revenue, fixed assets
- Usually more extensive than normal audit on theoverall FS
- Auditors reportscope refers to component
being audited, opinion refers to component,
limitation on distribution of report
- If a disclaimer/adverse opinion has been issued
on the entire FS, auditor cannot report on
components of FS
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Special Purpose Audits
Reporting on summarised FS
- Less detailed than annual audited FS
- Should not report on summarised FS unless auditor has
reported on the full FS
- Auditors report(a) cannot use true & fair
(b) identify the audited FS from which the summarised FS were
derived
(c) refer to the auditors report date on the full FS & the type ofaudit opinion given
(d) opinion of whether the financial info in the summarised FS is
consistent with the full FS
(e) a statement that for a better understanding of the financial
f d h f ll FS
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