AUDITOR’S REPORT

BY

Atta-ur-Rahman Arif

INTRODUCTION

• Section 233(3) requires that the financialstatement of a company shall be auditedby the auditor and the Auditor’s Reportshall be attached thereto.

• The auditor of a company is required tomake a report to the members of thecompany on the accounts examined byhim under section 255(3) of CompaniesOrdinance 1984.

• Under section 233(4), every company isrequired to send a copy of the auditedFinancial Statement together with theAuditor’s and Director’s report to everymember at his registered address, at least 21days before the meeting at which these areto be presented.

• Secton 242 requires every Public Company tofile with the Registrar five copies of financialstatement together with the auditor report.

INTRODUCTION

BASIC ELEMENTS

• The Auditor’s Report includes thefollowing basic elements:

1. Title

2. Addressee

3. Opening or Introductory Paragraph

4. Scope Paragraph

5. Opinion Paragraph

6) Date of Report

7) Auditor’s Address

8) Auditor’s Signature

BASIC ELEMENTS

1. TITLE• The auditor’s report shall have an

appropriate Title.

• It may be appropriate to use theterm “Independent Auditor” in thetitle to distinguish the Auditor’sReport from the reports that mightbe issued by others, such as byBoard of Directors, Internal Auditor.

2. ADDRESSEE

• The auditor’s report should beappropriately addressed as required bythe circumstances of the engagementand local regulations.

• The report is ordinarily addressed eitherto the shareholders or the board ofdirectors of the entity whose financialstatement are being audited.

3. OPENING PARAGRAPH• The auditor’s report should identify the

financial statement of the entity that havebeen audited, including the date of theperiod covered by the financial statement.

• The report should include a statement thatthe financial statements are theresponsibility of the entity’s managementand a statement that the responsibility of theauditor is to express an opinion on thefinancial statement based on audit.

4. SCOPE PARAGRAPH• Scope refers to the auditor’s ability to

perform the audit procedures deemednecessary in the circumstances.

• The auditor’s report should describe thescope of the audit by stating that theaudit was conducted in accordance withthe ISAs or in accordance with therelevant National Standards or Practicesas appropriate.

• The auditor’s report should include astatement that the audit was plannedand performed to obtain reasonableassurance about whether the financialstatement are free of materialmisstatement.

• The report should include a statementby the auditor that the audit provides areasonable basis for the opinion.

4. SCOPE PARAGRAPH

5. OPINION PARAGRAPH• The auditor’s report should be clearly

state the auditor’s opinion as towhether the financial statement give atrue and fair view (or are presentedfairly, in all material respects) inaccordance with the financial reportingframework and, where appropriate,whether the financial statement complywith statutory requirements.

• Both terms indicate, amongst otherthings, that the auditor considers onlymaterial matters.

• The financial reporting framework isdetermined by ISAs, rules issued byProfessional Bodies and thedevelopment of general practice withina country.

5. OPINION PARAGRAPH

6. DATE OF REPORT

• The auditor should date the report as ofthe completion date of the audit.

• Since the auditor’s responsibility is toreport on the financial statement asprepared and presented bymanagement, the auditor should notdate the report earlier than the date onwhich the financial statements aresigned or approved by the management.

7. AUDITOR’S ADDRESS

• The report should name aspecific location, which isordinarily the city where theauditor maintains the office thathas responsibility for the audit.

8. AUDITOR’S SIGNATURE

• The report should be signed inthe name of the audit firm, thepersonal name of the auditor orboth, as appropriate.

TYPES OF REPORT

• The auditor of a company is required tomake a report to the members of thecompany on the accounts examined byhim in the following two types:

1. Unqualified Report

2. Modified or Qualified Report

UNQUALIFIED REPORT• Unqualified report/opinion should be

expressed when the auditor concludes thatthe financial statements give a true and fairview in accordance with the IdentifiedFinancial Reporting Framework.

• It also indicates that any changes inaccounting principles or in the method oftheir application, and the effects thereof,have been properly determined anddisclosed in the financial statement.

• The auditor’s report is considered to bemodified/qualified in the followingsituations:

– Matters That Do Not Affect the Auditor’s Opinion

• Emphasis of Matter

– Matters That Do Affect the Auditor’s Opinion

• Qualified Opinion

• Disclaimer of Opinion

• Adverse Opinion

MODIFIED REPORT

MATTERS DO NOT AFFECT

• An auditor’s report may be modified byadding an emphasis of matter paragraph tohighlight a matter affecting the financialstatements which is included in a note to thefinancial statement that more extensivelydiscusses the matter.

• The addition of such an emphasis of matterparagraph does not affect the auditor’sopinion.

• The paragraph would preferably beincluded after the opinion paragraph andwould ordinarily refer to the fact that theauditor’s opinion is not qualified in thisrespect.

• The auditor should modify the report byadding a paragraph to highlight a materialmatter regarding a Going Concernproblem.

MATTERS DO NOT AFFECT

• An auditor may not be able to express anunqualified opinion with either of thefollowing circumstances exist:

a) There is a limitation on the scope of theauditor’s work ; or

b) There is a disagreement with themanagement regarding the acceptability ofthe accounting policies selected, themethod of their application or the adequacyof financial statement disclosures.

MATTERS DO AFFECT

c) Where he has been refused an access to anybook, accounts and vouchers of the company.

d) Where he has been unable to obtain anyinformation or explanation that he may haverequired from the directors and officers of thecompany.

e) Where Balance Sheet does not exhibit a trueand fair view of the state of the company'saffair.

f) Where proper books of account, as required byLaw, have not been kept by the company forthe period covered by the audited accounts.

MATTERS DO AFFECT

Qualified Opinion

When the auditor concludes that anunqualified opinion can not be expressedbut the effect of any disagreement withmanagement or limitation on scope is not somaterial and pervasive as to require anadverse opinion or a disclaimer of opinion.A qualified opinion should be expressed asbeing “except for” the effects of the matterto which the qualification relates.

MATTERS DO AFFECT

Disclaimer of Opinion

When the possible effect of alimitation on scope is so materialand pervasive that the auditor hasnot been able to obtain sufficientappropriate audit evidence andaccordingly is unable to express anopinion on the financial statement.

MATTERS DO AFFECT

Adverse Opinion

An adverse opinion should be expressedwhen the effect of disagreement is somaterial and pervasive to the financialstatements that the auditor concludes that aqualification of the report is not adequate todisclose the misleading or incomplete natureof the financial statement.

Auditor states that, in his opinion thefinancial statement do not give a true and fairview.

MATTERS DO AFFECT