CAT / FIA FAU Syllabus E. Audit Completion - Structure of an Unmodified Audit Report - Notes ^{1 / 3}

The headings are as follows..

1. Opinion

   • This is the first section. 

     It identifies also what has been audited

2. Basis for Opinion

   • The Basis for Opinion directly follows the Opinion section and includes the assertion of the auditor’s independence. 

     If the audit opinion has been modified, the explanation would be here too

3. Material uncertainty regarding going concern (if any)

   • If there is a material uncertainty with respect to going concern, it will now be described in a separate section that identifies it as such

4. Emphasis paragraphs (if any)

   • An emphasis of matter paragraph may be next, or it might follow the key audit matters if it relates to a matter in there

     Includes a statement that the auditor is independent of the entity
     Identifies the IESBA Code
     States audit evidence is sufficient and appropriate to provide a basis for the auditor’s opinion

5. Key audit matters

   • The key matters addressed in the audit (compulsory for PLC audits, voluntarily for others)

6. Other matter paragraphs* (if any)

   • It comes here if it relates to the financial statement audit only, or later if it relates to legal or regulatory requirements

7. Other information

   • Describes the auditor’s responsibilities for “other information” (e.g., the rest of the annual report), and the outcomes

8. Responsibilities for the financial statements

   • Includes responsibilities for going concern and identifies those charged with governance (if different from management)

9. Auditor’s responsibilities

   • Includes a description of the auditor’s responsibilities with respect to going concern

10. Date, address and signature

    • In addition to the signature, address and date, auditor’s reports for listed companies will now also have to identify the engagement partner’s name.

The key things to note about the above are:

1. A Key audit matters section in the report


   A key matter is the most significant matters that came up in the AUDITORS judgement - NOT those likely to be most important to users

   
This is because the auditor would otherwise have to:

   
1) Determine what is important to a user

   2) Possibly include 'original information' in the audit report (which may blur the roles of management, those charged with governance and the auditor). 


   These key matters would be selected from the matters the auditor sends to those charged with governance

2. Independence

   
An explicit statement about the auditor’s independence and other relevant ethical requirements

3. Engagement partner

   
Explicitly state the name of the engagement partner

4. Prominence of opinion

   
Placed at the beginning of the report

5. Ordering 

   
A preferred (not mandatory) ordering of the items in the report

6. Going concern 

   
Explicitly reported on, including the appropriateness of management's use of the going concern basis and any material uncertainties identified

7. Auditor responsibilities 

   
Some responsibilities could be moved to an appendix, or referenced to a website of an appropriate authority

Issue to think about

Key audit matters disclosure

1. Possibly unnecessary where such matters are already in the Annual Report by those charged with Governance

2. Whats the difference between an Emphasis of Matter and a Key Audit Matter?

Liability disclaimer paragraph

It is not a requirement of auditing standards but it has become increasingly common for audit firms to include a disclaimer paragraph within the audit report.

It states the fact that the auditor’s report is intended solely for the use of the company’s member, and that no responsibility is accepted or assumed to third parties.

1. Advantages:

   – Potential to limit liability exposure
   – Clarifies extent of auditor’s responsibility
   – Reduces expectation gap
   – Manages audit firm’s risk exposure

2. Disadvantages:

   – Each legal case assessed individually – no evidence that a disclaimer would offer protection in all cases
   – May lead to reduction in audit quality