Escolar Documentos
Profissional Documentos
Cultura Documentos
SANTOSH, TANGAIL-1902
Submitted to
Md. Nazmul Islam
Assistant Professor
Submitted by
Musfikur Rahman
A standard unqualified audit report indicates the auditor’s opinion that a client’s financial
statements are fairly presented in accordance with agreed upon criteria. It is a written
notice from an auditor starting that a company has complied with GAPP.
I. Report Title: A report title is one that represents the basic element and
characteristics of that particular report.
II. Address: This part contains the addresses of the stockholders, company, and
the Board of Director.
III. Introductory Page: An introductory paragraph is one which gives a primary view
of the report and generally commences the actual report. It should ensure the
following subject matters:
a. It says an audit has been done.
b. It lists financial statements which were audited.
c. It states that the statements are the responsibility of management and that
auditor’s responsibility is to express an opinion.
IV. Management Responsibility: It ensures that management is responsible for the
financial statements.
V. Auditor’s Responsibility-Scope Paragraph: Auditors are responsible for the
opinion and scope tells what auditor did during the audit.
VI. Opinion Paragraph: Opinion paragraph contains opinion which is based upon
professional judgment, not a guarantee.
VII. Name and Address of CPA Firm: It indicates city and state where it is located.
VIII. Audit Report Date: There must be a specific date on when field work will be
completed.
An Unqualified Audit Report with an Explanatory Paragraph or Modified
Wording
Current period is not consistent with previous period. required for both voluntary and
required changes, Auditor must agree with change. Explanatory paragraph added after
opinion.
A client that has a possibility of not remaining a going concern, but has footnotes from the
management about they propose to bring their business back to life, would receive an
unqualified report opinion. The auditor will write an explanatory paragraph that expresses
his or her doubt about the going concern of the business in clear and understandable
language.
When the principle auditing firm has a client that is a very large corporation and has many
locations, they will sometimes enlist the experience of other auditing firms. When the
unqualified audit is complete, the principle auditor will author the shared report. The senior
auditor may or may not mention the assisting auditors in the introductory paragraph.
There are three conditions that require a departure from an unqualified report. These are:
This is to say that any one of these conditions, if material, must result in a qualified opinion,
an adverse opinion, or a disclaimer of opinion.
There are four type of audit report and unqualified report is one of them. Sometimes an
auditor can’t issue unqualified report if for some reasons. So three reporting options are
available to an auditor. They are given below:
Qualified Report: An auditor issues qualified opinion when company’s financial records
have not been maintained according to GAAP but no misrepresentations are identified.
An opinion rendered in a qualified report is similar to an unqualified opinion. Here auditing
body highlights why audit report is not qualified.
Adverse Report: The worst type financial report that can be issued to a business is called
an adverse report. This indicates that the firm’s financial records do not conform to GAAP.
In addition, the financial report provides by the business have been misrepresented. It
indicates fraud though this may occur by error. When this type of report is issued a
company must correct its financial statement. This type of report generally unaccepted
for investors, lenders and other parties.
Definitions of Materiality
Materiality is the measure of the estimated effect that the presence or absence of
an item of information may have on the accuracy or validity of a statement. Materiality is
judged in terms of its inherent nature, impact (influence) value, use value, and the
circumstances (context) in which it occurs.
Materiality in Auditing
In terms of ISA 200, the purpose of an audit is to enhance the degree of confidence
of intended users in the financial statements. The auditor expresses an opinion on
whether the financial statements are prepared, in all material respects, in accordance with
an applicable financial reporting framework, such as IFRS. ISA 320, paragraph A3, states
that this assessment of what is material is a matter of professional judgement.
The concept of materiality is applied by the auditor both in planning and performing
the audit, and in evaluating the effect of identified misstatements on the audit and of
uncorrected misstatements, if any, on the financial statements and in forming the opinion
In the auditor’s report.
ISA 320, paragraph 10, requires that "planning materiality" be set prior to the
commencement of detailed testing. ISA 320, paragraph 12 requires that materiality be
revised as the audit progresses, if (and only if) information is revealed that, if known at
the onset of the audit, would have caused the auditor to set a lower materiality. In practice,
materiality is re-assessed at least once, during the conclusion of the audit, prior to the
issuing of the audit report. This materiality is referred to as "final materiality".
ISA 320, paragraph 11, requires the auditor to set "performance materiality". ISA
320, paragraph 9, defines performance materiality as an amount or amounts that is less
than the materiality for the financial statements as a whole ("overall materiality"). It
includes materiality that is applied to particular transactions, account balances or
disclosures. Paragraph 9 also states that the purpose of setting performance materiality
is to reduce the risk that the aggregate total of uncorrected misstatements could be
material to the financial statements.
In terms of ISA 320, paragraph A1, a relationship exists between audit risk and
materiality. This relationship is inverse. The higher the audit risk, the lower the materiality
will be set. The lower the audit risk, the higher the materiality will be set.
Determining Materiality
This section looks at how both overall materiality and performance materiality are
determined.
Auditors set the materiality for the financial statements as a whole (referred to in this guide
as ‘overall materiality’) at the planning stage. The primary purpose for setting overall
materiality when planning the audit is that it is used to identify performance materiality
(which is needed, for example, to help auditors design their audit procedures) and a
clearly trivial threshold for accumulating misstatements.
While the approach is not mandated, typically there are three key steps:
There are, however, other practical challenges to think about here such as:
Appropriate benchmarks
ISA 320 gives a number of examples of benchmarks that can be used. These include:
• gross profit
• total equity
• net assets
There is almost nothing in the ISA about this but the emphasis is on professional
judgement. The two examples of applying a percentage to a benchmark in ISA 320.A8
are for a profit oriented manufacturing business (5% of profit before tax from continuing
operations) and a not-for-profit entity (1% of total income or expenses). It does stress that
higher or lower percentages may be appropriate.
For guidance here, it is useful to look at methodologies used by small and medium-sized
audit firms (although these methodologies wisely tend to steer clear of being too
prescriptive) as well as examples included in reviews by regulators, for example the UK
Financial Reporting Council (FRC) Audit Quality Thematic Review on materiality (2013).
Two things immediately become apparent:
• auditors tend to use a range of levels for each benchmark; and
Another feature highlighted by the FRC thematic review is that the larger firms tend to use
different ranges for listed and non-listed entities. This is reasonable as the stakeholders
are often different and they may well have different priorities on which they base their
economic decisions.
Typically, firms and networks issue guidance that says ‘up to X%’ or ‘Y% or less’ to
highlight the fact that benchmark levels will vary according to the circumstances and that
this requires judgement. Nonetheless a regular criticism from regulators is that they see
auditors take the ‘unthinking’ approach of always using the top end of the range.
It’s often said that, regardless of a firm’s policies and procedures, experienced
auditors will have a good instinct as to what is and isn’t going to affect decisions made by
users of the financial statements (and therefore what materiality actually is). It is good that
the standards do not box auditors into something that may not make sense. The key,
however, is to reflect this experience and the thought process on the file. Poor
documentation (including on materiality) is one of the most common criticisms of
regulators.
• to reduce the aggregation risk (the risk that the aggregate of uncorrected and undetected
misstatements individually below materiality will exceed materiality for the financial
statements as a whole) to an acceptable level; and
• Ethics means a code of conduct that directs an individual in dealing with others.
Business Ethics is a form of the skill that examines ethical moralities and honesty or
ethical problems that can arise in a business environment. It deals with matters
regarding morals, principles, duties and corporate governance applicable to a
company and its employees, customers, shareholders, media, suppliers,
government and dealers. This is what the famous Henry Kravis had to say about
professional ethics: “If you don't have integrity, you have nothing. You can't buy
accountability. You can have all the money in the world, but if you are not a moral
and ethical person, you really have nothing.”
• Ethics are also related to the core of management practices such as human resource
management, accounting information, production, sales and marketing, intellectual
property knowledge and skill, international business and economic systems. In the
corporate world, the organization’s culture sets standards for shaping the difference
between good or bad, right or wrong and fair or unfair. This quote by Albert Einstein
says it all: “Relativity applies to physics, not ethics.” The point being that it is possible
to make profits without having to negotiate on ethics. And over and above the factor
of correctness associated with ethics, an ethical business and its proprietors only
serve themselves, their clients and the whole enterprise much better in the final
reckoning.
• Management gurus often preach on the advantage an ethical company has over their
competitors.
• Lately, ethical issues in business have become more complicated because of the
international and diversified nature of many big corporations and because of the
difficulty of economic, social, global, political, legal, and administrative regulations
and peculiarities.
• In every company, the managers should remember that leading by example is the
first and very important step in nurturing a culture of ethical conduct. Hence, the best
way to encourage ethical behavior is by setting a good personal example. Teaching
an employee ethics is not always effective. One can explain and define ethics to an
adult, but understanding ethics does not necessarily result in ethical behavior. John
Mackey once quoted that “Business social responsibility should not be coerced; it is
a voluntary decision that the entrepreneurial leadership of every company must make
on its own.”
Thus, ethics are important not only in business but in all the other parts of life because it
is an important base on which a civilized and cultured society is built. A business or society
without ethics and scruples is only headed towards self-destruction.
Business values typically are expressed in terms of how the company performs its dayto-
day interactions with suppliers, employees and customers. A primary objective of the code
of ethics is to define what the company is about and make it clear that the company is
based on honesty and fairness. Another commonly defined value is respect in all
interactions, regardless of the circumstances.
Principles
Principles are used to further support the business values by including operational credos
employees should follow. Customer satisfaction, business profitability and continuous
improvement are key factors in documenting business principles. Corporate responsibility
to the environmentally friendly use of natural resources is another business principle that
often is found in code of ethics.
Management Support
Manager support of the values and principles may be documented in the code of ethics.
Open door policies for reporting ethics violations can be included in the code, along with
a process to anonymously report any code of ethics issues. To reflect how seriously
management considers the code, some businesses display the code of ethics with
management signatures in prominent areas, such as the break room, where employees
will see it on a daily basis.
Personal Responsibility
Compliance
Any laws or regulations may be referenced as rules to adhere to as part of daily business
interaction.
Independence
Independence of the external auditor means independence from parties that have an
interest in the results published in financial statements of an entity. The support from and
relation to the Audit Committee of the client company, the contract and the contractual
reference to public accounting standards/codes generally provides independence from
management, the code of ethics of the Public Accountant profession) helps give guidance
on independence from suppliers, clients, third parties.
Types of Independence:
Integrity: The fundamental principles require that a member should behave with integrity
in all professional, business and financial relationships. Integrity implies not merely
honesty but fair dealing and truthfulness.
It follows that a professional auditor's advice and work must be uncorrupted by selfinterest
and not be influenced by the interests of other parties.
When a professional auditor becomes aware that the auditor has been associated with
such information, the auditor shall take steps to be disassociated from that information.
Objectivity is the state of mind which has regard to all considerations relevant to the task
in hand but no other.
A professional accountant shall take reasonable steps to ensure that those working under
the professional accountant's authority in a professional capacity have appropriate
training and supervision.
Safeguards are actions or other measures that may eliminate threats or reduce them to
an acceptable level. They fall into two broad categories:
a. Educational, training and experience requirements for entry into the profession.
d. Professional standards.
As Certified Public Accountant I should see to it that professional ethics are more
than just moral principles and they are one of the important foundations upon which a
profession is built. As my business is predicated on having the trust and respect of my
clients and on my integrity and good judgment, I shall then endeavor to fulfil my obligations
through the following ethical and technical standards:
The Public Interest: I must at all times safeguard the interest of our clients provided
that they do not conflict with the duties and loyalties owed to the government and or
community and its laws.
Objectivity: I must be fair and must not allow prejudice, conflict or interest or bias to
override my objectivity. When reporting on financial statements, which come under my
review, I must maintain an impartial attitude.
Competence and Due Care: I must perform professional services with due care,
competence and diligence. I had a continuing duty to maintain professional knowledge
and skill at a level required to ensure that my clients receive the advantage of competent
professional service based on up-to-date developments in practice, legislation and
techniques.
Independence: I must be and should be seen to be free of any interest which might be
regarded, whatever its actual effect, as being incompatible with integrity and objectivity.
I must conduct myself in a manner consistent with the good reputation of my profession
and refrain from any conduct, which might bring discredit to my profession.
The term "contingent tee" means - expected as stated any fee established for the
sale of a product or the performance of any service pursuant to an arrangement in which
no the will be charged unless a specified finding or result is attained, or in which the
amount of the tee is otherwise dependent upon the finding or result of such product or
service. Solely for the purposes of this definition, a fee is not a contingent fee if the amount
is axed by courts or other public authorities and not dependent on a finding or result.
A registered public accounting firm is not independent of its audit client if the firm, or any
affiliate of the firm, during the audit and professional engagement period, provides any
service or product to the audit client for a contingent the or a commission or receives from
the audit client directly or indirectly contingent fee or commission.
The contingency fee agreement will dictate the circumstances of payment, and how much
an attorney is owed. The rules governing lawyers in your state will frequently determine
when contingency fees are appropriate.
The scope of representation should be set forth and any limits on what the lawyer will do
must be clearly spelled out. A lawyer cannot limit his/her duties or liabilities under the
Missouri rules of professional conduct in the fee agreement. If a division fees with a lawyer
from another firm is involved, the clients consent must be obtained. This consent must be
confirmed in writing. The agreement should set how fees, expenses, and costs will be
handled and billed when payment is expected and what is included in the fee.
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