Crticisms Over Auditor's Report

Snipe

Insufficient Description

The description provided for the adverse opinion is not sufficient as the matter is not quantified as
the paragraph does not mention the $10.5 million and state that this is material to the financial
statements. The impact on the financial statements such that whether the plan is in surplus or
deficit is also not mentioned.

Standard not Referred

No refrence has been mentioned towards the relevant accounting standard being IAS 19 Employee
Benefits, and refrence should be made towards it to help users understanding of the breach of
accounting standards.

"Delibrate Omission"

The use of word delibrate sounds accusatory and that may not be correct as the omission could be
in error and an adjustment may have been suggested by the firm and is under consideration by the
management.

Inappropriate Opinion

It is unlikely that the issue would be sufficient to give rise to an adverse opinion as it is when the
misstatement is material and pervasive. The matter here is material but would not be considered to
be pervasive.

Titles and Positioning

The titles and positioning of the two paragraphs are incorrectly positioned and titled. The opinion
paragraph should be titled "Adverse Opinion" followed by "Basis for Adverse Opinion" explaining
the modified opinion.

Adder

Combined Opinion and Basis for Opinion Paragraphs

These two paragraphs should not be combined when the audit report is modified then auditor
should include a seperate paragraph providing a description of the matter giving rise to modification
and therefore there needs to be two different paragraphs. Auditor should use "Basis for Qualified
Opinion", "Basis for Adverse Opinion", or "Basis for Disclaimer of Opinion" as appropriate.

"Proven Conclusively"

The term is misleading implying that every transaction has been tested. Audit procedures are
meant to provide reasonable assurance but not absolute assurance and conclusive proof is not an
appropriate term to be used in the report.

No Quantification

Amount of the adjustment should be included in the paragraph and if there is a material
misstatement which relate to specefic amounts in the financial statements, the auditor should
include the basis for modification paragraph a description and quantification of the effects of the
misstatement unless impracticable. The relevant accounting standard should also be referred.

Unprofessional Refrence

It is unprofessional to mention the finance director by name and the report should refer to the
management collectively and not single out one person as being responsible for the financial
statements and should not state that she "refused" to make an adjustment. 

Inappropriate Opinion

Incorrect opinion seems to have been given as the recievables balance is material at $2.5 million
which is in excess of the materiality threshold. The auditor has issued a disclaimer of opinion which
is used when the auditor cannot form an opinion usually due to lack of audit evidence which does
not appear to be the case here. The matter also does not seem to be pervasive therefore a
"Qualified except for" opinion is sufficient. 

Emphasis of Matter (EOM)

The use of EOM is inappropriate as it is used to refer to a matter appropriately presented or

disclosed in financial statements which in the auditor's judgement is of such importance that is
fundamental to the users. The court case is not material being well below the materiality threshold
then it is certainly not fundamental to users and due to the immaterial nature it may need to be
referred to the auditor's report at all. Using the EOM to describe non-compliance with the
accounting standard is not appropriate as well.

Kilmister
Presentation and Structure of Report

The report should be addressed solely to the shareholders of the reporting entity and the title
should have no refrence to the directors of Kilmister Co. In addition, the first two paragraphs should
be swapped as basis for opinion should always be following opinion paragraph.

Ethical Code

The IESBA International Code of Ethics for Professional Accountants should be mentioned and in
the report it is not referred to resulting in non compliance to the requirements of ISA 700.

Material Uncertainty Regarding Going Concern (MURGC)

If adequate disclosure regarding going concern material uncertainty is not made then the auditor
should express a qualified or adverse opinion as appropriate. The use of MURGC in the report in
incorrect as it should only be used when the adequate dislcosure has been made by the directrs in
the financial statements and would include a cross refrence to this disclosure, considering the
disclosures are not made this is inappropriate.

In this case the absence leads to a modified opinion and the impact would be material but is
unlikley to be pervasive leading to a qualified except for opinion. The opinion paragraph in this case
should be headed "Qualified Opinion" followed by a "Basis for Qualified Opinion".

Other Information

The use of other information section in this context is inappropriate as this is used to describe the
auditor's responsibilities for other information and the outcome of fulfilling those responsibilities. 
The extract states significant judgement is applied in assessing the percentage of completeness of
material long term contracts and that this percentage is applied in calculating revenue. This is a
high risk area and given Kilmister is listed it would be more appropriate for this to be in the key
audit matters section in the auditor's report.

The KAM should begin with an introductory paragraph explaining what KAM is and then it should
be explained why this matter is considered to be KAM and how it was adressed in the audit
process.

Matty
The finance director has agreed to include a short note to the financial statements to disclose
information relating to the material uncertainty relating to going concern the note must be reviewed
for completeness and if auditor assess disclosure is inadequate then a modified opinion would be
appropriate in relation to a material misstatement as a result of inadequate disclosure.

The form would be either qualified except for or adverse depending on the auditor's judgement of
the matter's pervasiveness to the financial statements. In this case adverse may be appropriate
form of opinion given that the dislcosure is described as short and that management may appear to
negate the significance of the uncertainties by stating they are very confident that they will be
succesful.

If on the other hand the auditor assesses the financial statements disclosures are appropriate in
auditor's opinion then material uncertainty regarding going concern should be disclosed in a
seperate section titled "Material Uncertainty Related to Going Concern" which should appear below
the "Basis for Opinion" paragraph and not in the Key Audit Matters (KAM) section.

Matty Co is a listed company and KAM disclosures are mandatory for high risk areas, significant
judgements and the effects of significant events or transactions which occured during period. The
useful life of the customer list as indefinite and intangibles not being impaired are areas both of
significant judgement and high risk given their materiality. The auditor should consider dislcosing
these matters in the KAM section of the auditor report.

Brearley

Key Audit Matters (KAM)

Section should include an introductory paragraph explaining what a KAM is in order for users to
understand its importance and the introduction should also clearly state that auditor is not forming a
seperate opinion on the items identified in KAM.

Valuation of Financial Instruments

This is an area of significant audit judgement with a high risk of material misstatement hence
inclusion as KAM is appropriate although the disclosure should explain the factors which led the
auditor to determine the matter as a KAM. It should also be explained how the KAM was addressed
in the audit and it should describe the aspects of auditor's response or approach. Based on current
wording there is no indication of how the auditor has gathered evidence over this area.

The report should also not refer to group's finance director by name and should not imply criticism
of him as a result of his inexperience the use of the word "guesswork" is inappropriate and
undermines the credibility of the audit and financial reporting process.

Customer Liquidation
The amount owed by the customer of $287,253 is material to the loss before tax at 13.1% and to
assets at 2%. The "except for" qualification on the grounds of material misstatement is appropriate.
However, the details should not be included in the KAM section but in the basis for qualified opinion
paragraph. This should be clearly cross refrenced within the opinion paragraph itself.

Opinion Paragraph

This is incorrectly positioned and titled. It should be at the start of the report and should be titled
"Qualified Opinion". The opinion paragraph should be clearly cross refrenced to the "Basis for
Qualified Opinion" paragraph which should be placed immediately below the opinion paragraph
and should clearly describe the issue which has given rise to a qualified opinion.

Goodman
Headings

The report combines the opinion and basis for opinion which should not be the case as it should be
opinion paragraph first followed by the basis for opinion. In addition to that the headings are also
inappropriate as when the opinion is modified then the type should be clearly stated and headed as
if the heading "Qualified Opinion" should be adequate followed by "Basis for Qualifed Opinion".

Opinion

The opinion uses wording that misguides the users and leaves them in doubts as a firm conclusion
is not provded. The words should be "Qualified except for" followed by reasoning explained in the
"Basis for Qualified Opinion".

Emphasis of Matter (EOM)

The use of EOM seems to be inappropriate as both the issues included in the EOM are not suitable
for this section. The EOM is used to highlight issues that are fundamental to users understanding
and the matters in EOM should be in the financial statements adequately. First up the matter
highlighted is the fraud taken place which is immaterial in the first place and could not be of
fundamental understanding of users as a result and to highlight the illegal activity is a breach of
confidentiality and not appropriate. Secondly the recievables audit issues are highlighted which
should not be the case as these should be in the report to those charged with governance.
Personally making finance director responsible is not professional and in addition the resignation of
the firm is totally not understandable in an audit report. This is something between the audit firm
and those charged with governance or the audit committee not something to disclose in the audit
report.

Further Information in Basis for Qualified Opinion Paragraph

Further information shoul also be included in the basis for qualified opinion paragraph such as the
audit team should have quantified the misstatement and the overstatement of recievables and its
effect on profit should also be explained.