Learning objectives of Topic 6

Course tittle: Principles of Auditing

6.1. Understand the concept, structure and qualitative
characteristics of the auditor's report

2. Identify the different types of auditor's reports

Topic 6
3. Describe the circumstances under which an auditor
Audit Report would issue each type of report
(Audit completion) 4. Identify the reasons for departures from a standard
unmodified auditor's report (material misstatements and
limitations imposed on the scope of the audit; and understand
Lecturer: Nguyễn Hoàng Tố Loan
Auditing Department, School of Accounting, UEH
the factors giving rise to these reasons)
3

Prescribed Reading Contents of Topic 6

Session Topic 6 Materials Exercises Notes

10 Audit Textbook (1): Chapter 11,12 Textbook (1): Chapter 11,12 1. Completion and review before issuing
Report Textbook (2): Chapter 6 Workbook: Chapter 6 Audit planning the auditors report.

Relevant Guidance (Quy định có liên quan)

ISA/VSA550 Related Parties 2. The auditor’s report
Audit performance
ISA/VSA560 Subsequent Events 2.1. Definition
ISA/VSA570 Going Concern 2.2. Structure and qualitative
ISA/VSA580 Written Presentations
2.3. Types of auditor’s opinion
ISA/VSA700 Forming an Opinion and Reporting on Financial Statements
Audit completion
2.4. Form and content of the
ISA/VSA705 Modifications to the Opinion in the Independent Auditor's Report modified audit opinion
ISA/VSA706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the
Independent Auditor's Report 2.5. Emphasis of matter & Other matter
4
2
 1) unaudited report
2) substantive AP
3) review
1. Completion and review before issuing the auditor’s report 2.1. Definition of the Auditor’s Report

1. Applying analytical procedures at or near completion of the audit.
2. Assessing the appropriateness and sufficiency of audit evidences.
3. Evaluating the effects of unadjusted/uncorrected misstatements.
ISA/VSA 450
4. Perform these following procedures:
Ø subsequent events review (sự kiện sau ngày kết thúc niên độ);
Ø examining related-party transactions, (giao dịch với các bên liên quan)
Ø assessing the appropriateness of the going concern assumption (giả định hđ liên tục)
5. Obtain “management presentation letters” chuan muc 580
What is Audit Report?
The audit statement means the written report made by
practicing auditors, auditing firms, branches of foreign
auditing firms in Vietnam after the completion of the audit,
giving opinions on financial statements and other contents
which have been audited under the audit contract.

6. Reviewing of working papers, FSs, and other information contained in the Law No.: 67/2011/QH12
annual report. 5
7

2.2. STRUCTURE OF AN AUDITOR’S REPORT

2. THE AUDITOR’S REPORT
1. Reference number of an Auditor’s report
Reminding
2. Title
3. Addressee
ISA 200: Objective of an audit of the financial report is to
enable the auditor to express an opinion as to whether the 4. Introductory paragraph
financial report is prepared, in all material respects, in 5. Management’s Responsibility for the FSs
(or Responsibility of those charged with governance)
accordance with an applicable financial reporting framework. 6. Auditor’s responsibility
7. Auditor’s opinion
What is Audit Report?
8. Auditor’s signature
9. Date of auditor’s report
10. Auditor’s address
6 8
 2.2. STRUCTURE OF AN AUDITOR’S REPORT
2.2. STRUCTURE OF AN AUDITOR’S REPORT VSA 700

1. Reference number of an Auditor’s report
2. Title
3. Addressee
4. Introductory paragraph
5. Management’s Responsibility for the FSs
(or Responsibility of those charged with governance)
6. Auditor’s responsibility
Số hiệu phát hành theo từng năm của doanh nghiệp kiểm toán
Ghi rõ “Báo cáo kiểm toán Độc lập” (phân biệt với báo cáo khác)
Ghi rõ người nhận, thường là cổ đông, Ban quản trị hoặc Ban
Giám đốc của đơn vị
(1) Reference number of an Auditor’s report
This is the reference number of an Auditor’s report issued by the audit firm.
(2) Title
The title of the report mentions it is “Independent Auditors’ report”.
à This clearly indicates that the auditor’s report is the report of an independent
auditor and distinguishes this report from report issued by others.

7. Auditor’s opinion (3) Addressee (người nhận)

The auditor’s report is normally addressed to those for whom the report is
8. Auditor’s signature prepared, often to shareholders, or those charged with governance (the
9. Date of auditor’s report board of directors) of the Company.
10. Auditor’s address 9 11

2.2. STRUCTURE OF AN AUDITOR’S REPORT

Examples:
(4) Introductory paragraph

It should identify the entity whose FS have been audited and should state
that the FS have been audited. It should also:

Ø Identify the title of each of the FS that comprise the complete set of FS.
Ø Identify the page number on which auditor’s report and FS are presented.
Ø Specify the date and period covered by the FS.
Ø State the issuing date of the FS.

10
12
 Examples of Introduction paragraph 2.2. STRUCTURE OF AN AUDITOR’S REPORT

(6) Auditor's responsibility

Example of
v The auditor’s the responsibility is to express an opinion on the FS based on the audit.
Amazon.com, Inc.
v The auditor needs to:
Ø Make reference to the audit standards were used (eg., ISAs, or VSAs),
Ø State the objective of an audit,
Ø Provide information of performing procedures to obtain audit evidence about the
amounts and disclosures in the FS,
Example of Ø State that the audit evidence the auditor has obtained is sufficient and appropriate to
HAGL group provide a basis for the auditor's opinion
Ø Assess the risks of material misstatement of the FS, whether due to fraud or error,
including the assessment of internal control,
Ø Evaluate the appropriateness of the accounting policies used, the reasonableness of
the accounting estimates made by management, as well as the overall presentation
of the FS.

13 15

2.2. STRUCTURE OF AN AUDITOR’S REPORT

(5) Management's responsibility for the financial statements
v The auditors should state that management is responsible for the preparation
and the fair presentation of the FS in accordance with the applicable financial
reporting framework.
v They are also responsible for designing, implementing and maintaining internal
control relevant to the preparation and fair presentation of FS that are free from
material misstatement, whether due to fraud or error.
Eg - Management's responsibility
HAGL
group The Company's management is responsible for the preparation and fair presentation of the Company's
separate financial statements in accordance with Vietnamese Accounting Standards, Vietnamese
Enterprise Accounting System and the statutory requirements relevant to preparation and presentation of
separate financial statements, and for such internal control system as management determines is
necessary to enable the preparation and presentation of the separate financial statements that are free
from material misstatement, whether due to fraud or error.
14
An example of Auditor's responsibility
Eg -
HAGL
group Auditors' responsibility
Our responsibility is to express an opinion on these separate financial statements based on our audit.
We conducted our audit in accordance with Vietnamese Standards on Auditing. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the separate financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the separate financial statements. The procedures selected depend on the auditors' judgment, including
the assessment of the risks of material misstatement of the separate financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the
Company's preparation and fair presentation of the separate financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the separate financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our qualified audit opinion.
16
 adverse opi
1) auditors are confident that the FS is wrong
2.2. STRUCTURE OF AN AUDITOR’S REPORT
2.3. AUDIT OPINION as a whole
2) auditors are confident about the evidence
(7) Auditor’s opinion
Types of audit opinions
v It is the primary paragraph of the auditor’s report content. The auditors express the
auditor’s opinion on the FSs. disclaimer of opi
1) auditors are confident that the FS is wrong
For eg. An unqualified opinion that the FS give a true and fair view or are presented fairly, in Audit Opinion as a whole
2) auditors do not have enough evidence
all material respects, in accordance with applicable financial reporting framework.
ý kin ca kim toán viên
không chnh sa Ý kiến không chấp nhận toàn phần
v They also give a reference of the financial reporting framework used to prepare the FSs
(Eg, VASs, IFRS, US GAAP,…) Unmodified
Modified Opinion
Opinion
Ý kiến chấp nhận toàn phần
(8) Auditor's signature
Ý kiến ngoại trừ Ý kiến trái ngược Ý kiến từ chối đưa ra ý kiến
à The signature identifies the CPA firm or practitioner who performed the audit, or both.
Qualified Adverse Disclaimer of
Opinion Opinion Opinion
17 19
= except for

thao' gõw niem yet

2.2. STRUCTURE OF AN AUDITOR’S REPORT

2.3.1 Unmodified (Unqualified) opinion
(9) Date of auditor’s report
à The auditor’s report is dated as of the date the auditor signs the report. This type of opinion is expressed when the auditor is satisfied in all material respects that:
à To inform users that the auditor has considered the effect of events and transactions that v The auditor has concluded that they have obtained reasonable assurance that
occurred up until that date; and about which the auditor was aware. the financial report as a whole is free from material misstatement, whether due to fraud or error.
(10) Auditor's address
Uncorrected misstatements are immaterial, both individually and in aggregate
à The auditor’s report also shows the name of the audit firm, and their location if contact isn
à This also means that the auditor has concluded that:
necessary.
dkien
v That the financial report is prepared, in all material respects, in accordance with the requirements
can
of the applicable financial reporting framework (ISA/VSA 700), Khuôn khổ
Eg -
HAGL v Sufficient appropriate audit evidence has been obtained, Bằng chứng
group cac
dkien v Any changes in accounting policies and their effects have been considered and disclosed on the
du? notes to FSs. Chính sách kế toán

v The financial information complies with relevant regulations and statutory requirements.
Tuân thủ quy định
18 20
no outstanding/pending, thuw xac nhan da ve
 Example of Unmodified Opinion 2.3.2 Modified opinion
Eg - Circumstances giving rise to a modified opinion
Vinamilk

FSs are materially misstated due to

“Disagreements with management”
The (regarding the applications of accounting policies & disclosures)
nature
of
matter
“giving
Be unable to obtain sufficient appropriate
rise to a
evidence (“Limitations on scope”).
modified
opinion”

How to determine the type of opinion expressed?

21 23

2.3.2 Modified opinion à Determine the type Modifications affecting the auditor’s opinion
Circumstances giving rise to a modified opinion of opinion expressed:

Choose the
The auditor’s opinion should be modified when:
appropriate audit opinion
Qualified
v The auditor concludes, based on the audit evidence obtained, that the vThe “nature of matter giving rise
financial report is not free from material misstatements, or; Opinion
write
Adverse to a modified opinion”: whether
down
v The auditor is unable to obtain sufficient appropriate evidence to Opinion the FSs are materially misstated
conclude that the financial report is free of material misstatements Disclaimer or an inability to obtain sufficient
(ASA/ISA 705.6). of Opinion appropriate audit evidence.

è The auditor should take all reasonable steps to overcome the issues giving vAuditor’s judgment regarding the
rise to the material misstatement (disagreements with management) or the effects of materiality and the
issues causing the auditor to be unable to obtain sufficient appropriate
pervasiveness on FSs.
evidence (limitations on scope).
the scope of the audit to be limited - b gii hn v phm vi kim toán 22 24
What are “Material misstatements”? Sai sót có ảnh hưởng lan toả
ISA 705.A3
VSA 705

v VSA/ISA 450 defines a misstatement as the difference between the Ảnh hưởng lan toả (Textbook 2 – trang 239):
amount, classification, presentation or disclosure of an item reported by
an entity in the financial report and the way that item is required to be Ø là ảnh hưởng mà chúng không chỉ giới hạn ở 1 số yếu tố, 1 số tài khoản hoặc
treated in accordance with the applicable financial reporting framework. khoản mục cụ thể;

v Therefore, a material misstatement in the financial report may arise in Ø hoặc chúng có thể đại diện cho 1 phần quan trọng của BCTC;
relation to: Ø hoặc liên quan đến thuyết minh chủ yếu mà để người sử dụng hiểu được BCTC.

Ø The appropriateness of the accounting policies selected

Ø The application of those accounting policies, or
Ø The appropriateness or adequacy of disclosures in the financial
report
25 27

What are “Pervasive misstatements”? The Scope of the Audit Has Been Restricted (Scope Limitation)
Bị giới hạn về phạm vi kiểm toán ISA 705.A8
1 trong 3 -> pervasive
ISA 705.5
v When the auditor has not accumulated sufficient appropriate evidence to conclude
v Effects are considered to be pervasive if they: whether FSs are stated in accordance with the appropriate financial reporting
Ø Are not confined (limited) to specific elements, accounts or items of the framework, a scope restriction exists.
financial report
v A limitation on the scope of the auditor’s work may arise for one of the following
Ø If so confined, represent or could represent a substantial proportion of
three reasons:
the financial report, or
Ø Circumstances beyond the control of the entity
Ø In relation to disclosures, are fundamental to users’ understanding of Ø Circumstances related to the nature or timing of the auditor’s work, or
the financial report Ø Limitations imposed by the entity.

For all the types of modified opinions, a basis for modification Examples:
• management’s refusal to permit the auditor to confirm material receivables or to physically
paragraph is inserted just before the opinion paragraph. examine inventory,
• the auditor is not appointed until after the client’s year-end, it is impossible to physically observe
inventories,
eg : rev is overstated -> AR + Dr COGS | Cr Inv • accounting documents got destroyed in a fire.
26 28s
 Choose the appropriate audit opinion An example of QUALIFIED OPINION
(Materially/Pervasively) Eg -
HAGL
group
Auditor’s judgment regarding the effects
of materiality and pervasiveness on FSs.
The nature of matter giving rise
to a modified opinion Misstatements are Misstatements are
material but material and
not pervasive pervasive
The FSs are materially misstated
Qualified opinion Adverse opinion
(disagreements with management)
An inability to obtain sufficient
appropriate audit evidence Qualified opinion Disclaimer of opinion
(scope limitations)
29 31

Types of Modified opinion Types of Modified opinion

(1) QUALIFIED OPINION (2) ADVERSE OPINION
ISA 705.7 ISA 705.8
v A qualified opinion is expressed when: v An adverse opinion should be expressed when:
Ø The auditor, having obtained sufficient appropriate audit evidence,
Ø and, concludes that misstatements are the effect of the misstatements, individually or in the
Ø The auditor, having obtained sufficient appropriate audit evidence, aggregate, are both material and pervasive to the FS as a whole.
concludes that misstatements are material but not pervasive to the FSs; or

ØThe auditor is unable to obtain sufficient appropriate evidence on which to à The most common situation in which they are issued is where
base the opinion, but concludes that the possible effects on the FSs the accounts are prepared on a going concern basis and the auditor concludes
could be material but not pervasive. that it is highly improbable that the entity will continue as a going concern.

-->The most common types of qualified opinions issued relate to

material departures from a specific accounting standard or material disagreements
over the carrying value of a specific asset or liability and its potential effect on
profit.
30 32
 Example of a disclaimer of opinion
An example of ADVERSE OPINION
Eg - Eg - (statement of inability to form an opinion)
Trail Tracksafe
Eco- Ltd
system

33 35

Types of Modified opinion 2.4 Form and content of the auditor’s when
(3) DISCLAIMER OPINION the audit opinion is modified (1)
ISA 705.9
1. Basis for modification paragraph
v A disclaimer of opinion, also referred to as an inability to form an opinion, is
expressed when:
v This provides a description of the matter giving rise to the modification.
v The auditor shall place this paragraph immediately before the Opinion
Ø the auditor is unable to obtain sufficient appropriate evidence to form an paragraph in the auditor's report and use the heading
opinion,
"Basis for Qualified opinion", "Basis for Adverse Opinion", or "Basis for
Ø and concludes that the possible effect of undetected misstatements on the
financial report could be both material and pervasive. Disclaimer opinion", as appropriate.
v This may include a description and quantification of the financial effects of the
misstatement, unless impracticable.
If not practicable, the auditor shall also state in the basis for modification
paragraph.
v The auditor shall include in the basis for modification paragraph the reasons
for an inability to obtain sufficient appropriate audit evidence, if any.
34 36
2.4 Form and content of the auditor’s when
the audit opinion is modified (2)
2.5. “Emphasis of matter”
2. Change the title of Opinion paragraph
The auditor shall use the heading "Qualified opinion", "Adverse opinion", or
& “Other matter”
"Disclaimer of opinion", as appropriate, for the opinion paragraph.
3. Amend the description of the auditor's responsibility when a Qualified or
Adverse opinion is issued
To state that the auditor believes that the audit evidence the auditor has obtained
is sufficient and appropriate to provide a basis for that opinion. ISA 706: “Emphasis of Matter Paragraphs and Other
Matter Paragraphs in the Independent Auditor's Report”
4. Amend the introductory paragraph of the Disclaimer of Opinion
To state that the auditor was engaged to audit the FSs. The auditor also amends
the description of the auditor's responsibility and the description of the scope of
the audit. 39

37

2.4 Form and content of the auditor’s when

the audit opinion is modified (3)
Example of amendment to the auditor responsibility paragraph
"Our responsibility is to express an opinion on the financial statements based on
conducting the audit in accordance with International Standards on Auditing.
Because of the matter(s) in the Basis for Disclaimer of Opinion paragraph,
however, we were not able to obtain sufficient appropriate audit evidence to
provide a basis for an audit opinion."
Emphasis of matter
v In certain limited circumstances it is appropriate for the auditor to draw
attention to or emphasise a matter that is appropriately presented or
disclosed in the financial report and is considered relevant to users of
the auditor’s report, but which, because of its nature, does not affect the
auditor’s opinion.
v The major examples would be where there is a disclosure in the
notes to the financial report that the auditor considers to be complete
and adequate, but important enough to bring to users’ attention.

40

38
 1) important to emphasize
2) users' understanding (could change their decisions)
3) obtained sufficient appropriate au evidence
Emphasis of matter
Example: “Emphasis of Matter’ paragraph
In the auditor’ relating to inherent uncertainties”
judgment, that matter
is of such important
To draw user’s that it is fundamental
attention to a to user’s
matter understanding of the
appropriately FSs
presented or
disclosed
in the FSs The auditor has
obtained sufficient
appropriate audit
evidence that the
matter is not
materially misstated
in the FSs 41 43

1 trong 4 -> write down EoM

Circumstances giving rise to Emphasis of Matter

Other matter
auditor add a suplementary para of OM
ISA 706 outlines circumstances in which Emphasis of Matter (EoM) can be
issued:
Subsequent
v The ability to include an Other Matter (OM) paragraph in the auditor’s
Ø Uncertainty relating to the future outcome of exceptional litigation or Events report allows auditor to draw user’s attention to any other matters, not
regulatory action presented or disclosed in the financial report, that the auditor believes
FS are sufficiently important to be highlighted.
Ø Early application of a new accounting standard that has a pervasive Comparability
effect on the financial report in advance of its effective date, and v Circumstances giving rise to an OM paragraph are relevant to
Material enhancing user’s understanding of:
Ø A major catastrophe that has had, or continues to have, a significant Uncertainties Ø the audit,
effect on the entity’s financial position. Ø the auditor’s responsibilities or the audit report,
Related Party Ø reporting on more than one set of FSs,
Transactions Ø restriction on distribution or use of the auditor’s report.
Eg., currently, approximately 80% of auditor’s reports in Australia containing
EoM paragraphs relate to uncertainty regarding going concern status.
42 OM : this is the first year of au of EY, the previous of au is KPMG and 44

disclosed a qualified opi

applied acc std before the compulsory period -> early application
 Other matter Exercise: Patel, a CPA firm, has completed the audit of the FSs of Bell as of and
for the year ended December 31, 2019. Patel also audited and reported on the Bell
Those matters are FS s for the prior year. Patel drafted the following report for 2019.
relevant to user’s
To draw user’s understanding of the
We have audited the balance sheet and statements of income and retained earnings of
attention to any audit, the auditor’ Bell Corporation as of December 31, 2019. We conducted our audit in accordance
matter(s) responsibility or the
with generally accepted accounting standards. Those standards require that we plan
other than those auditor’s report
and perform the audit to obtain reasonable assurance about whether the financial
presented or statements are free of misstatement.
disclosed
in the FSs We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly the financial
This is NOT
position of Bell Corporation as of December 31, 2019, and the results of
prohibited by
its operations for the year then ended in conformity with generally accepted auditing
law/regulations
standards, applied on a basis consistent with those of the preceding year.

45 Patel, CPA 47
(Signed)

Choose appropriate audit opinion Consider these following questions

1. Are there any material misstatements in the FSs?
Yes, there are MMs
2. The pervasiveness of MMs?
MMs are pervasive
3. The auditor’s ability to obtain sufficient
appropriate audit evidence?
sufficient appropriate AE
Adverse
audit opinion
No (there is No MM)
Unmodified
Other Information
audit opinion
q Bell is a private corporation.
q Patel was unable to perform normal accounts receivable confirmation procedures for
accounts that are material, but not pervasive, to the financial statements. Unfortunately, Patel
MMs are NOT pervasive
Qualified was not able to perform alternative procedures to support the existence of the receivables.
audit opinion
q Bell Corporation is the devaluation of inventory due to the nature of inventory of fashionable
items.
This is a reasonable possibility that Bell’s inventory account may be needed to make a
unable to obtain sufficient
Disclaimer of
provision of 15.000 USD. This amount is higher than overall materiality of 10.000 USD.
appropriate audit evidence Because management does not want to provide any information of this devaluation, the case
opinion
is not discussed in the financial statements.
Scope limitation
Required:
a. Identify and explain any items included in “Other Information” that need not be part of the auditor’s report.
b. Does the current audit opinion provide a true and fair audit opinion?
48
46 If it does not, suggest your recommendation on the more appropriate audit opinion.