Introduction

The lecture introduces different types of audit reports and the distinction between an audit report and an audit opinion.

Types of Audit Reports

• Modified Report: Indicates a change in the standard audit report, highlighting confusion between the audit report and the audit opinion.

• Audit Report vs. Audit Opinion: Differentiates between the detailed audit report and the crucial auditors' opinion, emphasizing the latter as pivotal.

• Changing Report Content: Discusses alterations to the report that do not impact the auditor's opinion, focusing on minor additions for clarity without criticizing financial statements.

• Emphasis of Matter: Explains drawing attention to specific notes in financial statements without questioning their accuracy, serving as a cautionary measure for readers.

Modified Audit Reports

• Modifying Opinion: Explores scenarios where opinions are altered due to issues with financial statements, leading to qualified opinions, disclaimers of opinion, or adverse opinions based on material misstatements or lack of evidence.

• Emphasis of Matter Paragraph: Highlights instances where auditors signal attention to disclosed matters without altering their overall opinion on financial statements.

Special Emphasis

Financial Statements and Going Concern Issues

In this section, the speaker discusses the concept of going concern problems in financial statements and how auditors address these issues.

The Order to Report and Going Concern Problems

• The order to report refers to a going concern problem already disclosed in financial statements. It is not a modification to the auditor's opinion but serves as an additional warning for stakeholders.

Assessing Going Concern

• Directors are responsible for assessing going concern over the next 12 months from the balance sheet date. Auditors then evaluate this assessment.

Signs of Going Concern Problems

• Signs that a company might face going concern issues include negative operating cash flows, inability to pay suppliers on time, operating losses, unagreed borrowing facilities, loss of key staff or customers, technological changes affecting demand, legislative changes impacting products, and non-compliance with regulations.

Qualifying Audit Opinions and Material Misstatements

This section delves into qualifying audit opinions due to material misstatements in financial statements.

Discrepancies Between Reports

• If there is a discrepancy between what is reported in the directors' report and financial statements regarding profits, it can lead to challenges in issuing an unmodified opinion on financial statements.

Qualification Matrix for Misstatements

• A qualification matrix is crucial when financial statements contain material misstatements. Auditors may issue an "except for" opinion if there are isolated errors that do not impact the overall accuracy of the financial statements.

Financial Statements Evaluation

The speaker discusses the evaluation of financial statements, highlighting instances where opinions on the accuracy and fairness of financial reporting are challenged due to insufficient evidence or material misstatements.

Insufficient Evidence for True and Fair View

• The company's financial statements may not show a true and fair view due to insufficient evidence.

• Inability to determine inventory quantities impacts the assessment of true and fair view.

• Material impact of unobserved physical inventory counting leads to a disclaimer of opinions.

Material Misstatement and Qualified Opinion

• Lack of depreciation provision results in a material misstatement and qualified opinion.

• Isolating errors allows for an overall true and fair view despite specific issues.

Adverse Opinion Due to Bad Debt Provision

• Absence of bad debt provision for significant amounts leads to an adverse opinion.