The auditor is required to issue an audit report at the end of the audit, which sets out his opinion on the financial statements. An important element of the audit report is the statement of auditor’s responsibility.

The statement of responsibility should state the following:

(i) It is the responsibility of the auditor to express an opinion on the financial statements.

(ii) The audit was conducted in accordance with International Standards on Auditing.

(iii) Those standards require that:

The auditor complies with ethical requirements. the auditor plans and performs the audit to obtain reasonable assurance whether the financial statements a  re free from material misstatement.

(iv) That. an audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.

(v) That while selecting the procedures to be performed the auditor exercises judgment, including the assessment of risks of material misstatements and whether due to fraud or error.

(vi) In making the risk assessment the auditor considers internal relevant to fair presentation of 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 entity’s internal control.

(vii) That an audit includes evaluation of the appropriateness of the accounting policies used, the reasonableness of estimates and the overall presentation of information in the financial statements.

(viii) The auditor believes that the audit evidence the auditor has obtained is sufficient and appropriate to provide a basis for the auditor’s opinion

The auditor’s report as specified in form 35A in the Companies (General Provisions and Forms) Rules, 1985 includes the auditor’s opinion on . certain matters which have not been specified in the format of auditor’s report given in the International Standards on Auditing


List the additional reporting responsibilities of the auditor, as discussed in the preceding paragraph.

The report specified in form 35A in the Companies (General Provisions and Forms) Rules, 1985 covers the following additional reporting responsibilities:

(i) That proper books of accounts are being maintained by the company as required by the Companies Ordinance, 1984.

(ii) That the balance sheet and the profit and loss account together with notes there on are in conformity with the Companies Ordinance, 1984 and in agreement with the books of accounts and are further in accordance with the accounting policies consistently applied.

(iii) Opinion as regards the following:

Whether expenditure incurred during the year was for the purposes of the company’s business and Whether the business conducted, investments made and expenditure incurred during the year were in accordance with the objects of the company.

(iv) Opinion as regards the following:

Whether Zakat deductible at source under the Zakat and Usher Ordinance, 1980; was deducted and  Whether the Zakat deducted (if any) was deposited in the Central Zakat Fund.

Your firm has completed the audit of financial statements of Flora Limited (FL), a public listed company, as of June 30, 2008 and has issued, the audit report on September 30, 2008. While preparing to attend the Annual General Meeting (AGM), you noted that a particular sub-note was alfogether missing from the published financial statements. On scrutiny, you found that the original signed copy of the financial statements available in your records did contain the note


(a) Explain the auditor’s responsibility in such a situation if the amount involved is considered material.

(b) What difference would it make ifthe amount is immaterial?

(a) 1. Discuss the matter with management
2. Advise the client to inform SECP and stock exchange.
3, Request the client to send corrigendum to all members
4. Ensure that shareholders are informed at AGM about the comission,
(b) The above steps should be taken even if the matter is not material.

Al-Badr & Company, Chartered Accountants, have conducted the statutory audit of the financial statements of AI-Qasim Limited, a listed company, for the year ended June 30, 2010 under the requirements of :ne Companies Ordinance, 1984. The job in charge has drafted the following audit report

Auditors’ Report to the Directors

We have audited the annexed balance sheet of AI-Qasim Limited as at june 30, 2010 and the related profit and loss account and statement of changes in equity together with the notes forming part thereof, for the year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit.

We conducted our audit in accordance with the auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement. An audit includes examining evidence supporting the amounts and disclosures in the above said statements. An audit also includes assessing the accounting policies and all estimates made by management, as well as, evaluating the overall presentation of the above said statements.

We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that:

(a) In our opinion:

(i) The balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with the Companies Ordinance, 1984, and are in agreement with the books of account and further in agreement with accounting policies consistently applied;

(ii) The expenditure incurred during the year was for the purpose of the company’s business; and

(iii) The business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the company.

(b) In our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit and loss account and statement of changes in equity together with the notes forming part thereof conform with International Financial ReportingStandards, and give the information required by the Companies Ordinance, 1984, in the manner to required and respectively give a true and fair view of the state of the company’s affairs as at June 30, 2010 and of the profit and changes in equity for the year then ended;

(c) In our opinion, no zakat was deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980).


Identify and explain (where necessary) the errors in the above audit

(i) Audit report should be addressed to the members of the company instead of directors

(ii)  In the introductory paragraph and opinion paragraph, the word “cash flow statement” has been omitted.

(iii) In the opinion paragraph, the words “its cash flows” have been omitted.

(iv) The paragraph explaining the responsibilities of management and auditors has been omitted. This paragraph should come after the introductory paragraphy.

(v) After the statement “We conducted our audit in accordance with the auditing standards” in the audit responsibility paragraph, the words “as applicable in Pakistan” have been omitted.

(vi) In the auditor’s responsibility paragraph, the words “on test basis” have been omitted.

(vii) In the auditor’s responsibility paragraph, the word “all estimates … ” should be replaced with the’ word “significant estimates” .

(viii) The opinion paragraph whether proper books of account have been kept by the company as required under the Companies Ordinance, 1984, has been omitted.
(ix)In paragraph (b) of the opinion, the financial statements have incorrectly been referred to have been drawn up in accordance with International Financial Reporting Standards instead of the requirement i.e. approved accounting standards as applicable in Pakistan.

(x) Name of the engagement partner has not been mentioned.

In the light of ISA-700 “Forming an opinion and reporting on financial statements”, discuss the ‘auditors’ responsibilities with regard to unaudited supplementary information presented with the audited financial statements.

i) If supplementary information that is not required by the applicable financial .reporting framework is’ presented with the .audited financial statements, the auditor shall evaluate whether such supplementary information is clearly differentiated from the audited financial statements.

(ii) If such supplementary information is not clearly differentiated from the audited financial statements, the auditor shall ask management to change the presentation of supplementary information by:

• Removing any cross references from the financial statements to unaudited supplementary schedules or unaudited notes so that the demarcation between the audited information is sufficiently clear.
• Placing the unaudited supplementary information outside of the financial statements or, if that is not possible in the  circumstances, at a minimum place the unaudited notes together at the end of the required notes to the financial statements and clearly label them as unaudited.

(iii) If management refuses to do so, the auditor shall explain in the auditor’s report that such supplementary information has not been audited.

(iv) The fact of supplementary information is unaudited does not relieve the auditor of the responsibility to read that information to identify material inconsistencies with the audited financial statements.

(v) Supplementary information that is not required by the applicable financial reporting framework but is nevertheless an integral part of the financial statements because it cannot be clearly differentiated from the audited financial statements due to its nature how’ it is presented shall be covered by the auditor’s opinion.

Posted on November 2, 2015 in Forming An Opinion And Reporting On Financial Statements

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