Let's now look at matters that affect the Auditors opinion.
Now we're looking at those learning objectives there.
Now this decision tree is going to be very very
important to you. It's something
that I really encourage you to.
fully understand and be able to actually follow
so
This is an auditor. You are the auditor you are deciding what
audit opinion to issue.
So the first thing the auditor will do.
The original we look at a certain issue.
The auditor will ask is this matter that I'm looking
at material to fair presentation?
Does it cause the financial statements to be materially mistated?
If the answer the answer could be yes.
Which basically means the auditor has no choice, but to
issue a modified audit opinion why because the
financials are materially mistreated.
However, odisha could look at an issue and say you know what
now?
It's not it's it's not Material in that case.
The auditor will issue an unmodified opinion. So I'm
hoping that is very clear. If someone asks you
when is a modified audit opinion issued and when is an unmodified audit
opinion issue? The question will be materiality of the
issue at hand.
Let's progress father.
Now once the auditor has determined the issue is
material. So clearly the origin now knows I
have no choice but to issue a modified opinion.
The next question will be is this matter of Asif.
Does it affect most of the financial statements or holistically
mistake the financial statements materially?
if the answer is
yes.
the auditor asks
Is this an issue of a scope limitation?
What do we mean by scope limitation was I prevented
as an auditor from performing the audit
maybe because I couldn't access a certain Warehouse. I couldn't
access certain records. I couldn't
access an accounting system. What is the
issue? Is it as cop limitation issue if the answer
is yes, so we are saying the issue was material. The issue
was pervasive affects a whole fine all the financial statements
and it related to the auditor
auditor scope being limited. The auditor
will issue a disclaimer of opinion basically saying
I cannot issue an opinion.
Let's continue.
If the issue is material and perversive.
But it's because of our disagreement.
So the auditor believes the impairment of Goodwill should
be 50 million management are saying it's 20
million. That's a disagreement.
And management say we are not going to correct that
material statement. That is
a disagreement.
Because it's material and it is perversive it
affects and most of
the elements of the financial statements of the
financial statement or distort the
financial statements as a whole the auditor will issue
an advance audit opinion. It's a really bad opinion.
Again here the auditor is just basically saying the financial statements
are materially mistated.
Now if the issue is material, but it's
not perversive.
Maybe it's just affecting inventory, or maybe
it's just affecting inventory and one more item, but inventory is
not a significant proportion of the financial statements.
Yes, it's material. But it's not like it covers 80% of
the total assets.
in that case
the auditor will issue a qualified audit opinion. Remember
what I said except for this is
where the auditor will be using that word except for the issue.
I discussed under the basis for qualified
audit opinion the financial statements
reflect a true and Fair View.
in all material respects
So it's a better.
Opinion than an adverse opinion an
adverse opinion is a terrible opinion. I qualified
opinion you can live with that an organization
can live with that not the best but it's
definitely much better than our adverse opinion.
So
let's go back here. So is the matter material? No, so
it's clearly said and modified audit opinion will
be issued.
Now the question now because there are modified audit opinion
is going to be issued. Now the question we are asking ourselves here.
Is is a modified report going to
be issued?
So remember here it was a modified opinion. Now.
He this particular part here. It's an
unmodified opinion because the issue is not material, but that
doesn't but but that could lead to the audit report
having a modified being modified which
basically means that a certain issue will be
discussed in the Auditors report.
So yes.
If the answer is yes, the question will be actually before you
are before you before you go to. The next thing. The question
will be this matter. Is it fundamental to use us? Yes,
this matter is not about a material statement. But
is it fundamental to use us such as
a fire destroyed a warehouse a major Warehouse
is this fundamental to users? Yes, so
that basically means a modified audit
report will be issued if the answer is no
Then the auditory report will
not be modified. It should be an unmodified audit report.
So now the auditor knows that the auditor will
issue a modified report. They're not the next question is okay. This
issue is fundamental to use us was it
actually disclosed by Management in the financial statements
if the answer is yes.
An emphasis of matter will be used.
Or if it's relates to going concern.
Remember in part A of module 4 we discussed the
issue of going concern.
if
It's an issue of going concern. Maybe there's a material and certainty
that has been adequately disclosed. Then
the auditor will discuss that issue under a
material and certainty related to going concern
heading. So that's what the auditor will do. Now if
this issue has not been disclosed.
It will be discussed on the other matters. So maybe it
wasn't required to be disclosed. So you might find that it could
be the audition. I just wants to say hey the financial
statements relating to the Hong Kong subsidian. Those
ones were audited
by a separate auditor. So that's another that's an issue
that can be discussed and other matter.
Now obviously if the matter is not
fundamental to users and unmodified report will be
issued.
So this is very important for you to really follow and understand once
you understand these you basically understand module 4.
All right. Now there are some illustrations which I strongly encourage
you to go to.
To review it's in the handbook the 2018 handbook and
basically it's on page 797 very
important. Now. I must say this. I've had a
good number of students getting higher distinction and
the like in the past the return to me and said Michael thank
you very much. The the webinars who
are very useful. I got a high distinction. I
got a distinction and the like
Many of these students you will find they literally take
every every resource seriously every every
request to go and have
revisit some some things very
seriously and that's the thing. I would really like to be
in this particular.
Group of students. Basically what
I'm saying is if I if I talk about a certain
video or I talk about a certain resource. Please make sure
you go there read it and understand it that because
you will find that many times when I'm when I'm
pointing to this things. It's because I know there will be very important when it
comes to the exam.
so
This is an example in the in the handbook. And
so you can see here. The auditor has
issued a qualified audit opinion and basically here
the auditor has actually stated why they have issued.
A qualified audit opinion.
And so this has some of the things I want you to look at
in more detail and really grasp.
What are the issues that can result in a qualified
audit opinion in an advanced audit opinion in a disclaimer of
opinion and they're like
Now you can see another one here. This is now discusses
the adverse opinion again going back
to that standard.
And I've even provided you with the pages that you can look at
797 and 800.
And then you will find here. We also have another
example of a disclaimer of opinion.
So this are these are the the illustrations or examples in
the in the handbook. And so if you can be able
to just review those five examples,
that would be very very useful to
you once you grasp that.
And you are and you you fully understand it. Then
you will be ready to tackle questions
that are coming out of module 4 that refer to Auditors
opinion and Auditors report.