Elements of the Auditor’s Report in an AElements of the Auditor’s Report in an Audit Conducted in Accordance with Auditing Standards[4]

Elements of the Auditor’s Report in an Audit Conducted in Accordance with Auditing Standards[4]

21 Consistency in the auditor’s report, when the audit has been conducted in accordance with the Auditing Standards, promotes credibility in the Australian marketplace by making more readily identifiable those audits that have been conducted in accordance with recognised auditing standards. It also helps to promote the reader’s understanding and to identify unusual circumstances when they occur.

22 Paragraphs 23-61 set out the mandatory requirements and explanatory guidance relating to the following elements of the auditor’s report when the audit has been conducted in accordance with the Auditing Standards:

(a) title;

(b) addressee;

(c) introductory paragraph;

(d) the responsibility of those charged with governance for the financial report;

(e) auditor’s responsibility;

(f) auditor’s opinion;

(g) other reporting responsibilities;

(h) auditor’s signature;

(i) date of the auditor’s report;

(j) auditor’s address; and

(k) other.

Title

23 The auditor’s report shall have a title that clearly indicates that it is the report of an independent auditor.

24 Under ASA 200, the auditor needs to comply with relevant ethical requirements relating to audit engagements, which include independence requirements. A title indicating the report is the report of an independent auditor, for example, Independent Auditor’s Report, affirms that the auditor has met all of the relevant ethical requirements regarding independence and, therefore, distinguishes the independent auditor’s report from reports issued by others.

Addressee

25 The auditor’s report shall be addressed as required by the circumstances of the engagement.

26 Laws or regulations often specify to whom the auditor’s report on a general purpose financial report is to be addressed. For example, the auditor’s report on a financial report prepared pursuant to the Corporations Act 2001 is required by that Act to be addressed to the members of the entity. In other cases, the auditor’s report on a general purpose financial report is ordinarily addressed to those for whom the report is prepared, often either to the shareholders or to those charged with governance of the entity whose financial report is being audited.

Introductory Paragraph

27 The introductory paragraph in the auditor’s report shall identify the entity whose financial report has been audited and shall state that the financial report has been audited. The introductory paragraph shall also:

(a) identify the title of each of the financial statements that comprise the financial report;

(b) refer to the summary of significant accounting policies, other explanatory notes and, when appropriate, the directors’ declaration; and

(c) specify the date and period covered by the financial report.

28 This mandatory requirement is ordinarily met by stating that the auditor has audited the accompanying financial report of the entity, which comprises (state the titles of the financial statements required by the applicable financial reporting framework, specifying the date and period covered by those financial statements) and referring to the summary of significant accounting policies, other explanatory notes and, when appropriate, the directors’ declaration. In addition, when the auditor is aware that the financial report will be included in a document that contains other information, such as an annual report, the auditor may consider, if the form of presentation allows, identifying the page numbers on which the financial report is presented. This helps readers to identify the financial report to which the auditor’s report relates.

29 The auditor’s opinion covers the financial report as defined by the applicable financial reporting framework. In the case of a financial report prepared in accordance with Australian Accounting Standards, this includes: a balance sheet, an income statement, a statement of changes in equity, a cash flow statement, and a summary of significant accounting policies and other explanatory notes. In some cases, additional information may also be considered to be an integral part of the financial report.

30 In some circumstances, the entity may be required by law or regulation or standards, or may voluntarily choose, to present together with the financial report, supplementary information that is not required by the financial reporting framework. For example, supplementary information might be presented to enhance a user’s understanding of the financial reporting framework or to provide further explanation of specific financial report items. Such information is normally presented in either supplementary schedules or as additional notes. The auditor’s opinion may or may not cover the supplementary information and therefore, under paragraph 64 of this Auditing Standard, the auditor needs to be satisfied that any supplementary information that is not covered by the auditor’s opinion is clearly differentiated.

31 In some circumstances, the supplementary information cannot be clearly differentiated from the financial report because of its nature and how it is presented and, accordingly, such supplementary information is covered by the auditor’s opinion. For example, the auditor’s opinion covers notes or supplementary schedules that are cross-referenced from the financial report. This would also be the case when the notes to the financial report include an explanation of the extent to which the financial report complies with another financial reporting framework. In such cases, under paragraph 67 of this Auditing Standard, the auditor needs to explain in the auditor’s report that the information has not been audited.

32 Supplementary information that is presented as an integral part of the financial report does not need to be specifically referred to in the introductory paragraph of the auditor’s report when the reference to the notes in the description of the components of the financial report in the introductory paragraph is sufficient.

The Responsibility of Those Charged with Governance for the Financial Report

33 The auditor’s report shall state that those charged with governance are responsible for the preparation and the fair presentation of the financial report in accordance with the applicable financial reporting framework and that this responsibility includes:

(a) establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error;

(b) selecting and applying appropriate accounting policies; and

(c) making accounting estimates that are reasonable in the circumstances.

34 A financial report is the representation of those charged with governance. The responsibility of those charged with governance for the preparation and fair presentation of the financial report is ordinarily defined by the applicable financial reporting framework. For example, in the case of a financial report prepared in accordance with Australian Accounting Standards, those charged with governance are responsible for preparing a financial report that fairly presents the financial position, financial performance and cash flows of the entity in accordance with Australian Accounting Standards. To fulfil this responsibility, management and those charged with governance design and implement internal control[5] to prevent or to detect and correct misstatements, whether due to fraud or error, in order to ensure the reliability of the entity’s financial reporting. The preparation of the financial report requires management and those charged with governance to exercise judgement in making accounting estimates that are reasonable in the circumstances, as well as to select and apply appropriate accounting policies. These judgements are made in the context of the applicable financial reporting framework.

35 There may be circumstances when it is appropriate for the auditor to add to the description of the responsibilities of those charged with governance referred to in paragraph 33 to reflect additional responsibilities that are relevant to the preparation and presentation of the financial report in the context of the particular engagement or the nature of the entity.

36 The term “those charged with governance” has been used in this Auditing Standard to describe those responsible for the preparation and fair presentation of the financial report. Other terms to describe those charged with governance may be appropriate depending on the legal framework governing the audit of the financial report. For example, the appropriate term to describe those responsible for the preparation and fair presentation of a financial report prepared pursuant to the Corporations Act 2001, is the “directors”.