CHAPTER

3
Learning Objectives
Audit Reports

After studying this chapter, you should be able to:

1. Describe the parts of the standard unmodified audit report for non-public entities under
AICPA auditing standards.
2. Specify the conditions required to issue the standard unqualified audit report.
3. Understand reporting on financial statements and internal control under PCAOB
auditing standards.
4. Describe the five circumstances when an unqualified report with an emphasis-of-
matter explanatory paragraph or modified wording is appropriate.
5. Identify the types of audit reports that can be issued when an unqualified opinion is not
justified.
6. Explain how materiality affects audit reporting decisions.
7. Draft appropriately modified audit reports under a variety of circumstances.
8. Determine the appropriate audit report for a given audit situation.
 Nature of Auditing

Auditing is the accumulation and evaluation

of evidence about information to determine
and report on the degree of correspondence
between the information and established criteria.

Auditing should be done by a competent,

independent person.

LO 1
 Audit Report

 A letter communicating what was audited,

management’s and the auditor’s responsibilities, what
an audit entails, and the auditor’s opinion.
Categories of Audit Report

1. Standard unmodified

2. Unmodified with explanatory paragraph

or modified wording

3. Qualified

4. Adverse

5. Disclaimer
 Learning objective 1

Describe the parts of the standard

unmodified audit report for non-
public entities under AICPA
auditing standards.
 Learning Objective 1
Standard Unmodified Opinion Describe the parts of the
standard unmodified audit
report.

 “Standard” refers to the uniform wording

 “Unmodified opinion” refers to the fact that the

auditor’s opinion about the financial statements
contains no material exceptions or qualifications.

LO 1
 Learning Objective 1
Parts of the Standards Unmodified Describe the parts of the
standard unmodified audit
Audit Report report.

Judul laporan

Alamat

Paragraf pendahuluan

Tanggung jawab
manajemen

Tanggung jawab
auditor

LO 1
 Learning Objective 1
Parts of the Standards Unmodified Describe the parts of the
standard unmodified audit
Audit Report report.

Paragraf ruang lingkup

Paragraf opini

LO 1
 Learning Objective 1
Parts of the Standards Unmodified Describe the parts of the
standard unmodified audit
Audit Report report.

1. Report title
2. Audit report address
3. Introductory paragraph
4. Management’s responsibility
5. Auditor’s responsibility
6. Opinion paragraph
7. Name and sign of CPA
8. Audit report date

LO 1
 Learning objective 2

Specify the conditions required

to issue the standard
unmodified audit report.
 Learning Objective 2
Conditions for Standards Specify the conditions required
to issue the standard
Unmodified Audit Report unmodified audit report.

1. All statements are included.

2. Sufficient appropriate evidence has been
accumulated, and auditor has conducted the
engagement in a manner that enables him/her to
conclude that the audit was performed in accordance
with auditing standards.
3. The financial statements are presented in accordance
with generally accepted accounting principles.
4. There are no circumstances requiring the addition of
an explanatory paragraph or modification of the
wording of the report.

LO 1
 Learning objective 4

Describe the five circumstances

when an unmodified report with
an emphasis-of-matter
explanatory paragraph or
modified wording is appropriate.
 Learning Objective 4
Unmodified Report with Describe the five circumstances
when an unmodified report with

Explanatory Paragraph
an explanatory paragraph is
appropriate.

1. Lack of consistent application of generally

accepted accounting principles.
2. Substantial doubt about going concern
3. Auditor agrees with a departure from
promulgated accounting principles
4. Emphasis of other matter
5. Reports involving other auditors

LO 4
 Learning Objective 4
Unmodified Report with Describe the five circumstances
when an unmodified report with

Explanatory Paragraph
an explanatory paragraph is
appropriate.

Lack of consistent application of generally

accepted accounting principles

Changes that affect consistency and require an

explanatory paragraph if they are material:

1. Changes in accounting principles

2. Changes in reporting entities
3. Corrections of errors involving principles

LO 4
 Learning Objective 4
Unmodified Report with Describe the five circumstances
when an unmodified report with

Explanatory Paragraph
an explanatory paragraph is
appropriate.

Lack of consistent application of generally

accepted accounting principles

Changes that affect comparability but not

consistency and therefore need not be included
in the audit report:
1. Changes in an estimates
2. Error corrections not involving principles
3. Variations in format and presentation.

LO 4
 Learning Objective 4
Unmodified Report with Describe the five circumstances
when an unmodified report with

Explanatory Paragraph
an explanatory paragraph is
appropriate.

Substantial doubt about going concern:

1. Significant recurring operating losses or working
capital deficiencies.
2. Inability of the company to pay its obligations as they
come due.
3. Loss of major customers, the occurrence of uninsured
catastrophes.
4. Legal proceedings, legislation, that might jeopardize
the entity’s ability to operate

LO 4
 Learning Objective 4
Unmodified Report with Describe the five circumstances
when an unmodified report with

Explanatory Paragraph
an explanatory paragraph is
appropriate.

Auditor agrees with a departure from promulgated

accounting principles:

The auditor must be satisfied and must state

and explain, in a separate paragraph or
paragraphs in the audit report, that adhering
to the principle would have produced a
misleading result in that situation.

LO 4
 Learning Objective 4
Unmodified Report with Describe the five circumstances
when an unmodified report with

Explanatory Paragraph
an explanatory paragraph is
appropriate.

Emphasis of a Matter:

Under certain circumstances, the CPA may want to

emphasize specific matters regarding the financial
statements, even though the CPA intends to express an
unqualified opinion.

1. Existence of significant related party transactions

2. Events occurring subsequent to balance sheet date
3. Matters affecting comparability of financial statements
4. Material uncertainties disclosed in footnotes

LO 4
 Learning Objective 4
Unmodified Report with Describe the five circumstances
when an unmodified report with

Explanatory Paragraph
an explanatory paragraph is
appropriate.

Reports Involving Other Auditors:

1. Make no reference in the audit report.

2. Make reference in the report (modified wording report).
3. Qualify the opinion.

LO 4
 Learning objective 5

Identify the types of audit

reports that can be issued
when an unmodified
opinion is not justified.
 Learning Objective 5
Departures from an Identify the types of audit reports
that can be issued when an
Unmodified Opinion unmodified opinion is not
justified.

1. Scope limitation

2. GAAP departure

3. Auditor not independent

LO 5
 Learning Objective 5
Identify the types of audit reports
Qualified Opinion that can be issued when an
unmodified opinion is not
justified.

A qualified opinion report can result from

a limitation on the scope of the audit or
failure to follow generally accepted
accounting principles.

LO 5
 Learning Objective 5
Identify the types of audit reports
Adverse Opinion that can be issued when an
unmodified opinion is not
justified.

It is used only when the auditor believes

that the overall financial statements are
so materially misstated or misleading that
they do not present fairly the financial
position or results of operations and cash
flows in conformity with GAAP.

LO 5
 Learning Objective 5
Identify the types of audit reports
Disclaimer of Opinion that can be issued when an
unmodified opinion is not
justified.

It is issued when the auditor is unable to be

satisfied that the overall financial
statements are fairly presented.

LO 5
 Learning objective 6

Explain how materiality affects

audit reporting decisions.
 Learning Objective 6
Materiality Explain how materiality
affects audit reporting
decisions.

 A misstatement in the financial statements can be

considered material if knowledge of the misstatement
would affect a decision of a reasonable user of the
statements.

LO 6
 Learning Objective 6
Explain how materiality
Level of Materiality affects audit reporting
decisions.

Amounts are immaterial.

Amounts are material but do not overshadow

the financial statements as a whole.

Amounts are so material or so pervasive that

overall fairness of the statements is in question.

LO 6
 Learning Objective 6
Relationship of Materiality to Explain how materiality
affects audit reporting
Type of Opinion decisions.

Materiality Significance in Terms of Type of

Level Reasonable Users’ Decisions Opinion

Users’ decisions are unlikely

Immaterial Unmodified
to be affected.

Users’ decisions are likely

Material Qualified
to be affected.

Highly Users’ decisions are likely Disclaimer

material to be significantly affected. or adverse
LO 6
 Learning Objective 6
Explain how materiality
Materiality Decisions affects audit reporting
decisions.

Rupiah amount compared with a base

Measurability

Nature of the item:

• Illegal or fraudulent transaction
• Materially affect some futures period
• A “physics” effect
• Important in term of possible consequences

LO 6
> DO IT!

 Carilah contoh-contoh laporan auditor

independen dengan berbagai jenis opini
 Bandingkan opini tersebut di atas dengan
contoh-contoh yang diberikan pada SPAP (SA
700, SA 705, SA 706, SA 710, dan SA 720)
Pertanyaan?

SELESAI