NAME:SAMUEL WANJE

REG NO:BBM/089/2020

COURSE UNIT:AUDITING AND ASSURANCE SERIVICES.

:ASSIGNMENT.

1.AUDIT REPORT

The auditor's report is a document containing the auditor's opinion on whether a company's financial
statements comply with GAAP and are free from material misstatement. The audit report is important
because banks, creditors, and regulators require an audit of a company's financial statements.

2.Contents of the Audit Report

It usually has a predefined format as mentioned below:

-Title: This part states that it is an independent auditors report.

-Audience: This part states the prospective users to whom the report is placed. Normally it mentions like
this “To the Members of XYZ Limited (Name of company).

-Report on the Financial Statement: This part states the statement from the auditor about the
statements audited by them and a summary of significant accounting policies and other explanatory
information.

-Management’s Responsibility for The Financial Statements: This part highlights the responsibility of
company management to prepare financial statements that provide a true and fair view of the financial
position.

-Auditors’ Responsibility: This part states the responsibility of the Auditor and its team, the process they
applied to conduct the audit, and the sufficiency of Audit evidence obtained by them to provide a basis
for an audit opinion.

-Opinion and Basis of Opinion: This part comprises the auditor’s opinion on the financial statements
based on the meeting, discussion, evaluation, and other audit evidence obtained from the company.

-Report on other Legal and Regulatory Requirements: This step involves certification by the auditor that
they have complied with the relevant acts governing such audit activity and any material information
(compliance or penalty) they wish to furnish as part of the audit report.

Duly certified. This part involves proper signature by the auditor with mention of the date and place on
which the Audit Report is signed.
3.Legal Requirements or statutory requirement under the companies act.

The incorporators of a public company must consist of at least one person. The word “person” includes
a juristic person, as provided under section 1 of the Act. A public company must have at least three
directors. Private companies are comparable to companies of the same status under the Companies Act,
1973.

4.TYPES OF AUDIT REPORT.

1. Clean report

A clean report expresses an auditor's "unqualified opinion," which means the auditor did not find any
issues with a company's financial records. "Unqualified" expresses that the company does not need to
meet any additional qualifications to improve its financial status. A company receives a clean report
when it shows it follows the standards set by the GAAP.

This is the most desired and common type of audit report. In the report document, an auditor expresses
their belief that the company has a good financial standing and complies with the laws and governing
principles of accounting. Most investors want a company to earn a clean audit report before they invest
in the business.

2. Qualified report

A qualified report expresses an auditor's qualified opinion of a company's financial standing. This shows
that a company has not followed all the standards set by the GAAP but isn't conducting its fiscal business
in an illegal or misrepresenting way. A qualified report means that a company must meet certain
qualifications to have a financial status approved by auditors.

Auditors may issue this report if there are certain business transactions or practices of which they are
unsure. In the written qualified report, an auditor details what qualifications a company must address to
comply with the GAAP. Qualified reports help financial management teams recognize what parts of their
company need fixing to improve its financial status.

3. Disclaimer report

Auditors issue disclaimer reports when they have excused themselves from providing an opinion about a
company's financials. When an auditor issues this report, it often means they felt the company
prevented them from making proper observations. This may happen if a company does not give
satisfactory answers to an auditor's questions or if there is a mistake in their financial records. If this
happens, an auditor may feel they cannot make a definite decision about a company's financials.

A disclaimer report allows them to distance themselves from a company if necessary and maintain their
reputation as a fair and professional auditor.

4. Adverse opinion report

An adverse opinion report often highlights fraud within a company. Auditors issue adverse opinion
reports when they discover instances of irregularities or misrepresentations in a company's financial
statements. These companies often have disregarded the standards set by the GAAP.

An adverse opinion report alerts finance professionals and members of the public of a company's
possibly dishonest practices. These reports also allow the company to address and improve its practices.

5.TYPES OF QUALIFICATIONS.

a).Unqualified opinion – clean report

An unqualified opinion is considered a clean report. This is the type of report that auditors give most
often. It is also the type of report that most companies expect to receive.

An unqualified opinion doesn’t have any adverse comments, and it doesn’t include any disclaimers
about any clauses or the audit process.

Why an auditor issues an unqualified opinion

This report indicates that the auditors are satisfied with the company’s financial reporting. The auditor
believes the company’s operations comply with governance principles and applicable laws. The
company, the auditors, the investors and the public perceive such a report to be free from material
misstatements.

b).Unmodified opinion
An unmodified opinion is the same as an unqualified opinion, but the difference comes down to context.
Clean audit reports for publicly listed companies have an unqualified opinion, while those same reports
for private companies are considered unmodified.

c).Qualified opinion – qualified report

A qualified opinion results in a qualified report. It typically indicates that the auditor isn’t confident
about any specific process or transaction, which prevents them from issuing an unqualified or clean
report. Investors don’t find qualified opinions acceptable, as they project a negative opinion about a
company’s financial status.

Auditors write up a qualified opinion in much the same way as an unqualified opinion, with the
exception that they state the reasons they’re not able to present an unqualified opinion.

Why an auditor issues a qualified opinion

An auditor will give a qualified opinion and qualified report if they can’t confidently clear the
organization's financial statements or financial reporting practices. A common reason for auditors
issuing a qualified opinion is that the company didn’t present its records with GAAP.

d).Disclaimer of opinion – disclaimer report

A disclaimer of opinion results in a disclaimer report. When an auditor issues a disclaimer of

opinion report, it means that they are distancing themselves from providing any opinion at all related to
the financial statements.

The general consensus is that a disclaimer of opinion constitutes a very harsh stance. As a result, it
creates an adverse image of the company.

Why an auditor issues a disclaimer of opinion

Some of the reasons that auditors may issue a disclaimer of opinion are because they felt like the
company limited their ability to conduct a thorough audit or they couldn’t get satisfactory explanations
for their questions. They may not have been able to decipher the correct nature of some transactions or
to secure enough evidence to support good financial reporting.
Auditors who aren’t allowed an opportunity to observe operational procedures or to review particular
procedures may feel like they’re not able to express a definite opinion, so they feel a disclaimer is
necessary and in order.

e).Adverse opinion – adverse audit report

The final type of audit opinion is an adverse opinion. An auditor’s adverse opinion is a big red flag. An
adverse audit report usually indicates that financial reports contain gross misstatements and have the
potential for fraud.

Why an auditor issues an adverse opinion

Auditors who aren’t at all satisfied with the financial statements or who discover a high level of material
misstatements or irregularities know that this creates a situation in which investors and the government
will mistrust the company’s financial reports.

Adverse opinions send out a high alert that the company’s records haven’t been prepared according to
GAAP. Financial institutions and investors take this opinion seriously and will reject doing any kind of
business with the company

6.POST BALANCE SHEET EVENTS SUBSEQUENT TO BALANCE SHEET DATES

Contingencies and Events Occurring After the Balance Sheet Date 45

8. Events Occurring after the Balance Sheet Date

8.1 Events which occur between the balance sheet date and the date on which the financial statements
are approved, may indicate the need for adjustments to assets and liabilities as at the balance sheet
date or may require disclosure.

8.2 Adjustments to assets and liabilities are required for events occurring after the balance sheet date
that provide additional information materially affecting the determination of the amounts relating to
conditions existing at the balance sheet date. For example, an adjustment may be made for a loss on a
trade receivable account which is confirmed by the insolvency of a customer which occurs after the
balance sheet date.

8.3 Adjustments to assets and liabilities are not appropriate for events occurring after the balance sheet
date, if such events do not relate to conditions existing at the balance sheet date.An example is the
decline in market value of investments between the balance sheet date and the date on which the
financial statements are approved. Ordinary fluctuations in market values do not normally relate to the
condition of the investments at the balance sheet date, but reflect circumstances which have occurred
in the following period.

8.4 Events occurring after the balance sheet date which do not affect the figures stated in the financial
statements would not normally require disclosure in the financial statements although they may be of
such significance that they may require a disclosure in the report of the approving authority to enable
users of financial statementsto make proper evaluations and decisions.

8.5 There are events which, although they take place after the balance sheet date, are sometimes
reflected in the financial statements because of statutory requirements or because of their special
nature. Such items include the amount of dividend proposed or declared by the enterprise after the
balance sheet date in respect of the period covered by the financial statements.

8.6 Events occurring after the balance sheet date may indicate that the enterprise ceases to be a going
concern. A deterioration in operating results and financial position, or unusual changes affecting the
existence or substratum of the enterprise after the balance sheet date (e.g., destruction of a major
production plant by a fire after the balance sheet date) may indicate a need to consider whether it is
proper to use the fundamental accounting assumption of going concern in the preparation of the
financial statements.

POST BALANCE SHEET EVENTS.

What are post-balance-sheet events? Broadly defined, they are any event occurring or becoming known
subsequent to the date of the financial statements and prior to the issuance or release of such financial
statements. Basically, post-balance-sheet 'events can be divided between those which are of accounting
significance and those which are not of accounting significance. Those of accounting significance, with
which we are concerned here today, are those "events or transactions, either extraordinary in character
or of unusual importance, which occur subsequent to the balance sheet date and which have, or may
have, a material effect on the financial statements or which may be important in connection with
consideration of the statement.

EVENTS OF ACCOUNTING SIGNIFICANCE

Post-balance-sheet events of accounting significance may be classified as between those subsequent

events or transactions requiring adjustment of the financial statements and those subsequent events or
transactions requiring only footnote or other appropriate disclosure in the financial statements.

EVENTS REQUIRING ADJUSTMENT

An often-cited example of a subsequent event requiring adjustment of the financial statements would
be a substantial unanticipated bad-debt loss arising subsequent to the balance-sheet date from the
unforeseen bankruptcy of a substantial debtor, which loss was not previously adequately provided for in
the accounts. In such case, it would be appropriate to give effect to the loss in the financial statements
by an additional bad-debt provision and, thus provided for, no footnote or other disclosure would
ordinarily be required. Two other examples, both of which are based on recent personal experiences, in
which subsequent events were given effect by adjusting the financial statements were, in one case, the
settlement after the balance-sheet date of a disputed claim by a creditor and, in the other case, losses
incurred from repossessions of - automobiles sold on time-payment plans. In the case of the disputed
claim, the creditor was alleging damages of some $300,000 from breach of contract. At the balancesheet
date, proceedings to settle this claim had just been instituted and, accordingly, there existed no
objective evidence at that date upon which to base a provision for the liability, if any, that might have
arisen from settlement of the claim. About two months following the balance-sheet date, which was
shortly before the issuance of the audit report, settlement of the claim was effected for $100,000. By
reason of this settlement, it was deemed appropriate to reflect such settlement in the financial
statements by including the $100,000 as a liability in the balance sheet with a like charge in the income
statement. In the case of the client with losses from repossessions of automobiles sold on time-payment
plans, investigation of substantial recorded losses from repossessions of automobiles during the first
few months following the date of the financial statements under examination revealed that a substantial
portion of such losses related to sales made prior to the balance-sheet date. After investigation of the
losses, and consideration of the various factors concerned, it was concluded that a reserve of
approximately $90,000 was necessary as of the balancesheet date to adequately provide for such losses.
Accordingly, the financial statements were adjusted therefor. These two examples serve to highlight the
fact that subsequent events that require adjustment of the financial statements are more than a
theoretical matter which occur only in textbooks and are, in fact, a matter faced by the public
accountant in the everyday practice of his profession.

EVENTS CALLIN G FOR DISCLOSURE

Examples of subsequent events that would not require adjustment of the financial statements, but as to
which footnote or other appropriate disclosure would generally be warranted, would be the issuance of
substantial amounts of notes, bonds, or capital stock, serious losses from fires, floods, or other casualty,
or the receipt of notice of pending tax deficiencies or other claims of material amount following the
balance-sheet date. One recent example of a subsequent event in this category with which I am familiar
relates to a company that received a notice from the Internal Revenue Service three weeks after the
date of the fianancial statements under examination informing the company of proposed assessments
of substantial amounts of additional federal income taxes for prior years. Management of the company
and its legal counsel were of the opinion that the prospects for successfully contesting the proposed
assessments were favorable and accordingly it was not deemed appropriate to give effect to such
proposed assessments by adjustment of the financial statements. However, in as much as the proposed
assessments were extraordinary in character and/or of unusual importance it was deemed appropriate
to disclose the proposed assessments in the footnotes to the financial statements even though they
arose after the date of the balance sheet. Another example of disclosure of a significant post-balance-
sheet event by footnote related to the acquisition, on the day following the date of the financial
statements, of an important subsidiary through the issuance of capital stock. Since this transaction
materially increased the assets of the company
and its subsidiaries on a consolidated basis, and materially changed the capitalization of the company,
such transaction was deemed to be of sufficient importance to warrant disclosing full details thereof in a
footnote, including sufficient information so that the reader would be informed as to its impact on the
consolidated financial position of the companies being reported upon. The examples just cited are fairly
clear-cut as being of sufficient materiality to make disclosure thereof in the footnotes to the financia l or
otherwise. But what about such post-balance-sheet events as a decline in general economic conditions,
war, management changes, etc. Disclosure of such events in footnotes or otherwise in the financial
statements frequently creates doubt as to the reason therefor and inferences drawn therefrom could be
misleading as often as they are informative. Accordingly, careful, mature judgment is necessary in
evaluating subsequent events and in distinguishing between those subsequent events that require
adjustment or disclosure in the financial statements and those subsequent events that do not bear such
relation to the financial statements.
METHOD S OF DISCLOSURE

What are the available methods of disclosing to the reader of the financial statements subsequent
events of accounting significance that do not require adjustment of the financial statements
themselves? There appear to be four such methods: 1. By footnote disclosure, as indicated in the two
preceding examples.
2. By disclosure in the text material of the financial statements.

For example, the post-balance-sheet repayment of a note payable could, if deemed appropriate, be
disclosed by a parenthetical statement following the note-payable caption on the balance sheet.
3. By reference in the financial statements themselves, or in the footnotes thereto, to information
included in the same document as the financials. This method is frequently used where the financial
statements are included in an annual report to shareholders or are included in a Prospectus and the
subsequent event is commented upon elsewhere in such documents.

4. By disclosure in the certificate of the independent public accountant. This method of disclosure,
which is recommended only as a last resort when all efforts by the independent public accountant to
prevail upon the management to use one of the other three methods have failed, is commented upon
later in this discussion.

7.AUDITORS DUTIES INRESPECT OF POST BALANCE SHEET EVENTS.

Having performed his review of subsequent events and having obtained knowledge of a post-balance-
sheet event that is or may be significant in relation to the financial statements being examined and
reported upon, the auditor is charged with the responsibility to see that such event is properly
considered.They are mandated with the determination of type 1 or 2 events so as to determine which to
include in the financial statements. These events are important to investors when going the financial
statements

8.WHY AUDITORS ARE CONCERNED IN POST BALANCE SHEET EVENTS.

Auditors must be concerned with events that occur subsequent to the balance sheet date, because the
events may need to be reflected in the financial statements.

9.GOING CONCERN ASSUMPTION.

What is the going concern assumption?

The going concern assumption is a fundamental accounting principle that a company is financially stable
enough to stay in business in the long term or at least beyond the next fiscal period. Other
characteristics include:

-A company has fewer chances of being liquidated.

-A company continues to operate by using existing assets to meet obligations to avoid bankruptcy.

-A company is able to earn profits in the future because it does not plan to or is not forced to liquidate
them.

-A company is expected to stay in business for at least a year.

-The value of a company assumed to be a going concern is higher than its breakup value.
10.INDICATORS THAT A COMPANY MY NOT BE A GOING CONCERN

1.Deteriorating Liquidity

A company may be having challenges with maintaining its liquidity position. That is, there isn’t sufficient
cash to handle its regular activities. In most cases, accounting services providers in Singapore will look
out for root causes of such a cash crunch including declining sales, increasing costs, recurrent losses,
negative financial ratios (such as an increased gearing), and so forth. However, the most vital indicator
of going concern problems in this regard is when a company doesn’t make satisfactory financing
arrangements to back the liquidity challenges.,

2.Declining Profitability

The profitability of a company is essential for its long-term sustainability. However, repeated losses
occurring over several financial years are indicators that the company may not survive the long haul.
One way to tell when a company is facing profitability issues if when they have increased short-term
borrowing without a requisite increase in their trading volumes or revenues.

Trading losses could be as a result of the company being unable to innovate and develop commercially
viable products. In this case, when a business is facing profitability challenges, accounting services in
Singapore will be keen on the revenue side to determine if there’s a threat to its going concern state.
3.Business Structure Issues

The accounting services providers will look out for structural issues within a company. Is the company
over-reliant on a single client or a single supplier? What is the stability and sustainability of this client or
supplier? Are there intellectual property rights issues with the company’s products?

If there’s reason to doubt an affirmative answer to such questions, there’s reason to question the going
concern status of the company.

4.Legal Challenges

The legal issues which a company is facing are often overlooked by ordinary folk however they are
crucial when considering a company’s going concern state. A small software company could be facing
legal action from a giant multinational which would threaten its continued existence. In other cases, a
company could be facing penalties from regulators which could cripple its operations.

Legal challenges often affect the going concern status of start-ups or small enterprises. Large corporates
and multinationals often have sufficient systems and financing to overcome legal challenges. However,
legal issues could still disrupt their operations significantly.

5.The Company’s Systems

Accounting services providers in Singapore including auditors will look at how well a business maintains
its records and how accurate they are.

Poor record keeping is an indicator of inadequate systems to manage operations which could land it in
problems with regulators. Moreover, poor records cause accounting services providers to doubt the
accuracy and reliability of any books they may have evaluated.

11.MANAGEMENT PLANS AND MITIGATION CIRCUMSTANCES.

If, after considering the identified conditions and events in the aggregate, the auditor believes there is
substantial doubt about the ability of the entity to continue as a going concern for a reasonable period
of time, he should consider management's plans for dealing with the adverse effects of the conditions
and events. The auditor should obtain information about the plans and consider whether it is likely the
adverse effects will be mitigated for a reasonable period of time and that such plans can be effectively
implemented. The auditor's considerations relating to

management plans may include the following:

a).Plans to dispose of assets

Restrictions on disposal of assets, such as covenants limiting such transactions in loan or similar
agreements or encumbrances against assets
-Apparent marketability of assets that management plans to sell

-Possible direct or indirect effects of disposal of assets

b).Plans to borrow money or restructure debt

-Availability of debt financing, including existing or committed credit arrangements, such as lines of
credit or arrangements for factoring receivables or sale-leaseback of assets

-Existing or committed arrangements to restructure or subordinate debt or to guarantee loans to the

entity

-Possible effects on management's borrowing plans of existing restrictions on additional borrowing or

the sufficiency of available collateral

c).Plans to reduce or delay expenditures

-Apparent feasibility of plans to reduce overhead or administrative expenditures, to postpone

maintenance or research and development projects, or to lease rather than purchase assets

-Possible direct or indirect effects of reduced or delayed expenditures

d).Plans to increase ownership equity

-Apparent feasibility of plans to increase ownership equity, including existing or committed

arrangements to raise additional capital

-Existing or committed arrangements to reduce current dividend requirements or to accelerate cash

distributions from affiliates or other investors

12.IMPACT OF THE GOING CONCERN ON AUDIT REPORT.

Going concern issues no longer result in an automatic modification to the audit report but audit reports
are required to include a paragraph on going concern, regardless of the outcome of the going concern
assessment. In certain circumstances, a modification may, however, also be required.

13.OPENING BALANCES.

The opening balance is the amount of funds in a company's account at the beginning of a new financial
period. It's the first entry in the accounts, either when a company is first starting up its accounts or after
a year-end.

In an operating firm, the ending balance at the end of one month or year becomes the opening balance
for the beginning of the next month or accounting year. The opening balance may be on the credit or
debit side of the ledger.
14.OPENING BALANCES AND INCOMING AUDITORS COMPARATIVES.

Auditors should obtain sufficient appropriate audit evidence that:

a.opening balances do not contain misstatements which materially affect the current period's financial
statements;
b.preceding period's closing balances have been correctly brought forward as opening balances, or,
when appropriate, have been restated; and
c.appropriate accounting policies are consistently applied or changes in accounting policies have been
properly accounted for and adequately disclosed.

-In the event that auditors are unable to obtain sufficient appropriate audit evidence, they consider the
implications for their report in accordance with SAS 600 "Auditors' reports on financial statement.
INCOMING AUDITORS.

- The sufficiency and appropriateness of the audit evidence required by incoming auditors concerning
opening balances depends on such matters as:

a. the accounting policies followed by the entity;

b. whether the preceding period's financial statements were audited and, if so, whether the auditors'
report was modified;

c. the nature of opening balances, including the risk of their misstatement; and
d. the materiality of opening balances relative to the current period's financial statements.

- Incoming auditors perform the procedures in paragraphs 9 and 10 above, recognising that audit work
on the current period's financial statements normally provides evidence regarding opening balances.
Other procedures which incoming auditors might perform include the following:
a. holding consultations with management and review of records, working papers and accounting and
control procedures for the preceding period; and
b. substantive testing of any opening balances in respect of which the results of other procedures are
considered unsatisfactory.

- The above procedures normally enable incoming auditors to obtain sufficient appropriate audit
evidence concerning opening balances. In certain circumstances incoming auditors may wish to hold
consultations with outgoing auditors, who normally afford reasonable co-operation to incoming
auditors, since Professional Ethics Statement 1.207 "Changes in a professional appointment" places
them under a specific obligation to make certain information available to incoming auditors.
Consultations would normally be limited to seeking information concerning the outgoing auditors' audit
of particular areas which are important to incoming auditors, and to obtaining clarification of any
significant accounting matters which are not adequately dealt with in the client's records.

15.AUDITORS RESPONSIBILITY TOWARDS COMPARATIVES.

The auditor should determine whether the financial statements include the comparative information
required by the applicable financial reporting framework and obtain evidence that such information is
appropriately classified.

The auditor's objectives are to obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's
report that includes the auditor's opinion.