Question

Review the following independent auditors’ report

To the Board of Directors and Shareholders Company XYZ

"We have audited the accompanying balance sheets of X Company as of December 31, 2012, 2011 and 2010, and the related statements of income, retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Jamaica. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit includes examining, on test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion."

Required:

1. Identify the different sections of the Audit Report above. What sections are missing?

2. Complete the report using an unqualified opinion

3. After you have drafted the report as above, the following information was communicated to you by the firm’s lawyer. A substantial claim has been filed against the company by a major customer. No provision has been made for legal costs or compensation payable. There is no indication of what the judgment may be. The directors have received advice from the lawyer that the claim can be successfully defended. How will this affect the audit report you are drafting?

Answer 1

1) Independent Auditors report contains various following section :

1) Title

2) Addressee

3) Managements responsibility for the financial statements

4)Auditors responsibility

5)Opinion

6) Addition report requirement of the company.

7) Signature of the auditor

8) Pace of Signature

9) Date of Report

2) Independent Auditors Report

To the members of Company XYZ

Report on the Financial Statements :

We have audited the Financial statements of XYZ Company as of December 31, 2012, 2011 and 2010, and the related statements of income, retained earnings, cash flows, summary of significant accounting policies, notes to the accounts for the years then ended with other explanatory statements.

Managements responsibility for the financial statements:

Management is responsible for the preparation of the Financial statements that gives a true and fair view in accordance with the Financial reporting standards and Jamaica companies act and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.

Auditors responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Jamaica. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and financials. The procedure including assessment of risks of material misstatement of the financial Statements, whether due to fraud or error.

In making those risk assessments, the auditor Considers internal control relevant to the entity’s preparation and true and fair presentation Of the 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Management Committee, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our Opinion, the financial statements are given true and fair of the financial transactions of XYZ Company during the year ended 3st December, 2012 and the financial position and cash flows of the XYZ Company are in accordance with the Financial reporting standards.