How BAD is a Qualified Audit Report?

How BAD is a Qualified Audit Report?

Overview

Under the Companies Act 2016, all companies incorporated in Malaysia must have their accounts audited by an approved auditor. The auditor will examine the financial statements and records of the company, to ensure that all reports and documents are accurate and free from misstatement. If the auditor is not able to conclude that the financial statements are free from material misstatement, they express a modified opinion.

Key takeaways:

You will understand: -

1. What is a modified audit report?

2. What are the types of modified audit reports?

3. What are the circumstances that can lead to a modified audit opinion?

4. What are the consequences of a modified audit report?

Summary of learnings:

1. What is a modified audit report?

- A modified audit report can be defined as the financial statements which are not free from material misstatement. In simple words, a modified audit report means an audit report which is not clean in the opinion of the auditor.

2. What are the types of modified audit reports?

- Qualified Opinion

- Adverse Opinion

- Disclaimer of Opinion

3. Circumstances when a modified auditor’s opinion is required

The auditor shall express a modified opinion when:

- There is a limitation of scope in the auditor’s work to obtain sufficient audit evidence.

- Disagreement with management regarding the application of accounting policies.

- The financial statements are not free from material misstatement based on the audit evidence obtained.

4. What are the consequences of a modified audit report?

-It is unfavourable for financial institutions to provide loans to the company. The financial institution may offer a higher borrowing interest rate than the market rate.

- The existing banking facilities of the company may be terminated by the financial institution.

-The suppliers of the company may shorter the credit terms.

Source:

ISA705 (Revised): Modifications to the Opinion in the Independent Auditor’s Report

https://www.mia.org.my/v2/downloads/handbook/standards/ISA/2018/08/08/ISA_705_Revised.pdf

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