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0 votes

Provide sample drafts for common qualified opinions

As following sample can be a too-simple (sometimes naive) reference only, please also see:

www.auditopinion.net for qualified opinion from HK listed co. financial reports, with more prosperous wordings.

Reasons for qualified opinion (put behind the "because"):

  • [the limitation(s) of scope caused by] there was inadequate documentary evidence available for us; 

  • we were unable to carry out any effective confirmation procedure; 

  • management [did not maintain / was not able to provide us with] [sufficient information and explanations / adequate documentary evidence to support the...] about [the background of... as well as the relationship / the assumption(s) made by the director(s) in the valuation of];

  • (a) customer(s) delayed in settlement and trade receivables from [it/them] amounting to HKD XX,XXX became [long] overdue as at [DD MM YYYY];

  • as described in note X of the financial statements, impairment test on [item name] can't be done;

  • the Company’s management to date has been unable to fully retrieve the books and records of the [Company/subsidiary];

  • books and records are incomplete and serious doubts exist over the reliability of the Company’s accounting and other records;

  • we identified certain records setting out certain off-book transactions that were conducted through director's personal bank account. These off-book transactions not included in the Company's financial statements but we are of the opinion that these off-book transactions probably attributable to the Company. We were also not able to obtain sufficient evidence to assess whether there are other off-book transactions not recorded by the Company;

  • we were unable to satisfy ourselves that the internal controls and documentations provided by the management for the purpose of our audit on [qualified items] were effective and accurate in all material respects;

  • there was no adequate system of internal control at the material time on which we could rely on for the purposes of our audit on [qualified items].

  • we have not been provided sufficient information to assure the system of internal control on the [financial reporting and] [qualified items] are effectively maintained by the Company that we could rely on for the purpose of our audit.

  • The financial statements of [subsidiary] were audited by another firm of certified public accountants. We were not able to conduct a review on the audit work done by this audit firm, nor could we able to re-perform the audit of [subsidiary] in respect of the financial years ended [DD MM YYYY and DD MM YYYY].

Reminder: for qualified opinion caused by non-comply with accounting standard, the Note 2 (a) Statement of compliance/Basis of preparation need to amend to:

These financial statements comply with the SME-FRS, except that [consolidated financial statements not prepared/{full GAAP} except the investment in an associate has not been accounted for using equity method in accordance with HKAS 28 "investments in Associateds and Joint Ventures", etc.] and have been prepared under the accrual basis of accounting[, except that the recognition of revenue is on cash basis] and on the basis that the company is a going concern.

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16 Answers

0 votes

For Statement of Financial Position items' assertion's qualified opinion:

The [qualified items on Statement of Financial Position] in the statement of financial position amounted to [HK$ XX,XXX] (20XX: HK$ XX,XXX). We were unable to obtain sufficient [and appropriate ]audit evidence to verify the [existence, rights and obligations, completeness, accuracy, valuation and allocation, classification and presentation] of the [qualified items on Statement of Financial Position] because [(i); (ii); (iii); and (iv)...] and there was no alternative audit procedures that we could perform to satisfy ourselves as to whether the [qualified items on Statement of Financial Position] were free from material misstatement.

Any adjustments that might have been found necessary in respect of the above would have a consequential significant effect[including associated tax effect,] on the financial position of the company as at [period end date], the [profit/loss] for the [period/year] and the related disclosures in the financial statements.

answered by (8.2k points)
0 votes

For Income Statement items' assertion's qualified opinion:

During the [period/year], the company recorded [sales/income statement items] and [costs of sales/income statement items] of [HK$ XX,XXX] and [HK$ XX,XXX], respectively. We were unable to obtain sufficient [and appropriate ]audit evidence to verify the [occurrence, completeness, accuracy, cutoff, classification and presentation] of the [sales/income statement items and costs of sales/income statement items] because [(i) (ii) (iii) (iv)] and there was no alternative audit procedures that we could perform to satisfy ourselves as to whether the [sales/income statement items and costs of sales/income statement items] were free from material misstatement.

Any adjustments that might have been found necessary in respect of the above would have a consequential significant effect[, including associated tax effect,] on the financial position of the company as at [period end date], the [profit/loss] for the [period/year] and the related disclosures in the financial statements.

answered by (8.2k points)
edited by
0 votes

For disclaimer opinion by no sufficient supporting:

No supporting documents for all of the transactions appearing in the statement of financial position and income statements for the [year/period ended DD MM YYY] were available for our inspection. In consequence we were unable to carry out procedures necessary to obtain adequate assurance regarding those balances, income and expenses. There were no other satisfactory audit procedures that we could adopt to obtain sufficient evidence regarding the existence of the transactions.

Any adjustments that might have been found necessary in respect of the above would have a consequential significant effect[including associated tax effect,] on the financial position of the company as at [period end date], the [profit/loss] for the [period/year] and the related disclosures in the financial statements.

answered by (8.2k points)
0 votes

For qualified opinion for no bank confirmation:

Confirmations in respect of bank balances amounted to EURO XX,XXX (20XX: EURO XX,XXX) from banks have not been received by us. In consequence, we were unable to carry out audit procedures necessary to obtain adequate assurance regarding the full provision of liabilities, whether accruals or contingent at the end of the reporting [year/period]. There were no other satisfactory audit procedures that we could adopt to obtain sufficient evidence regarding the provision of accrued or contingent liabilities. We were unable to quantify the adjustments that would be required, had the confirmations from the banks been received by us. Any adjustment to the further provision of accrued or contingent liabilities might have a significant consequential effect[including associated tax effect,] on the [surplus/deficit/profit/loss] for the [year/period] and net [assets/liabilities] as at [period end date].

answered by (8.2k points)
0 votes

Qualified opinion for no preparation of consolidated financial statements and impairment loss in subsidiaries/associates:

The investment in a [subsidiary/associate] [name of subsidiary/associate] at cost in the statement of financial position amounted to USD XX,XXX. No impairment has been made for the [period/year] in this aspect as the director(s) of the Company determined that the investment in [subsidiary/associate] at cost could be recovered in full. However, we were unable to satisfy ourselves as to whether this investment in [subsidiary/associate] at cost could be recovered in full or to determine the amount of impairment, if any. There were no other alternative audit procedures that we could carry out to satisfy ourselves as to any impairment loss would had been made for the investment in [subsidiary/associate] at cost.

As explained in note [8] to the financial statements, the financial statements do not consolidate the results, assets and liabilities, and cash flow of the Company's subsidiary[, as the director(s) consider(s) this would involve expense and delay out of proportion to the value to the Company's member(s)]. As a consequence [of (no consolidated financial statements prepared and) no disclosure of summarised financial information in respect of the subsidiary], the financial statements do not give all the information required by the SME-FRS about the economic activities of the group of which the company is the parent. {Had the [subsidiary been consolidated (and/or) summarised financial information in respect of the subsidiary been disclosed], (many/significant) elements in the financial statements would have been materially affected.}

Any adjustments that might have been found necessary in respect of the above would have a consequential significant effect[including associated tax effect,] on the financial position of the company as at [period end], the [profit/loss] for the [year/period] and the related disclosures in the financial statements.

answered by (8.2k points)

For narrative for Note to Investment in subsidiaries at financial statements, two different treatments based on can enjoying exemption(s) on preparation of consolidated financial statements or not:

►The Company is exempted from preparing consolidated financial statements in accordance with section 379(3) of the Companies Ordinance.

►Consolidated financial statements have not been presented (in accordance with the SME-FRS issued by the HKICPA)[, as in the opinion of the director(s), this would involve expense and delay out of proportion to the value to its members{, and the director(s) has/have given written notice about this to member(s)}]. The subsidiary didn't prepare audited financial statements (or prepared).

Discussion on content of "(in accordance with the SME-FRS issued by the HKICPA)[, as in the opinion of the director(s), this would involve expense and delay out of proportion to the value to its members]" should include or not:

SME-FRS paragraphs: 

19.2 If consolidated financial statements are presented they should include all subsidiaries of the parent, except that one or more subsidiaries may be excluded from consolidation when:

  • (a) their exclusion measured on an aggregate basis is not material to the group as a whole; or
  • (b) their inclusion would involve expense and delay out of proportion to the value to members of the company.

19.3 A parent may only exclude a subsidiary from consolidation on the grounds of expense and delay out of proportion to the value to members of the company if the members of the company have been informed in writing about, and do not object to, this exclusion. In order to satisfy this condition: ...

If the audited company, in accordance with 19.2 (b), exclude all of its subsidiaries from consolidated financial statements, then only company level financial statements prepared. In such circumstance, the consolidated financial statements should be regarded as has been prepared, the content in the () no need to included.

If subsidiaries are excluded from consolidated financial statements, detailed disclosure of subsidiaries' financial information and whether the excluded subsidiary prepares audited financial statements should be included in financial statements.

But some are of opinion in such circumstance, the consolidated financial statements should not  be regarded as prepared, the content in the () need to included.

Disclosure requirement when subsidiaries are excluded from consolidation (extra only)

Paragraph 19.16 

(iv) b. any balances due to or from the excluded subsidiary;

(v) whether the excluded subsidiary prepares audited financial statements;

(vi) summarised financial information in respect of the excluded subsidiary

Additional samples:

[Additional sample 1] Qualified opinion for under HKFRS - investment in associate not using equity method (P.S.: under SME-FRS, if the company has not other subsidiary, investment in associate not using equity method itself does not violating the SME-FRS):

The company has not accounted for its investment in (an) associate(s) using equity method in accordance with Hong Kong Accounting Standard 28 "Investments in Associates and Joint Ventures" issued by the HKICPA. In our opinion, there is insufficient information concerning the associate in the financial statements to give a true and fair view of the financial position of the company as at [DD MMMM YYYY] and of its financial performance and cash flows for the [year/period] then ended. It is not practicable to quantify the effects of the departure from this requirement on the financial statements for the [year/period] [ended DD MM YYYY / the period from DD MM YYYY (date of incorporation) to DD MM YYYY].

[Additional sample 2] The Group's investment in DEF Company, a foreign associate acquired during the year and accounted for by the equity method, is carried at xxx on the consolidated statement of financial position as at 31 December 20X1, and ABC's share of DEF's net income of xxx is included in ABC's income for the year then ended. We were unable to obtain sufficient appropriate audit evidence about the carrying amount of ABC's investment in DEF as at 31 December 20X1 and ABC's share of DEF's net income for the year because we were denied access to the financial information, management, and the auditors of DEF. Consequently, we were unable to determine whether any adjustments to these amounts were necessary. (Source: Module C 6th Edition Learning Pack)

[Additional sample 3] The Group's investment in its joint venture DEF Company is carried at xxx on the Group's consolidated statement of financial position, which represents over 90% of the Group's net assets as at 31 December 20X1. We were not allowed access to the management and the auditors of DEF Company, including DEF Company's auditors' audit documentation. As a result,we were unable to determine whether any adjustments were necessary in respect of the Group's proportional share of DEF Company's assets that it controls jointly, its proportional share of DEF Company's liabilities for which it is jointly responsible, its proportional share of DEF Company's income and expenses for the year, and the elements making up the consolidated statement of changes in equity and the consolidated cash flow statement. (Source: Module C 6th Edition Learning Pack)

[Additional sample 4] As explained in Note X, the Group has not consolidated subsidiary DEF Company that the Group acquired during 20X1 because it has not yet been able to determine the fair values of certain of the subsidiary's material assets and liabilities at the acquisition date. This investment is therefore accounted for on a cost basis. Under HKFRSs, the Company should have consolidated this subsidiary and accounted for the acquisition based on provisional amounts. Had DEF Company been consolidated, many elements in the consolidated financial statements would have been materially affected. The effects on the consolidated financial statements of the failure to consolidate have not been determined.  (Source: Module C 6th Edition Learning Pack)

0 votes

Qualified opinion for no physical count of inventories:

The inventories in the statement of financial position amounted to HK$XX,XXX (20XX: HK$XX,XXX). We did not observe the counting of physical inventories at the end of the financial [year/period]. Further, there was no system of internal control on inventories on which we could rely for the purpose of our audit. There are no satisfactory audit procedures that we could adopt to obtain sufficient and appropriate audit evidence to satisfy ourselves as to the existence, quantities and conditions of these inventories and to access their valuation.

Any adjustments that might have been found necessary in respect of the above would have a consequential significant effect[including associated tax effect,] on the financial position of the company as at [period end date], the [profit/loss] for the [period/year] and the related disclosures in the financial statements.

answered by (8.2k points)

Additional examples for inventories:

[sample for also qualified inventories' B/F] We were not appointed as auditors of the Company until after 31 December 20X1 and thus did not observe the counting of physical inventories at the beginning and end of the year. We were unable to satisfy ourselves by alternative means concerning the inventory quantities held at 31 December 20X0 and 20X1, which are stated in the statements of financial position at xxx and xxx, respectively. In addition, the introduction of a new computerised accounts receivable system in September 20X1 resulted in numerous errors in accounts receivable. As of the date of our report, management was still in the process of rectifying the system deficiencies and correcting the errors. We were unable to confirm or verify by alternative means accounts receivable included in the statement of financial position at a total amount of xxx as at 31 December 20X1. As a result of these matters, we were unable to determine whether any adjustments might have been found necessary in respect of recorded or unrecorded inventories and accounts receivable, and the elements making up the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows.  (Source: Module C 6th Edition Learning Pack)

0 votes

Qualified opinion for recoverability of [current accounts / trade receivables]:

The [Amounts due from shareholders / trade receivables] in the Statement of financial position amounted to GBP XX,XXX (20XX: GBP XX,XXX). We were unable to obtain sufficient appropriate audit evidence about its recoverability of the [amounts due from shareholders] because [(i)] customer(s) delayed in settlement and trade receivables from [it/them] amounting to HKD XX,XXX became [long] overdue as at [DD MM YYYY], [(ii) as at the date of this report, these balances / balances of HK$ XX,XXX  have not been settled, (iii) [the Company/we] was unable to obtain any updated financial information of these debtors regarding their financial ability to settle the amounts due, and (iv)...] and there was no alternative audit procedures that we could perform to satisfy ourselves as to whether the [amounts due from shareholders] were recoverable.

Any adjustments that might have been found necessary in respect of the above would have a consequential significant effect[including associated tax effect,] on the financial position of the company as at [period end date], the [profit/loss] for the [period/year] and the related disclosures in the financial statements.

answered by (8.2k points)
0 votes

Qualified opinion for first year account over 18 months:

The financial statements cover the period from DD MMMM 20XX (date of incorporation) to DD MMMM 20XX which does not comply with the timing requirement of SME-FRS issued by the Hong Kong Institute of Certified Public Accountants which requires financial statements be presented at least annually and the provisions of section 429 and 431 of the Hong Kong Companies Ordinance (Cap.622), which require the first financial statements to be drawn up not later than eighteen months after incorporation.

answered by (8.2k points)
0 votes

Emphasis of Matter / Other Matter - Material Uncertainty Regarding The Going Concern Assumption

[See Hong Kong Standard on Auditing 706 (Revised) - Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor's Report for specified requirements for Emphasis of Matter / Other Matter:

https://app1.hkicpa.org.hk/hksaebk/HKSA_Members_Handbook_Master/volumeIII/hksa70615.pdf]


As at [DD MMMM YYYY], the Company had net current liabilities of approximately HK$ XX,XXX (20XX: approximately HK$ XX,XXX) and net liabilities of approximately HK$ XX,XXX (20XX: approximately HK$ XX,XXX). The Company had a net loss after tax, for the year ended [DD MMMM YYYY] of approximately HK$ XX,XXX (20XX: approximately HK$ XX,XXX) and its continuance in business as a going concern is dependent upon the Company maintaining future profitable operations and/or the [directors'/parent company's] financial support.

These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Company's ability to continue as a going concern.

answered by (8.2k points)

Additional sample for Emphasis of Matter - Basis of Accounting and Restriction on Distribution 

We draw attention to Note X to the financial statements, which describes the basis of accounting. The financial statements are prepared to assist the partners of the Partnership in preparing their individual income tax returns. As a result, the financial statements may not be suitable for another purpose. Our report is intended solely for the Partnership and its partners and should not be distributed to parties other than the Partnership or its partners. Our opinion is not modified in respect of this matter. (Source: Module C 6th Edition Learning Pack)

Application: at some due diligence procedures, investors may required an financial statements all the same with specified financial statements(指明財務報表), but is not used for Annual General Meeting, but for potential investors reading. The financial statements are applying full set of auditing standards and full set of HKFRS/SME-FRS, but not under so-called statutory audit. At such circumstance, the financial statements may:

  • remove the director's report of specified financial statements(指明財務報表);
  • include a paragraph of "restriction of usage" at basis of accounting;
  • at auditors' report, include the Emphasis of Matter - Basis of Accounting and Restriction on Distribution;
  • we also draw your attention to [Statement to be accomplished to non-statutory accounts] to see if any influence.
0 votes

For qualified opinion caused by departure from FRS:

[For more prosperous samples for departure from FRS, please visit www.auditopinion.net, and search "departure" at the "Basis for Qualified Opinion:" search cell at the right widget to get list co. samples]

As set out in Note 2(b) to the financial statements, the financial statements has departure with Section 6 Investment of the SME-FRS. In this financial statements, shares of subsidiary are treated as goods and inventories for trading. Income and cost for trading of shares are treated as sales income, cost of sales. Impairment on investments in subsidiaries is treated as impairment loss on inventories. We were unable to satisfy ourselves as to whether such departure is necessary in order to achieve a proper presentation and whether the financial statements has properly presented the financial position and financial performance of the company.

Any adjustments that might have found to be necessary in respect of the above would have had a consequential effect[including associated tax effect,] on the net liabilities of the company as at DD MMMM YYYY, and of its [profit/loss] for the [year/period], and the related disclosures made in the financial statements.

The Note 2 of financial statements may be amended accordingly as below:

answered by (8.2k points)
0 votes

For comparative figures / Opening balances

The corresponding figures and comparative financial statements in the current year’s financial statements were derived from the financial statements for the year ended [DD MMMM YYYY] which contained a [disclaimer of /adverse/ qualified] audit opinion, details of the qualifications were set out in the auditor’s report dated [DD MMMM YYYY] (or: were derived from the financial statements audited by another auditors who expressed an/a unmodified/qualified opinion on DD MMMM YYYY). We have not been able to obtain sufficient appropriate audit evidence as to whether (i) the opening balances, (ii) the corresponding figures and comparative financial statements were properly recorded and accounted for because [(i) (ii) (iii) (iv)].

Any adjustments that might have been found necessary in respect of the above would have a consequential significant effect[including associated tax effect,] on the financial position of the company as at [period end date], the [profit/loss] for the [period/year] and the related disclosures in the financial statements.

answered by (8.2k points)

Or other matter/emphasis of matter:

The financial statements of the Company for the [year/period] ended [DD MMMM YYYY] were audited by another auditor who expressed [an/a] [unmodified/qualified/disclaimer of/adverse] opinion on statements on [DD MMMM YYYY].

0 votes

For related party transactions:


Version 1:
The Company's internal procedures during the year did not enable it to properly identify and disclose on a timely and accurately basis all material related party transactions that occurred during the year. We have not been able to obtain sufficient appropriate audit evidence therefore concerning the completeness of related parties as at [DD MM YYYY] and related party transactions for the [year/period] then ended presented and disclosed in the financial statements because [(i); (ii); (iii); and (iv)...].

Any adjustments that might have been found necessary in respect of the above would have a consequential significant effect[including associated tax effect,] on the financial position of the company as at [period end date], the [profit/loss] for the [period/year] and the related disclosures in the financial statements.


Version 2:

No sufficient evidence has been provided to satisfy ourselves as to the existence and completeness of the disclosures of the related party transactions for the years ended [DD MM YYYY] and [for comparative figures] and the related party balances as at [DD MM YYYY] and [for comparative figures] [as required by International Accounting Standard (“IAS”) 24 (revised) “Related Party Disclosures”].

answered by (8.2k points)
0 votes

For commitments and contingent liabilities and provision for litigation liabilities:


Version 1: No sufficient evidence has been provided to satisfy ourselves as to the existence and completeness of the disclosures of commitments and contingent liabilities as at [DD MM YYYY] and [for comparative figures].


Version 2: 

The [provision for litigation liabilities] in the statement of financial position amounted to [HK$ XX,XXX] (20XX: HK$ XX,XXX), in respect of [legal cases] in which the Company is the defendant as detailed in note [#] to the financial statements. However, we have been unable to obtain sufficient appropriate audit evidence for the [provision for litigation liabilities] and the related expenses of the same amount recognised for the [year/period] then ended. There were no other satisfactory audit procedures that we could perform to satisfy ourselves whether the aforesaid balances were fairly stated as at [DD MM YYYY] and for the year then ended.

Any adjustments that might have been found necessary in respect of the above would have a consequential significant effect[including associated tax effect,] on the financial position of the company as at [period end date], the [profit/loss] for the [period/year] and the related disclosures in the financial statements.

answered by (8.2k points)
0 votes

For fair value estimation:

The [fair value item(s)] in the statement of financial position amounted to [HK$ XX,XXX] (20XX: HK$ XX,XXX). We have performed audit procedures set out in [Hong Kong Standard on Auditing (“HKSA”) 540 “Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures” / "SME-FRS"] including to understand how the estimation of the fair value of these assets was prepared, and test/consider the data based on which the fair value of these [fair value item(s)/intangible assets] was estimated. However, we were not provided with sufficient appropriate evidence relating to the completeness and accuracy of the data used in the estimating the fair value of the [fair value item(s)/intangible assets]. Due to the limitations on our scope of work, we were unable to evaluate whether the fair value of these [fair value item(s)/intangible assets] were appropriately estimated and whether the related tax liabilities were properly stated at the date of acquisition.

Any adjustments that might have been found necessary in respect of the above would have a consequential significant effect[including associated tax effect,] on the financial position of the company as at [period end date], the [profit/loss] for the [period/year] and the related disclosures in the financial statements.

answered by (8.2k points)
0 votes

Sample auditors' reports for Financial statements are materially misstated / Adverse Opinion:


Sample 1:

The Company's inventories are carried in the statement of financial position at xxx. The directors have not stated the inventories at the lower of cost and net realizable value but have stated them solely at cost, which constitutes a departure from HKFRSs. The Company's records indicate that, had the directors stated the inventories at the lower of cost and net realizable value, an amount of xxx would have been required to write the inventories down to their net realizable value. Accordingly, cost of sales would have been increased by xxx, and income tax, net income and shareholders' equity would have been reduced by xxx, xxx and xxx, respectively.

[Source: HKSA 705 (Revised) - June 2017]


Sample 2:

As explained in Note X, the Group has not consolidated subsidiary DEF Company that the Group acquired during 20X1 because it has not yet been able to determine the fair values of certain of the subsidiary's material assets and liabilities at the acquisition date. This investment is therefore accounted for on a cost basis. Under HKFRSs, the Company should have consolidated this subsidiary and accounted for the acquisition based on provisional amounts. Had DEF Company been consolidated, many elements in the consolidated financial statements would have been materially affected. The effects on the consolidated financial statements of the failure to consolidate have not been determined.

[Source: HKSA 705 (Revised) - June 2017]


Sample 3:

Disagreement arising from non-compliance with [Hong Kong Accounting Standard 36 “Impairment of Assets” issued by the Hong Kong Institute of Certified Accountants (“HKAS 36”)] disclosed in note [#] to the financial statements, an impairment assessment was carried out by the management of the Company on the Company’s [property, plant and equipment, lease prepayments, intangible assets and non-current prepayments] with carrying amounts of [HK$XX,XXX, HK$XX,XXX, respectively]. For assets which the management considers are likely to be recoverable through continuing use, the Company assessed the recoverable amount of each cash-generating unit (“CGU”) to which these assets belong based on value-in-use calculations. These value-in-use calculations use cash flow projections based on the most recent financial forecasts approved by the board of directors based on their best estimates. The key assumptions are stated in note [#] to the consolidated financial statements.

As a result of the assessment, the management has assessed that the recoverable amounts of certain CGUs based on the estimated value-in-use calculation were lower than their carrying amounts as at [DD MM YYYY]. Accordingly, provision for impairment losses on property, plant and equipment and lease prepayments of approximately [HK$XX,XXX, HK$XX,XXX] were recognised in the statement of profit or loss for the [year/period] ended [DD MM YYYY] for assets which the management considers are likely to be recoverable through continuing use.

In our opinion, the discount rates, one of the key assumptions, applied to arrive at present values of cash flows are too low as they do not adequately take into account the challenges in operating and financing activities that the Company faces recently. Therefore

in our opinion, this impairment assessment is not in accordance with [HKAS 36]. Accordingly, in our opinion, the discount rates applied had resulted in the recoverable amount of these assets being materially overstated.

[(Or) In the absence of a determination of the recoverable amounts of these assets based on the requirements of [HKAS 36], we were unable to assess the amount of impairment loss to be recognised in respect of property, plant and equipment and prepaid lease payment, thereby affecting the loss for the year ended [DD MM YYYY] and the Group’s net liabilities as at that date.]


Sample 4:

Disagreement about accounting treatments

  • The financial statements do not contain a statement of cash flows for the year ended [DD MM YYYY]. This is not in accordance with the requirements of Hong Kong Accounting Standard 7 “Cash Flow Statements” issued by the HKICPA.
  • The financial statements do not contain the financial information by segments for the year ended [DD MM YYYY]. This is not in accordance with the requirements of Hong Kong Accounting Standard 14 “Segment Reporting” issued by the HKICPA.
  • The following disclosures have not been made in the financial statements:
    • (i) information about the extent and nature of the financial instruments as required by HKAS 32: “Financial Instruments: Disclosure and Presentation”;
    • (ii) details of the Group’s policy in respect of the financial risk management as required by HKAS 32: “Financial Instruments: Disclosure and Presentation”;
    • (iii) information of deferred taxation and taxation charge reconciliation as required by HKAS 12: “Income Taxes”.
answered by (8.2k points)
0 votes

Key audit matters

Examples:

The 2015 IAASB publication Auditor Reporting – Illustrative Key Audit Matters provides some illustrative examples of KAM paragraphs.

Goodwill

Under IFRSs, the Group is required to annually test the amount of goodwill for impairment. This annual impairment test was significant to our audit because the balance of XX as of December 31, 20X1 is material to the financial statements. In addition, management's assessment process is complex and highly judgmental and is based on assumptions, specifically [describe certain assumptions], which are affected by expected future market or economic conditions, particularly those in [name of country or geographic area].

Revenue Recognition

The amount of revenue and profit recognised in the year on the sale of [name of product] and aftermarket services is dependent on the appropriate assessment of whether or not each long-term aftermarket contract for services is linked to or separate from the contract for sale of [name of product]. As the commercial arrangements can be complex, significant judgment is applied in selecting the accounting basis in each case. In our view, revenue recognition is significant to our audit as the Group might inappropriately account for sales of [name of product] and long-term service agreements as a single arrangement for accounting purposes and this would usually lead to revenue and profit being recognised too early because the margin in the long-term service agreement is usually higher than the margin in the [name of product] sale agreement.

Valuation of Financial Instruments

The Company's investments in structured financial instruments represent [x%] of the total amount of its financial instruments. Due to their unique structure and terms, the valuation of these instruments are based on entity-developed internal models and not on quoted prices in active markets. Therefore, there is significant measurement uncertainty involved in this valuation. As a result, the valuation of these instruments was significant to our audit.

[Source: Module C 6th Edition Learning Pack]

Need to consider Key audit matters for entities with public interest and listed co., as following extra from HKSA 700 (Revised)

answered by (8.2k points)
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