Broad classification of Audit opinion

The nature and type of reports issued by the practitioner depends on the type of assurance engagement. However we will be speaking strictly in context of audit engagement as the question is about the types auditreports.

We can classify audit reports in number of ways but usually audit reports are classified n TWO broad categories which are then further classified as follows:

Unmodified audit report

• Unmodified report with unmodified opinion

Modified audit report

• Unmodified opinion
  • Modified report with unqualified opinion AND emphasis of matter paragraph and/or other matter paragraph
• Modified opinion
  • Qualified opinion (qualified report)
  • Adverse opinion (adverse report)
  • Disclaimer of opinion (disclaimer report)

In short there are in total FIVE different types of audit reports that auditor can issue depending on the circumstances of the audit engagement.

Lets understand each type of audit report in detail

1 Unmodified audit report

When auditor on the basis of examination and the evidence obtained expresses his opinion that financial statements of the entity are prepared in all material respects in accordance with applicable financial reporting framework or financial statements give true and fair view than such audit report or auditor’s report is called unmodified or unqualified report. ISA 700 describes the contents and format of the unmodified report in detail.

2 Modified audit report

Auditor’s report is said to be modified if the contents of the unmodified report as stated under ISA 700 are changed:

• either because of the addition of emphasis of matter paragraph or other matters paragraph where opinion is still unmodified (modified report with unmodified opinion)
• or because of the modified opinion i.e. (modified report with modified opinion):
  • Qualified opinion
  • Adverse opinion
  • Disclaimer of opinion

It is important to understand that audit report is not always modified because of the modified opinion. In simple words audit reports with modified opinion are always modified audit reports but modified audit reports are not always with modified opinion.

2.1 Modified report with unmodified opinion

This is called modified report because the contents of the unmodified report are modified as additional paragraph(s) is (are) added. Additional paragraphs can be either or both of the following:

• Emphasis of matter paragraph
• Other matter paragraph

2.1.1 Emphasis of Matter Paragraph

Auditor includes an emphasis of matter paragraph (EMP) when auditor considers that it is necessary to draw the attention of users of financial statements to the matter that is already disclosed or reported in the financial statements and understanding of the specified matter is important in understanding of the financial statements. EMP is included after the opinion paragraph in the audit report. However students must be clear that inclusion of EMP DOES NOT mean that auditor’s opinion is modified.

2.1.2 Other Matter Paragraph

Auditor includes an other matter paragraph (OMP) when auditor considers that it is necessary to communicate a matter other than those that are presented or disclosed in the financial statements and in auditor’s judgment understanding that matter is vital for users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report and this is not prohibited by law or regulation. OMP is included after opinion paragraph and any EMP in the auditor’s report or somewhere else in the auditor’s report if the content of the Other Matter paragraph is relevant to the Other Reporting Responsibilities section.

2.2 Modified report with modified opinion

Auditor modify his opinion when he concludes that it will not be appropriate to express an unmodified/unqualified opinion. Auditor reaches such conclusion when:

• The auditor concludes that, based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement; or
• The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement.

The modification to the audit opinion is determined by the auditor by applying his professional judgment on the circumstances at hand. He may modify his opinion to express a qualified opinion, an adverse opinion or a disclaimer.

2.2.1 Qualified opinion

Audit report containing a qualified opinion is also called qualified report.

Auditor expresses a qualified opinion when:

• The auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are material, but not pervasive, to the financial statements; or
• The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, but the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be material but not pervasive.

2.2.2 Adverse opinion

Audit report containing an adverse opinion is also called adverse report.

The auditor shall express an adverse opinion when the auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasiveto the financial statements.

2.2.3 Disclaimer

Audit report containing a disclaimer of opinion is also called disclaimer report

The auditor shall disclaim an opinion when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive.

WHISTLE BLOWING - AN INSIDE BARK

 Introduction

We lives in a complex world, the evidence is that our world is full of humans. Every day, decisions are made that can affect our health, safety, economic and human rights. Some of these decisions are made for the worst reasons. They are made by the corrupt, the incompetent or the lazy. Accidents happen or corruption flourishes because employees who know about wrongdoing are afraid to say anything in fear of losing their jobs.

The Objectives:

The objective of the paper in your hands is to consider how far we have advanced towards the consciousness of a significant ethos of revelation. The consciousness of a significant ethos of revelation requires an empowering whistleblowing legal framework, meaningful implementation and enforcement within all organisations especially in the Public Sector Entities, bringing up the practices and protections provided in terms of the laws essentially and as well as the social culture which yield respect to the whistleblower.

Before getting in depth in it let us clear in our mind that what actually is Whistle Blowing?

·         US academics – Marcia P.

Act of disclosure of illegal activities.

·         UK academics –Guy Dehn

Act of disclosure to reduce and remove risks.

·         Australian academics–– Peter Jubb

Act of disclosure to rectify a wrongdoing.

·         Oxford English Dictionary

Bringing an activity to a sharp conclusion as if by the blast of a whistle.

·         UK Committee on Standards in Public Life

Raising a concern about malpractice within an organisation or through an independent structure associated with it.

·         Chambers Dictionary

Giving information (usually to the authorities) about illegal or underhand practices.

·         US, Brewers Dictionary

Exposing to the press a malpractice or cover-up in a business or government

(origins) Police officer summoning public help to apprehend a criminal; referee stopping play after a foul in football.

Here actually we are talking about an effective system in place that allows ways of disclosure by any person of any information about misconduct, corruption, misuse of powers, misappropriations or illegal activity etc. which may leads towards some sort of protection as well as some kind on incentives to the whistle blower in order to promote accountability.

There are few countries in the world which have adopted Whistle Blowing National Laws a few are as under:

·         US - Whistleblower Protection Act

·         UK - Public Interest Disclosure Act

·         Canada -  Public Servants Disclosure Act

·         Japan - Whistleblower Disclosure Act

·         New Zealand - Protected Disclosures Act

·         Romania - Act on the Protection of Whistleblowers

We also have following United Nations International Instrument on Whistle Blowing:

·         Convention against corruption in 2003

·         Convention against corruption in 2005

·         140 countries have signed for as of 2011

Whistleblowing is relevant to all organisations and all people, not just those few who are corrupt or criminal.  This is because every business and every public body faces the risk of things going wrong or of unknowingly harboring a corrupt individual.  Where such a risk arises, usually the first people to realize or suspect the wrongdoing will be those who work in or with the organisation.  Yet these people, who are best placed to sound the alarm or blow the whistle, also have most to lose if they do.

"There are obvious tensions, public and private, between the legitimate interest in the confidentiality of the employer's affairs and in the exposure of wrong. The enactment, implementation and application of the "whistleblowing" measures and the need for properly thought out policies in the workplace, have over the last three years, received considerable publicity from various quarters, including the valuable activities of an independent charity, Public Concern at Work, established in 1993 and experienced in providing assistance to both  employers and employees."

Lord Justice Mummery - giving the judgment of the Court of Appeal - in its first consideration of the Public Interest Disclosure Act.  (ALM Medical Service v Bladon (2002) IRLR 807)

The dilemma

In practical terms, if someone is concerned about corruption or serious wrongdoing in or by an organisation, they have three options.  These are

• To stay silent.

• To blow the whistle internally or with the responsible person.

• To blow the whistle outside to the authorities or the media.

Silence

Silence is the option of least risk both for the individual worker and for a responsible firm which comes across corruption.  It will be attractive for many reasons.  The whistleblower will realise that his or her facts could be mistaken or that there may be an innocent explanation. Where colleagues or competitors are also aware of the suspect conduct but stay silent, the whistleblower will wonder why he or she should speak out.  In organisations where labour relations are adversarial and in cultures where corruption is common, the whistleblower is likely to assume that he or she will be expected to prove that the corrupt practice is occurring, rather than see those in authority investigate and deal with the matter.  Even though he or she has no control over it, the whistleblower may feel responsibility for any action that may be taken against the wrongdoer.  Finally, unless the whistleblower believes there is a good chance that something will be done to address the wrongdoing, it is almost inevitable that he or she will stay silent.

Even if he or she thinks the alarm should be sounded, the whistleblower will want to consider his or her private interests before taking action.  Without reassurance to the contrary, the whistleblower will fear reprisals be it harassment or dismissal.  The whistleblower may also suspect (rightly or wrongly) that the corruption involves, implicates or is condoned by more senior people in or outside the organisation, in which case he or she will fear the matter will be covered up.  Even where these obstacles are overcome or reduced, the whistleblower will fear that he or she will be labelled as disloyal by the generality of colleagues whose respect and trust the whistleblower may want or need in future.

The results of this culture of silence are that:

·         responsible employers are denied the opportunity to protect their interests;

·         unscrupulous competitors, managers or workers are given reason to believe that ‘anything goes’;

·         society focuses more on compensation and punishment than on prevention and deterrence.

Problems in whistleblowing

Whistleblowing always involves two parties with opposing rights and interests; on the one hand there is the whistleblower who has a right to equality, freedom of expression and fair labour practices; and on the other hand there is the organisation against which an allegation is made which has rights to a reputation and to loyalty from staff.

Wind of Change

There is growing acceptance to whistleblowing.  With the changing nature of employment, globalisation and the increased flow of information, there is also a recognition that the traditional approach of trust and confidentiality in the workplace cannot be relied upon to operate as it did through much of the 20^th century.  While trust and confidence is of critical importance in any community or organisation, to be effective it cannot be blind or unquestioning.  Whistleblowing cultures which emphasise internal reporting are a means by which the abuse of trust and confidence can be checked and by which asymmetrical accountabilities of those within the workplace can be understood and developed. If the organisation is prepared to promote and implement such a culture, any risk of it being hijacked by petty campaigns will be minimised, if not removed.

Whistleblowing as a means to deter wrongdoing, promote transparency and good governance, underpin self-regulation and maintain public confidence.  It is the approach which has been put on a legislative footing in the UK and in South Africa in recent years.

ESSENTIALS

Essential 1 - Create an Anti-Fraud Policy

·         Outline an anti-fraud culture

·         Outline the need for accountability

·         Outline reporting mechanisms

·         Outline the owners of the process

·         Outline the authority of these owners

Essential 2 - Create Case Management Framework

·         Outline incidents criteria

·         Outline incidents level

·         Outline incident response teams

·         Outline investigative process

·         Outline evidence retention timeline

Essential 3 - Create a dedicated department

·         Legal experience

·         Forensics Accounting experience

·         IT Forensics experience

·         Fraud experience

Essential 4 - Get endorsements from the top

Essential 5 - Get endorsements from Clients

Essential 6 - Awareness, Awareness, Awareness!

·         The policy

·         Anti-fraud culture

·         The department

Essential 7 - Investigate and Take Action

·         Investigate incidents reported

·         Take action on the incidents reported

Essential 8 - Protect the Whistle Blower

Essential 9 - Reward the Whistle Blower

Essential 10 - Encourage anonymity

Essential 11 - Assess and evaluate the system

·         Is it working

·         Is it yielding the intended results

·         Are employees comfortable using it

·         Are employees using it

Five Factors to Success

1.      Protection

2.      Reward

3.      Taking Action

4.      Showing Action

5.      Confidentiality

Let’s Agree

·         That Fraud is here to stay

·         That we need whistleblowers

·         That we need whistle blowing system

Recommendations

1.      There is a need to develop a consolidated and consistent whistleblowing framework that provides equal protection to all whistleblowers and which imposes the same effective duties on organisations, in both the public and private domains, to promote a culture of disclosure that protects whistleblowers.

2.      The law must be made comprehensive in the provision of an expanded scope of protection.

3.      It must draw all potential whistleblowers into its protective field and allow disclosures to any person or agency that is able to do something about the allegation concerned.

4.      Organisations may be via Audit Committees must be compelled and/or encouraged to proactively promote a culture of disclosure, adopt more appropriate and expansive interpretations of the whistle blowing related guidelines, and to be more pro-active and attentive to effective implementation of obligations and protections provided by the guidelines at least until it got legislative cover/security.

Brief note on Sales Tax

Brief History of Sales Tax

Sales Tax was a provincial subject at the time of partition. It was being administered in the provinces of Punjab & Sindh as provincial levy. Sales tax was declared a federal subject in 1948 through the enactment of General Sales Tax Act, 1948 and in 1952, this levy was transferred permanently to the Central Government. Sales tax was levied at the standard rate of 6 pies per rupee at every stage whenever a sale was effected. The trading community protested against this system, and this resulted in the enactment of Sales Tax Act 1951.

A system of licensed manufacturers & wholesalers was instituted whereby they were allowed to purchase goods free of sales tax from each other and pay tax on sales to unlicensed traders. Imports were chargeable to Sales Tax but the licensed manufacturers & wholesalers were allowed to import goods without the payment of Sales Tax. Later on Sales Tax became chargeable on locally produced & imported goods at the time of their sales & import, respectively. The sales tax, was collected under the Finance Ordinance, 1956, on goods which were chargeable to Central Excise Duty, as if it were a duty of Central Excise. In April 1981, by virtue of an amendment in the Sales Tax act, 1951, the collection of Sales Tax on non-excisable goods was also entrusted to the Central Excise Department. 

In the late eighties the government decided to replace Sales Tax with the Value Added Tax in the country as a part of its structural adjustment program which was undertaken to correct anomalies & distortions both in our tax & non-tax regimes. Accordingly new enactment titled Sales Tax Act 1990 replaced Sales Tax Act 1951 with effect from 1-11-1990.

Liability to Sales Tax

Following sectors are required to get registration for sales tax and charge sales tax on their supplies/ services:

• Manufacturing
• Import
• Services

Distribution, Wholesale & Retail stage.

Previously it was being charged at the manufacturing & import stage, and its scope has been extended now to remaining sectors.

Sales Tax is chargeable on all locally produced and imported goods except computer software, poultry feeds, medicines and unprocessed agricultural produce of Pakistan and other goods specified in Sixth Schedule to The Sales Tax Act, 1990.

Registration

Every person in sectors mentioned above, who makes a taxable supply in Pakistan is required to be registered under the Sales Tax Act. However, manufacturers having taxable turnover below five million rupees and also utility bill below Rs. Seven lac during the last twelve months are exempted from registration and payment of sales tax. Similar exemption is also available to retailers having total turnover below Rs. five million in the last twelve months.

The rate for sales tax is 16% of value of supplies. However, there are some items which are chargeable to sales tax at 18.5% or 21% of value of supplies (see SRO 644(I)/2007 as amended by SRO 537(I)/2008 dated 11th June 2008) 

The Registration Form(s) are submitted to the Central Registration Office, FBR, or Sales Tax Collectorates/ RTOs for the allotment of a Registration Number by the persons liable to be registered under the Sales Tax Act. The taxpayer is then issued a Certificate of Registration.

Returns

As per law each registered person must file a return by the 15th of each month regarding the sales made in the last month. 

All registered persons are required to file returns electronically and in such cases the payment is to be made by the 15th and return can be submitted on FBR’s e-portal by 18th. 

Detailed procedure in this respect is given in Sales Tax General Order no. 04 of 2007. 

There are some sectors which are required to file returns on quarterly (tri-monthly) basis e.g. retailers including dealers of specified electric goods and CNG dealers.

Maintenance of Records

All registered persons are required to maintain records at their business premises of the goods purchased and supplied made by them. All the records are required to be kept for a period of 5 years.

Refunds of Sales Tax

In cases where the Input Tax exceeds the Output Tax due from the registered person in respect of a tax period because of exports or other zero-rated supplies, the excess amount of input is refunded back to the taxpayer within 45 days. In all other cases of excess input tax, the Board can specify the procedure for refund.

Additional Tax

If a registered person does not pay the tax within the specified time or claims a tax credit or refund which is not admissible to him, or incorrectly applies the rate of zero percent to the supplies made by him, he has to pay the additional tad at the following rates: 

One and half percent of tax due or the part thereof per month; 

However, in case of tax fraud, the rate of additional tax shall be two percent per month.

Arrears

The work regarding Arrears gets initiated in the following cases:

• Late or no submission of the Returns
• Amount paid is less than the tax amount payable

A demand raised after an audit/ scrutiny is upheld after adjudication.

PIPFA NEEDS A NEW ‘WWW’ BASED FACE

It’s not enough that you just have a website. You must have a professional-looking site if you want to be taken seriously. Since many students now search for information online prior to making decision, your site may be the first chance you have at making a good impression on a prospective student.

One of the great things about the internet is that it has leveled the playing field when it comes to competing with the big boys. As mentioned, you have one shot at making a good first impression. With a well-designed site, your little operation can project the image and professionalism of a much larger institute. The inverse is also true. You might have seen many institutional websites that were so badly designed and hard to navigate that they completely lacked professionalism and credibility. Good for you, too bad for them.

Even if you have a small operation, but when it comes to benefiting from a website, size does not matter. It doesn't care if you're a one-man show or a 1,000-employee giant institute; if you don't have a website, you're losing prospective students to other institutions that do. Beside this weak picture of the Institute has been also portrayed.

Here's the exception to my rule: It's actually better to have no website at all than to have one that makes your institute/organization look weaker. Your site speaks volumes about your activities, student-share, and members facilities. It either says, "Hey, look, we take our institute so seriously that we have created this wonderful site for our students and members!" or it screams, "Hey, look, I let my 10-year-old nephew design my site. Good luck finding anything!"

Website is an important part of your business. Make sure you treat it as such.

Promote Your Institute

Members support organizations and causes that they believe in. A website is a fantastic tool to promote an organization and build trust – that is, if you do it right… A well-developed website can convey trust and credibility, induce students to join you. For a business, a well-designed web site is a great way of instilling confidence and looking bigger than you actually are.

It will also help to improve your Branding; Branding is a way to differentiate your product, service or company from its competition, and create loyalty. The content of a website, its style and tools such as newsletters allow for many ways to differentiate yourself, make the visitor feel good about you, and build loyalty. More worrisome: if you do not do this, a competitor may snatch not only your prospects sales, but also their loyalty away from you with their website! Eat, or be eaten!

It's Your Online Brochure / Catalog That Can Be Changed at Anytime

A website is easier, cheaper and quicker to update than print material. Its' capacities are almost limitless which allow you to provide users with more comprehensive information. This will save you money on printing and distribution costs as well.

Gather Information and Generate Valuable LeadsYou can gather information about your members and potential students by using forms and surveys. Rather than going out and getting leads, let them come to you. This is a great tool for prospecting targeted students looking to use your products and services.

PR Tool

A website can be a great PR tool. You can post Press Releases on it, or articles, or a complete Press Kit – with pictures, sound files, bios, and more! You can also start a forum or blog (an interactive type of online diary), which can be a great PR tool.

Improved Service

By providing answers to questions on your website, registration and information requests can be processed automatically and immediately, whether someone is in the office or not. Online forms must be used to allow students to request registration or ask further information. Save costs by allowing users to download invoices, brushers and important documents. The opportunities are endless.

Communicate With Audiences Worldwide

The world is your oyster – especially with a website, which allows you to communicate with audiences worldwide (as long as you both understand the same language). Geographical locations or time zones are no longer a problem with the 24/7 availability of a website. So upload everything you have for your students/members.

Promote Your Events / Sell Your Events

Have a fundraising event? Want to promote your presence with seminars, workshops etc.? You will increase awareness when you create a website for the event. Show dates, programs, prices and driving directions – to name but a few features that will be greatly appreciated by your target audience.

Want to take it a step further? You may even want to consider selling (or pre-ordering) tickets for your events on a website. Shorter line-ups, less expenses: it sounds like a good idea to me…

Improve Communication

Brochures and flyers only allow for a few lines of communication beside the problem of distribution. A carefully crafted website can guide your prospective students, students or members through page after page of information. Another advantage is that you can add audio and video to these pages – something that paper communication tools cannot offer.

Promote its Product

Whether you’re professional members are looking for a job, or an expert is required in the industry: you can show that to the whole world by having a comprehensive website.

Offer employment to your students/members

A website could be used as a Great Recruiting Tool. If someone is looking for talent or posting job opportunities in newspapers or their website, your website could be used a great recruiting tool for placing your students and members just by letting them know about the vacancies. I think a highly effective way to use a website is to use it as a recruitment tool. You can obviously use it to post vacancies, but you may also consider placing a more general invitation to send resumes. This way you may already know the right person for the job offering in the market. As being done greatly by ICMAP:

http://test.icmap.com.pk/jma.aspx

http://icmap.rozee.pk/

Make Life Easier

Websites can make you student’s/member’s lives easier – and yours! Look at online banking, or ticket ordering. Whole new industries have emerged because people want to be able to do things themselves, from their home or office – because it is easier. So: what will make your student’s/member’s lives easier? So allow online fee payment and submission of various forms. . As being done greatly by ICAP: 

http://www.icap.org.pk/web/report/bank_vochur_mb.php

http://www.icap.org.pk/web/online-payment.php?id=300

Technical services in the Public sector

It is hard to showcase services office. The web allows you to introduce the service, the professionals providing the service, and how several services can complement each other.

Technical services should be provided like:

·         Selected Opinions

·         Technical releases Public Sector Auditing

·         Technical releases Public Sector Accounting

·         Circulars

·         Public Sector Auditing Standards

·         Public Sector Accounting Standards

·         Corporate Law

·         Tax Law

·         Discloser checklists

·         Illustratives & Guidelines

·         Best Public Sector Report

As greatly being done by ICAP and AICPA

http://www.icap.org.pk/web/links/0/technicalservices.php

http://www.aicpa.org/Research/TechnicalHotline/Pages/TechnicalHotline.aspx

Volunteer groups

Volunteer services could also be availed by the Institute by constituting Committees/Task forces as being in well mannered by AICPA:

http://www.aicpa.org/VOLUNTEER/VOLUNTEEROVERVIEW/Pages/Volunteer.aspx

Publications

It’s a great chance to upload the

·         PIPFA e-Journal

·         Newsletter

·          Research paper (official/un-official)

·         Technical releases

·         articles etc. 

As being done greatly by ICMAP:

http://test.icmap.com.pk/management_accountant.aspx

Students’ assistance

It is a great to assist the students by uploading

·         Past Papers

·         Suggested Books

·         Paper outlines / syllabus

·         Examiners Comments

·         Paper marking general methodology

·         And especially a complain box because you are allowing various institute to teach your students, don’t forget they are actually your students and you have to listen and resolve their problems at earliest. etc

As being done greatly by ICMAP and ICAP:

  

http://www.icap.org.pk/web/links/0/studentqueries.php

http://www.icmap.com.pk/question.htm

Few more tips!

·         Do use a secure online fee payment system.

·         Do keep your audience in mind and create copy that personally speaks to them.

·         Do create a clear and compelling message.

·         Do update your site content and keep it fresh and current.

·         Do anticipate and answer your visitor's questions.

·         Do include student registration to action on each page. You won't get student if you don't ask for it.

·         Do offer links to programs like Acrobat Reader needed to view your site information.

·         Do choose a Web host that provides exceptional service, minimal down time, and consistent site backups.

·         Do title each page to be search engine (and bookmark) friendly.

·         Do use a suggestion-inbox / feedback .

...and

·         Don't confuse your visitor with too many topics on one page. Organize information logically.

·         Don't let your site become outdated. Your credibility will disappear if you offer Mother 's Day specials just in time for Father's Day.

·         Don't take your customer's privacy for granted. Create a privacy policy and stick to it.

·         Don't ignore or delay students requests. Return all requested inquiries promptly because you never know whom they may recommend you to even if they don't get registered.

Final Words

There are a lot more that could be done in this respect, I as a member of PIPFA just could hope that firm steps would be taken for the few above suggestions in the best interest of the institute.