Adverse Audit Opinion

Topics: Auditing, Audit, Generally Accepted Accounting Principles Pages: 5 (1295 words) Published: March 15, 2013
(Incorporated in Malaysia)


Report on the Financial Statements

We have audited the financial statements of ABC SDN. BHD., which comprise the balance sheets as at 30 September 2010 of the Group and of the Company, and the income statements, statements of changes in equity and cash flow statements of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages X to XX.

Directors’ Responsibility for the Financial Statements

The directors of the Company are responsible for the preparation and fair presentation of these financial statements in accordance with Financial Reporting Standards and the Companies Act 1965 in Malaysia. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation 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 Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We could not obtain sufficient and appropriate audit evidence in the course of our audit and therefore an adverse opinion is expressed.

Basis for Adverse Opinion

1.    As disclosed in Note XX to the financial statements, the accounting records of the Company and its subsidiary companies were destroyed by the previous management. The current management attempted to reconstruct the Company’s accounting records based on information and documents available to them and also based on the best estimates made by the directors, in situations that such estimates are required to be made. The Company’s financial statements produced using this basis has been provided to us for audit. However, the current management is unable to reconstruct the accounting records of its subsidiary companies. As a result, no consolidated financial statements have been prepared and this is not in compliance with FRS 127 Consolidated Financial Statements which requires the Company as a parent entity to prepare consolidated financial statements.

2.    We were unable to obtain sufficient and appropriate audit evidence as to the balances of trade & other payables and borrowings of the Company due to lack of supporting documentary evidence made available to us for our verification due to the matters mentioned in paragraph 1 above.

3.    As disclosed in Note XX and Note XX to the financial statements, the Company reported a total borrowings of RM158,653,000 (2009 – RM167,500,000) and the relevant interest accrued of RM23,567,000 (2009 – RM14,573,200)....
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