Analysis of Audit Opinion, Internal Control, and Case Studies

This report delves into the intricacies of audit opinions and internal controls, crucial elements in financial reporting. It begins with a detailed definition of audit opinions, differentiating between unqualified, qualified, disclaimer, and adverse opinions, and illustrating these with examples from companies like Bouba Ice factoryAstro Malaysia Holdings. The report then explores the significance of internal controls, outlining detective, preventive, and corrective mechanisms. A critical section reviews real-world cases where companies received qualified opinions, such as Asiana Airlines, HS$X, and Colgate Palmolive, highlighting the reasons behind these opinions and their implications. Finally, the report offers recommendations and discussions aimed at enhancing internal control efficiency, providing valuable insights for stakeholders seeking to understand and improve financial reporting practices. The report emphasizes the importance of adhering to GAAP and IFRS standards and underscores the role of internal audit programs in identifying and mitigating risks.

AUDIT II

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Detailed definition of audit opinion.............................................................................................1
Internal Control............................................................................................................................3
Review the real case associated with qualifies opinion...............................................................3
Recommendation and discussion to improve internal control efficiency....................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Audit is an independent or systematic process of examining the organization’s each &
every transaction. It includes the books of accounts, documents, vouchers, statutory records etc.
It further helps the organization to produce their financial statement as well as non financial
statement for the annual discloser (Abbott, Parker and Peters, 2012). Audit can be done by the
internal as well as external parties for the where all the transaction verified by the audit person in
order to analyse the accuracy of accounts. Astro Malaysia Holdings selected for the better
understanding of this concept which is situated in Malaysia. It is an media & entertainment
company established in 1996 and it is started as paid digital satellite radio & television services.
This report includes the various topics such as detailed definition of audit opinion with the help
of some examples. In addition, it includes the four internal control and real cases which are
associated with the qualifies audit opinion on internal control. Along with this, some
recommendation and improvement on internal control system.
MAIN BODY
Detailed definition of audit opinion
Audit is the processes of examine the overall internal functions which is correct or not
and business follow the each & every standard as per the GAAP and IFRS. With the help of
auditing function, stakeholders will able to analyse the actual performance of the business and it
further help in achieving business goals & objectives.
Audit opinion is a written document which provided by the expert who describe auditor's
independent or unbiased report which shows the accuracy or accountability of the financial
statement (Abidin and Ahmad-Zaluki, 2012). Along with this, organization evaluate all the
internal functions through Generally Accepted Accounting Principle (GAAP). There are four
types of audit opinions which help the stakeholders to identify the current financial status of the
organization. For example: As per the opinion of independent auditor's report to the Astro
Malaysia Holdings. All the financial statement of the parent as well as subsidiary company is
true & fair. These statements will be prepared after applying international financial reporting
standard (IFRS). Astro Malaysia Holdings produce their accounting statements as per the listed
rules & regulations of the companies act 2006. Auditors, audit the various financial statements
which includes profit & loss accounts, comprehensive income statement of parent company. It
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also includes the balance sheet, cash flow statement and change in the equity share capital. There
are four types of audit opinion and it is discussed below:
Unqualified opinion: This opinion indicates that, information presented in the annual
report is clean and all the written information is free from the error. It is the most common
opinion of the audit where organization compliance with generally accepted accounting principle
(GAAP). This audit opinion means all the financial statements are free from mistake and it will
be known as unqualified opinion of audit. Manager of Astro Malaysia Holdings try to follow all
the regulation to get the unqualified opinion from the auditors.
Qualifies opinion: It is the opinion which given by the professional auditors where they
clarify that, organization not properly follow the GAAP accounting principle. At the time of
auditing internal functions or accounting statement, if external party find something suspicious
then they provide the qualifies opinion (Ettredge, Fuerherm and Li, 2014). According to this,
there is something which is not transparent and it will manipulate the financial statements such
as income, cash flow or balance sheet.
Disclaimer opinion: This opinion provided by the auditor when they are not able to
express the exact opinion. Auditor does not have any authority to fulfil the task they just have to
observe or review the procedure. Under this type, auditor not have any opinion such as qualifies
or unqualified report.
Adverse opinion: It is the professional opinion where auditor clearly indicate that
organizational financial reports are misrepresented which affect the financial position of the
company. Basically, change the figures to show higher profit which is done to show their
financial position very strong. It will further help in attracting more potential investors who can
take their decision as per the different financial statement and it includes the cash flow, income
statement, balance sheet etc.
For example: As per the independent report of Astro Malaysia Holdings auditor,
organization get the unqualified opinion from the auditors which represented that all the financial
information is correct. All the written financial information is true & fare and provide the
accurate financial position of the business. Astro Malaysia Holdings conduct audit of their
organization which provide them unqualified opinion. It means they complete all the actions with
the help of International Standards on Auditing (UK) and follow the applicable rules &
regulations.
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At the time of evaluating internal process, auditor have to follow the procedure where
financial information prepared and the measure it as per the various guidelines. Auditor also
ensure that, business follow GAAP principle as well as IFRS to produce their financial
statements. With the help of auditing organization is able to maintain internal control & policies
which required to monitor various actions and it will be done by the internal audit team.
Internal Control
Internal control is the process of following policies and procedures which effect the
individual so they ensure that, all the activities or internal processes will be done on effective
way. Management have to modify the risk, so they can achieve what they exactly want and it
further help the organization to achieve their business goals & objectives. This process include
the separation of duties, along with various policies, manual procedure, practices, account
reconciliation, accuracy, physical access etc. Internal control have lots benefits but it has
limitation too which is also need top measure. This process ignore the over ridden, prone of
error, bypassed, subject to judgement etc.
There are various mechanism available which is used for the internal control in the
organization and some of it discussed below:
Detective internal control: It is an accounting control where it is used by the auditors
for the internal control of the organization. With the help of this control, business identify the
problem related to the operational activities. This controlling mechanism have different types of
goals such as controlling product quality, any error of fraud and legal complications. With the
help of this internal controlling system, manager of Astro Malaysia Holdings can identify the
problem which occur in the operations.
Preventive internal control: This controlling system based on separating duties in the
organization. For example: prohibition of providing same transaction in the organization because
it will generate the problem of double entry of each transaction. Manager have to develop
prepare payroll and distribute the duties. All activities will be done by the single person to
eliminate the problem. Manager of Astro Malaysia Holdings can follow this mechanism for the
internal control which help the organization to control their internal activities.
Corrective internal control: It is used to control or correct errors or risk in order to
increase the efficiency of their operational work. Here, quality team address the ongoing problem
to correct the internal procedure. It is important for the organization to address all the errors
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which help the business to achieve their goals or objectives in order to gain more productivity or
profitability. Astro Malaysia Holdings can follow this internal control method which help the
auditor to maintain internal activities in order to get the unqualified opinion.
Critically evaluated that, management have to be honest, realistic and implementing
design for effectively control to manage the risk in order to achieve high risk. Internal audit
program help the organization to identify the area which include the risk and in the future it will
affect the business in negative way. So it is important to evaluate all the aspect which can
further affect the operational activities and reduce the efficiency or effectiveness of the business.
Review the real case associated with qualifies opinion
In the business environment, there are various organization which get the qualified
opinion from the auditors at the time of auditing internal control system (Pizzini, Lin and
Ziegenfuss, 2014). There are some real case examples which getting qualifies opinion and it is
discussed below:
For example: Asiana Airlines is Korean company and its parent company is Kumho
industrial which is suspended because organization trading two days from Friday. After
suspending in the 2018 fiscal year, numerous questions will generate. After auditing Asiana
Airlines, external auditors issue a qualified report on its financial statement at the end of the 31,
Dec 2018. Kumho industrial also disclose their financial statement on the same day and this
discloser also get the qualified opinion from the external auditors. Trading services of both
organizations were suspended because they do not maintain their books of account. Stock
exchange operator clearly mentioned that both companies are suspended due to their accounting
books have been rejected (Qualified Opinion for Asiana Airlines, 2019). Organization have to
use corrective internal control process to identify the default or error in order to minimise it.
Another example of the company which also get a qualified opinion from the external auditors
such as:
For example: HS$X is Hong Kong based company which is also get the qualified opinion
from the auditors. After auditing internal functions, it has been analysis that debtor of the HS$X
has been ceased trading. Organization does not have any reserve for their debt, because if
company do not have any security or cash they organization not able to obtain debt. Basically
qualified opinion provided by the audition due to disagreement in the accounting treatment. In
the financial statement of the HS$X organization, figures in the balance sheet and adjustments in
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the notes are different (HS$X qualified opinion, 2019). Financial statement helps the organization
to explain their activities but it will provide qualified opinion. Here, organization have to use
detective internal control process to identify the problem and the reason behind low availability
liquidity in the business.
Another example of qualified opinion on the financial statement for internal control in the
Colgate Palmolive company. Organization conduct the auditing where internal control over the
financial reporting as on 31, Dec 2017 (Colgate Qualified opinion, 2019). Colgate get the
qualified opinion for the audited financial statements where cash flow of the company not
prepared as per the guidelines and it will affect the internal control. Mostly big organization
disclose the wrong information which comes under the fraud. Due to change in the financial
information, management manipulate the figures which represent high profitability and it will
attract more inventors. So after auditing all the financial statements, auditor issue a qualified
opinion due to consolidated financial statements which includes the notes and other related
schedule. Business have to use preventive control system to prevent the issue, so they have to
build their financial statement by using guidelines.
Mostly organization get the unqualified opinion which means there is no error in their
financial statements and they follow all the GAAP guidelines and standards. For example: In the
Infosys Limited, as per the independent auditor report organization produce the various
statement such as profit & loss accounts, balance sheet and cash flow statement on 31, Dec 2017.
Here, manager mistakenly forgot to develop stand-alone financial statement which is required to
produce under the companies act 201. It will provide the true and fare position of the
organization which include the comprehensive income, cash flow, change in the equity as per
accounting principle (Infosys Limited, 2019). Independent auditor's report provides the qualified
opinion to the Infosys Limited, so they have to follow all the required information at the time of
auditing their organisation.
Above mentions case represent that, organization get the qualified opinion from the
auditors due to lack something at the time implement policies and regulation. Manager have to
be aware regarding internal activities which can affect the business in terms of productivity or
profitability. Accountant have to follow all the rules, regulation as per the prescribe standard
which help the business to maintain their records in proper way. In order to get the unqualified
report, management have to follow it in appropriate way and in future helps in getting clarity in
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their accounts which is able to analyse the accurate financial position of the business. It further
help the external as well as internal stakeholders to take their decision after analysing all the
aspects.
Recommendation and discussion to improve internal control efficiency
With the help of internal control in the organization help the organization to assess their
risk, control internal environment, share information & communicate and then help in
monitoring internal activities. On the basis of above discussion here is some recommendation for
the Astro Malaysia Holdings to improve their internal control system and it is discussed below:
 It has been recommended that organization have to segregate accounting duties:
Organization totally depend upon the accountant who record or maintain all the financial
information (Jha and Chen, 2014). Accounting process include the execution, custody
and positioning of transaction into various accounts. Manager of the Astro Malaysia
Holdings have to separate the task & duties among the employees which increase the
efficiency or effectiveness. For example: single person handles the cash invoices or check
and another individual will handle the reconciling bank statement. Basically financial
work divided into various individuals to increase organizational efficiency and it will also
increase the effectiveness of internal control.
 It is recommended that business has to restrict access to the financial system: In the
organization, accounting software have restriction regarding their use. Client is able to
edit or delete the transaction so owner have to provide ADMIN rights which help Astro
Malaysia Holdings to secure their data or other financial information. It will reduce the
chances of doing any mistake or false entry in the software. After providing the security,
individual can handle their accounts and it reduce the fraud which helps in increasing
operational efficiency as well as internal control which increase the productivity or
profitability.
 Organization have to revised their financial statements by third party: Owner of the
Astro Malaysia Holdings have to analysed their financial statement with the help of third
party and it will be done on periodic basis (Juliantari and Rasmini, 2013). Accountant
from outside of the organization measure the financial statement and their accuracy
which help the manager to understand their financial data and develop effective strategy.
Astro Malaysia Holdings review their accounting information with the help of third party
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interference. Because it will reduce the fraud case, identify the exact defaulters and nay
misleading in the figures. It will help in increasing effectiveness of internal control. So,
organization have to conduct their periodical audit by their party who audit their accounts
properly without any baseness or default. It will help the business to know actual picture
or position of their organization.
CONCLUSION
From the above discussion, it has been concluded that auditing is very important for the
organization because it will provide the accurate position of the business after auditing all the
financial information. Auditing opinion is very important because stakeholders will take their
decision regarding investment on the basis of their opinion. Unqualified opinion means business
follow all the relevant principle and guidelines such as GAAP or IFRS. In addition, internal
control helps the business to increase their efficiency or effectiveness in order to become
accountable or provide transparency in their work.
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REFERENCES
Books & Journals
Abbott, L. J., Parker, S., & Peters, G. F. (2012). Internal audit assistance and external audit
timeliness. Auditing: A Journal of Practice & Theory. 31(4). 3-20.
Abidin, S., & Ahmad-Zaluki, N. A. (2012). Auditor industry specialism and reporting
timeliness. Procedia-Social and Behavioral Sciences. 65. 873-878.
Ettredge, M., Fuerherm, E. E., & Li, C. (2014). Fee pressure and audit quality. Accounting,
Organizations and Society. 39(4). 247-263.
Jha, A., & Chen, Y. (2014). Audit fees and social capital. The Accounting Review. 90(2) 611-
639.
Juliantari, N. W. A., & Rasmini, N. K. (2013). Auditor switching dan Faktor-faktor yang
Mempengaruhinya. E-Jurnal Akuntansi. 231-246.
Pizzini, M., Lin, S., & Ziegenfuss, D. E. (2014). The impact of internal audit function quality
and contribution on audit delay. Auditing: A Journal of Practice & Theory. 34(1). 25-58.
Online
Astro Malaysia Holdings. 2019. [Online]. Available Through:
<https://corporate.astro.com.my/our-company/about-us>
Colgate Qualified opinion. 2019. [Online]. Available Through:
<https://www.wallstreetmojo.com/audited-financial-statements/>
HS$X qualified opinion. 2019. [Online]. Available
Through:<https://www.wikiaccounting.com/qualified-audit-report/>
Infosys Limited. 2019. [Online]. Available Through:
<https://www.wallstreetmojo.com/audit-report/>
Qualified Opinion for the Asiana Airlines. 2019. [Online]. Available Through:
<https://www.wallstreetmojo.com/audit-report-qualified-opinion/>
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