10 Audit Reporting Flashcards
What is the audit report
Need to fully explain themselves without leaving any questions
Only thing investors and financial markets will see regarding all the work that auditors have completed
Therefore, must be careful consideration in preparing them
What does CA 2006 S 393 say about audit reporting
The Companies Act 2006, section 393 (Directors’ responsibilities)
Accounts to give true and fair view:
1. The directors of a company must not approve accounts … unless they are satisfied that they give a true and fair view of the assets, liabilities, financial position and profit or loss (for both company’s individual accounts, company’s group accounts).
2. The auditor of a company in carrying out his functions under this Act must have regard to the directors’ duty under subsection (1)
What is knowingly
When they break the law and know they are doing it
What is recklessly
When they break the law and do not care to know
What are the relevant sections of the CA
Need to look at notes as many sections need to know
How must the auditor give their opinion
The audit report must provide a clear expression of opinion on the financial statements.
It is the duty of auditors to convey information, not merely to arouse enquiry.
Where the audit opinion is modified, the reasons for the modification must be fully and clearly explained, and its effect must be quantified as far as possible
What is an emphasis of matter
Matters which should be disclosed but which do not affect the auditor’s opinion
The purpose is usually to draw the attention of users of audit report to relevant notes to the FS.
An extra paragraph is inserted in the audit report
Something directors have put in notes and auditors agree but want to draw more attention and explain it.
But only a point if people read the full audit report
Must make clear the audit remains unqualified
When might an auditor give an emphasis of matter
Material matter regarding a going concern problem
A significant uncertainty other than a going concern problem when the extent of the uncertainty and potential effect is material.
What are the three types of modified audit opinion
A qualified (‘except for’) opinion,
A disclaimer of opinion, and
An adverse opinion.
What is a qualified opinion
Says that the audits show a true and fair view except for
What is a disclaimer of an opinion
Uncertainty leading to being unable to reach a conclusion
What is an adverse opinion
Thinks and has supporting evidence FS on a whole do not show a true and fair view
What is pervasive
Means that when taken as a whole gives a misleading representation
If inventory was overstated, that is one element, and would be a material matter but not Pervasive
What is a limitation of scope
This arises if auditors are unable to obtain sufficient appropriate evidence (inability to carry out audit procedures).
If the possible effect is so material or pervasive that they cannot form an opinion, they issue a disclaimer, If not so material or pervasive they issue an ‘except for’ opinion.
What is a disclaimer of opinion
This is issued only if the limitation on scope is so material and pervasive that auditor has not been able to obtain sufficient appropriate audit evidence.
As a result, the auditor is unable to express opinion on the financial statements.
