8 - audit report and sustainability reporting

Question 1

what is ISA 700 and 701?

Answer 1

700- forming opinion and reporting on financial statement

701 - communicating key audit matters in independent auditor’s report

Question 2

define key audit matters

Answer 2

those matters that, in an auditor’s professional judgements, were of most significance in audit of financial statements of current period. key audit matters are selected from matters communicated with those charged with governance.

Question 3

what are the characteristics of a KAM?

Answer 3

KAMs related to matters which are already included in the financial statements. do not constitute a modification of the report or the opinion. no separate audit opinion is issued in relation to each KAM.

Question 4

how should KAMs be presented in the audit report?

Answer 4

each KAM should explain: why matter was considered significant and therefore a KAM, and how matter was addressed in audit report.

whether audit report is unmodified or modified is unrelated to the KAM. The report which has unmodified audit opinion may also need to communicate KAMs since the matters have required significant auditor attention.

Where the auditor’s opinion is modified in relation to a KAM, the issue would not be disclosed in the KAM, but included under the “basis for modified opinion” paragraph.

Any concerns relating to an entity’s ability to continue as a going concern would not be disclosed in the KAM, but included under the “ Material uncertainty relating to going concern” paragraph.

Question 5

what is the emphasis of matter?

Answer 5

this paragraph refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor’s judgement, is of such importance that it is fundamental to users’ understanding of financial statements.

risks that the auditor cannot change or reduce through modification of the audit process, but must tell stakeholders that it exists.

Question 6

what is the difference between a KAM and emphasis of matter?

Answer 6

KAM — identify they are risky and then show how the auditors took action to ensure there are no material misstatements

Emphasis of matter — the incident that occurred needs to be highlighted as it’s impacting the organisation. The reader’s view of the FS may change. The auditors cannot do anything about the event in an emphasis of matter, they need only highlight the issue

Question 7

can the emphasis of matter be used to highlight going concern issues?

Answer 7

An emphasis of matter paragraph is not used to highlight any going concern issues. Such issues should be disclose in a “ material uncertainty related to going concern’ paragraph.

Question 8

what is the other matter paragraph?

Answer 8

paragraph that refers to a matter other than those presented or disclosed in financial statements that, in auditor’s judgement, is relevant to users understanding of the audit, auditor’s report or responsibilities.

not going concern, modification of opinion, key matter or emphasis of matter but still important.

Question 9

what is ISA 705?

Answer 9

modification to opinion in independent auditors report

Question 10

how are the opinion and the basis of opinion presented in the audit report?

Answer 10

the opinion - includes the individual statements and the reporting period under review for company being audited, for clarification. also which legal frameworks were applied.

basis for opinion - always presented after opinion, explains how audit was conducted, role of ISAs and IESBA code of ethics as well as audit evidence being sufficient and appropriate to provide basis for auditor’s opinion.

Question 11

what is a modified opinion?

Answer 11

changes the can arise where there is an error, a disagreement over a particular matter or a lack of sufficient audit evidence in a particular area of the financial statements, including disclosures

how material/pervasive the impact is will determine the modification

Question 12

what does it mean for an opinion to be modified due to insufficient appropriate evidence?

Answer 12

evidence which should be available to the auditor is not available, for example inadequate accounting records/lost/destroyed, auditor appointed after period end, management prevents the auditor from requesting/obtaining audit evidence.

Question 13

what does it mean for an audit opinion to be modified due to material misstatement?

Answer 13

there are issues with: the appropriateness or application of selected accounting policies, the appropriateness of adequacy of disclosures in the financial statements.

Question 14

what are the routes an audit opinion can be modified by

Answer 14

modified due to insufficient appropriate evidence –> material but not pervasive = qualified opinion (“except for”)

modified due to insufficient appropriate evidence –> material and pervasive = disclaimer of opinion

modified due to material misstatement –> material but not pervasive = qualified opinion

modified due to material misstatement –> material and pervasive = adverse opinion (“FS do not present fairly”)

Question 15

what does pervasive mean in terms of modifying an audit opinion?

Answer 15

issue is pervasive if it runs through the entire financial statements, rather than just an issue with one element.

Question 16

what does ISA 570 say about the auditors responsibility to determine whether an entity is a going concern?

Answer 16

it is the directors responsibility to determine whether or not an entity is a going concern, and the auditors responsibility to make an assessment as to whether the conclusion is appropriate. this should be based on results of going concern review performed by auditor, which must consider:

whether use of going concern basis is appropriate

whether adequate disclosure has been made of any material uncertainties affecting going concern

whether mgment’s assessment was adequate

if there is concern about any of items above, auditor should consider implications for their auditor’s report.

Question 17

what are the basic elements of an audit report?

Answer 17

title

addressee

auditor’s opinion

basis for opinion

going concern (if relevant)

emphasis of matter paragraph

KAM paragraph - for listed entities only

other matter paragraph (if relevant)

responsibilities for the financial statements

auditor’s responsibilities for the audit of the financial statements

report on other legal and regulatory requirements (if relevant)

name of audit engagement partner

signature of auditor

auditor’s address

date of report

Question 18

what is the sustainability reporting process?

Answer 18

establish objectives and scope

Define objectives and scope of the sustainability report.

Identify key environmental, social, and governance (ESG) issues.

engage stakeholders

Identify and engage stakeholders (employees, customers, investors, local communities).

Understand their sustainability expectations and concerns.

gather data

collect relevant data on ESG aspects

data verification

verify data accuracy and reliability through internal audits or external validation

materiality assessment

assess materiality of ESG issues based on significance to org and stakeholders

reporting framework selection

make it appropriate

report preparation

Develop sustainability report according to selected framework.

Include disclosures, data analysis, performance metrics, goals, and case studies.

internal review and approval

Conduct internal review involving relevant departments and senior management.

Ensure report aligns with organization’s sustainability performance and objectives.

external assurance (optional)

publication and communication

Publish finalized sustainability report via company website, press releases, stakeholder meetings.

Engage stakeholders, gather feedback, and demonstrate commitment to sustainability.

continuous improvement

Continuously improve reporting process based on feedback and emerging sustainability trends.

Set new goals, implement initiatives, and drive positive change within the organization.

Question 19

what is the importance of auditing and assurance in sustainability reporting?

Answer 19

Enhancing Credibility

Verifying Data Accuracy

Detecting Fraud and Misconduct

Assessing Compliance

Identifying Improvement Opportunities – framework clarification and implementation!!

Demonstrating Accountability

Supporting Investor Confidence

Meeting Stakeholder Expectations

Driving Continuous Improvement

Question 20

what is the main barrier to the sustainability reporting process at current?

Answer 20

barriers: no legal framework, current frameworks are not sufficient, ends up very qualitative.

Question 21

why are sustainable reporting frameworks important?

Answer 21

because need to know what you’re aiming for/assessed on, otherwise companies won’t buy in. also, frameworks allow comparability and stop companies being able to hide that they’re deficient in sustainable initiatives.

can’t trust this type of accounting if there are no sustainable audits!!