auditing disclosures in FS

Question 1

quantitative and qualitative disclosures

Answer 1

quantitative:
-breakup of balances like PPE, intangible, lease etc
-segmental analysis of profit, revenue etc
-summarised financial info related to joint ventures n associates

qualitative disclosures:
-description of accounting policies, rationale, judgement
-going concern assumptions
-RPs and RP transactions
-impairment losses explanation

Question 2

challenges for auditors when auditing disclosures

Answer 2

-information overload situation. judgement is needed when deciding if a matter should be disclosed, it is subjective.
difficult to apply materiality to qualitative disclosures that can not be quantified.

-source of info of disclosure is usually from system outside of GL, like forecasts. increased audit risk if there aren’t adequate controls

timing:
disclosures are often finalized late, limited time to assess risks and perform procedures. complex and subjective disclosures like FVM and instruments also may increase risk due to late availability

Question 3

IAASB proposals on auditing disclosures new material

Answer 3

proposed changes:

1-Expand the term ‘financial statements’ in ISAs to include all disclosures subject to audit.
Clarify that disclosures can be found in the notes, on the face of FS, or cross-referenced as per applicable financial reporting frameworks.

2-Emphasis on Disclosures in Audit Planning:

Stress the importance of treating disclosures with the same attention and planning as classes of transactions, events, and account balances.
Early consideration of significant new or revised disclosures during audit planning.

3- highlight disclosure related issues to TCWG specially during planning

4- write in engagement terms that manager must provide disclosure related info early

5-Provide more examples of misstatements that may occur in disclosures.
Clarify that all identified misstatements, whether quantitative or non-quantitative and including those in disclosures, must be accumulated and evaluated for their impact on the financial statements.

Question 4

IASB improvements

Answer 4

Enhanced Risk Assessment and Materiality Guidance:

Provide more comprehensive guidance on understanding the entity, including internal control, and assessing risks of material misstatement for disclosures, especially non-quantitative ones.
Focus on Disclosures in Team Discussions:

Emphasize disclosures, including examples, in discussions among the audit team regarding the susceptibility of financial statements to material misstatement, including fraud risks.
Integration of Assertion Categories:

Combine presentation and disclosure assertions with account balances and transactions to ensure consistent and effective use in audit planning.
Recognition of Non-Accounting System Disclosures:

Recognize and prioritize disclosures sourced from systems outside the accounting system, addressing reliability and adequacy of audit evidence from these sources.
Materiality Clarification for Disclosures:

Clarify how the nature of potential misstatements in disclosures, including non-quantitative ones, informs the design of audit procedures to mitigate material misstatement risks.