Chap 4 Audit Report Flashcards
Other matter paragraph?
Included in Auditor’s report
If auditor consider it necessary to COMMUNICATE a matter NOT REQUIRED to disclose in f/s but is relevant to users understanding of audit.
Provided that not prohibited by law and KAM
Other matter examples
- Previous year’s audit was conducted by other auditor
- More than one set of f/s
- Auditor restricts the distribution of auditor’s report
- Scope limitation effect is pervasive and withdrawal is not possible or practicable
Going concern
If there are events/conditions casting doubt on going concern, Auditor shall perform procedures to confirm and report whether going concern assumptions is appropriate or material uncertainty exist.
Events and conditions of going concern
- Losses
- Net liability position
- Uninsured catastrophe
- Loss of major customer, supplier, product, mgmt, license
- Inability to pay loan
- Highly successful competitor
- Non compliance debt covenant
Procedures to identify events and conditions of going concern
- Risk assessment procedure
- Remain alert
- Discuss with mgmt
- Evaluate mgmt’s assessment
Cover period not less than 12 months
Considered all information - Inquire about events/conditions after period of assessment
Additional audit procedures
- Request to mgmt to make assessment (specifically to the condition)
- Evaluate mgmts plan and its feasibility
3 evaluate cashflow forecast - Consider effect of subsequent event
- Obtain written representation
- Read minutes of meeting, loan agreement
Implication on report - Going concern appropriate
Un modified opinion
KAM on events and conditions
Implication on report- going concern appropriate but material uncertainty exist
Disclosed in f/s - unmodified opi
Material uncertainty relating to going concern
Not disclosed in f/s - Qualified opi if effect is material or pervasive toh adverse op
Going concern not appropriate
F/s prepared on going concern basis - pervasive effect - adverse opi
F/s prepared non going concern basis - unmodified opinion, EOM (as special purpose)
KAM
Require for listed companies (except in disclaimer of opi)
Optional for unlisted
What is KAM
Selected from matter communicated to TCWG
Most significant matter from current period audit
How to determine KAM?
Judgement and uncertainty
Significant events occurred during the period
Complexity/subjectivity
Use of specialised knowledge and skill
Examples of KAM
Revaluation/impairment of fixed asset
Change in framework or policies
Acquisition disposal, restructuring of business
Deferred tax/provision, gratuity
Use of expert
Tax contingency
Significant related party transaction
How to draft KAM
Main heading
Subheading
Why factors
What matter
How, addressed (procedures, outcome, key observation)
EOM
Auditor consider it necessary to draw users attention to matter adequately disclosed in financial statements
And is fundamental to the understanding of f/s
Provided that
Matter is not a misstatement or scope lim
And KAM
