Chapter 11 - Reporting

Question 1

must an auditor communicate with TCWG?

Answer 1

yes

Question 2

TCWG include…

Answer 2

• directors
• members of an audit committee

Question 3

are TCWG provided with a copy of the engagement letter?

Answer 3

yes

Question 4

what does an engagement letter set out?

Answer 4

the form which communications to TCWG will take

Question 5

what matters must be communicated to TCWG?

Answer 5

• auditor responsibilities
• overview of scope and timing of audit
• significant audit findings
• matters relating to auditor independence (for plcs)

Question 6

how may an auditor communicate to TCWG?

Answer 6

orally or in writing

discussions are documented in working papers

certain matters MUST be communicated in writing (e.g., significant deficiencies in internal control)

Question 7

matters to be considered when determining the significance of internal control deficiencies?

Answer 7

• likelihood of MM
• susceptibility to loss/fraud
• size in FS
• importance in FR process

Question 8

what does a report of a deficiency in internal controls to TCWG consist of?

Answer 8

deficiency

consequence

recommendation

Question 9

bannerman paragraph?

Answer 9

paragraph to ensure the extent of the auditor’s liability is fully understood

Question 10

UK corporate governance code?

Answer 10

provides guidance for listed entities regarding how to conduct business

Question 11

two types of audit reports?

Answer 11

modified and unmodified

Question 12

modified opinion = modified audit report?

Answer 12

no

you can have a modified audit report with an unmodified opinion on FS

Question 13

examples of circumstances where there’s a modified report with an unmodified opinion?

Answer 13

opinion is unmodified, but there’s an:
- emphasis of matter paragraph OR
- other matter paragraph

Question 14

examples of circumstances where there’s a modified report with a modified opinion?

Answer 14

• qualified
• adverse
• disclaimer of opinion

Question 15

main contents of an auditor’s report?

Answer 15

• title
• addressee
• opinion
• basis for opinion
• going concern
• key audit matters
• other information
• bannerman paragraph
• responsibilities
• EP signature

Question 16

key audit matters (KAMs) ?

Answer 16

taken from the matters that have been communicated to TCWG

KAMs are matters which the auditor judges to have had the most significant impact on overall audit strategy/work

Question 17

auditor responsibilities regarding KAMs?

Answer 17

• provide a description of each KAM
• include a summary of their responses to KAMs
• explain how each KAM was addressed

Question 18

must listed companies include corporate governance statement in their annual report?

Answer 18

yes, companies act 2006 requires this

Question 19

what is a modified audit report?

Answer 19

modifications are used when the auditor wishes to communicate something of significance to users of the FS

Question 20

modified report with unmodified opinion?

Answer 20

• when FS show a true & fair view
• but the auditor has something important communicate about the FS

Question 21

a modified audit report with an unmodified opinion includes…

Answer 21

either an emphasis of matter paragraph or other matter paragraph

Question 22

emphasis of matter paragraph?
other matter paragraph?

Answer 22

EOM = used to highlight a matter included in FS which is appropriately presented, but fundamental to users’ understanding

OM = used to highlight a matter not included in FS

Question 23

examples of other matter paragraph scenarios?

Answer 23

• material uncertainty regarding outcome of litigation
• catastrophe which has impact on entity’s FS
• significant subsequent event discovered

Question 24

when may an auditor request clients to adjust FS?

Answer 24

if they identify problems

if required adjustments aren’t made, the auditor will issue a modified opinion

Question 25

where in the audit report can you find the reason for a modification?

Answer 25

in the ‘basis for modified opinion’ paragraph

Question 26

material?
material & pervasive?

Answer 26

material = error/omission which influences economic decisions of users

material & pervasive = not confined to a particular element of FS or is fundamental to the user’s understanding

Question 27

when is a qualified opinion given?

Answer 27

• FS are materially misstated
• or inability to obtain sufficient appropriate audit evidence

material but not pervasive

Question 28

when is a disclaimer of opinion given?

Answer 28

inability to obtain sufficient appropriate audit evidence

material and pervasive

Question 29

when is an adverse opinion given?

Answer 29

FS are materially misstated

material and pervasive

Question 30

what do we say in an adverse opinion?

Answer 30

FS do not give a true & fair view…

Question 31

what do we say in a qualified opinion?

Answer 31

FS give a true & fair view except for…

Question 32

what do we say in a disclaimer of opinion?

Answer 32

we can not express an opinion on the FS…

Question 33

examples of ‘other information’?

Answer 33

e.g., management / director’s reports

chairman’s statement

corporate governance statement

sustainability statement

internal control report

Question 34

why is other information important to auditors?

Answer 34

other information may contradict findings in FS which may undermine the credibility of FS

Question 35

what does the ‘other information’ element of an audit report include?

Answer 35

• management is responsible for the other information
• auditor’s opinion doesn’t cover other information
• auditor is responsible for reading the other information
• other information is free from material misstatement

Question 36

if the auditor identifies an inconsistency between other information and FS, they should…

Answer 36

• discuss w/ management
• conclude where the MM lies

if MM lies in FS, consider materiality and implications on audit opinion

if MM lies in OI, ask management to correct, include in OI paragraph of audit report