Chapter 11 - Reporting Flashcards
must an auditor communicate with TCWG?
yes
TCWG include…
- directors
- members of an audit committee
are TCWG provided with a copy of the engagement letter?
yes
what does an engagement letter set out?
the form which communications to TCWG will take
what matters must be communicated to TCWG?
- auditor responsibilities
- overview of scope and timing of audit
- significant audit findings
- matters relating to auditor independence (for plcs)
how may an auditor communicate to TCWG?
orally or in writing
discussions are documented in working papers
certain matters MUST be communicated in writing (e.g., significant deficiencies in internal control)
matters to be considered when determining the significance of internal control deficiencies?
- likelihood of MM
- susceptibility to loss/fraud
- size in FS
- importance in FR process
what does a report of a deficiency in internal controls to TCWG consist of?
deficiency
consequence
recommendation
bannerman paragraph?
paragraph to ensure the extent of the auditor’s liability is fully understood
UK corporate governance code?
provides guidance for listed entities regarding how to conduct business
two types of audit reports?
modified and unmodified
modified opinion = modified audit report?
no
you can have a modified audit report with an unmodified opinion on FS
examples of circumstances where there’s a modified report with an unmodified opinion?
opinion is unmodified, but there’s an:
- emphasis of matter paragraph OR
- other matter paragraph
examples of circumstances where there’s a modified report with a modified opinion?
- qualified
- adverse
- disclaimer of opinion
main contents of an auditor’s report?
- title
- addressee
- opinion
- basis for opinion
- going concern
- key audit matters
- other information
- bannerman paragraph
- responsibilities
- EP signature
key audit matters (KAMs) ?
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
auditor responsibilities regarding KAMs?
- provide a description of each KAM
- include a summary of their responses to KAMs
- explain how each KAM was addressed
must listed companies include corporate governance statement in their annual report?
yes, companies act 2006 requires this
what is a modified audit report?
modifications are used when the auditor wishes to communicate something of significance to users of the FS
modified report with unmodified opinion?
- when FS show a true & fair view
- but the auditor has something important communicate about the FS
a modified audit report with an unmodified opinion includes…
either an emphasis of matter paragraph or other matter paragraph
emphasis of matter paragraph?
other matter paragraph?
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
examples of other matter paragraph scenarios?
- material uncertainty regarding outcome of litigation
- catastrophe which has impact on entity’s FS
- significant subsequent event discovered
when may an auditor request clients to adjust FS?
if they identify problems
if required adjustments aren’t made, the auditor will issue a modified opinion
where in the audit report can you find the reason for a modification?
in the ‘basis for modified opinion’ paragraph
material?
material & pervasive?
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
when is a qualified opinion given?
- FS are materially misstated
- or inability to obtain sufficient appropriate audit evidence
material but not pervasive
when is a disclaimer of opinion given?
inability to obtain sufficient appropriate audit evidence
material and pervasive
when is an adverse opinion given?
FS are materially misstated
material and pervasive
what do we say in an adverse opinion?
FS do not give a true & fair view…
what do we say in a qualified opinion?
FS give a true & fair view except for…
what do we say in a disclaimer of opinion?
we can not express an opinion on the FS…
examples of ‘other information’?
e.g., management / director’s reports
chairman’s statement
corporate governance statement
sustainability statement
internal control report
why is other information important to auditors?
other information may contradict findings in FS which may undermine the credibility of FS
what does the ‘other information’ element of an audit report include?
- 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
if the auditor identifies an inconsistency between other information and FS, they should…
- 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
