Chapter 11 - Reporting on an audit engagement (basics) Flashcards
Communication with those charged with governance:
Who are the appropriate persons?
Directors
Members of audit committee
Communication with those charged with governance:
Those charged with governance should have an engagement letter which sets out:
- Form of communications
- Who are the communications going to
- Explanation that only matters that have come to attention will be communicated
Communication with those charged with governance:
What needs to be communicated?
- Auditor responsibilities
- Scope and timing
- Significant findings
Communication with those charged with governance:
What else needs to be communicated if LISTED?
Emphasis auditor independence
- confirm compliance with ethical requirements
- was there a bearing on independence? (non audit fees)
- safeguards
Communication with those charged with governance:
The auditor can communicate either __________or __________
Orally
Writing
Communication with those charged with governance:
Certain matters MUST be communicated in writing, what are they?
- Matters to listed companies about independence
- Significant deficiencies in internal control
Communication with those charged with governance:
What does effective communication involve?
- Timely
- Fulfil expectation of governance
- Appropriate extent (form and frequency)
- Repeat previous year points if unresolved and relevant
- Disclaimer so third parties do not rely on communications
Communication with those charged with governance:
What does it mean by “communication is a two way process”
Client responses documented and responded
Audit reports:
What are Key Audit matters? (KAM)
Matters that had significant impact on audit strategy and the work carried out
Auditor needs to give description of why significant and how it was addressed in audit
Audit reports:
What should the auditor look for in the director report?
and actions?
Check consistent with F/S
inconsistent = ask to make change
no change made = modify opinion
Audit reports:
In what situations should the auditor report by exception?
- Adequate accounting records not kept
- F/S not in agreement with underlying records
- Information not received for audit
- Director remuneration not disclosed
- Corporate governance statement not prepared
- Material misstatement in director report
Audit reports:
What changes came about after Bannerman case?
Paragraph to state they do not accept responsibility to anyone other than the company/shareholders
Audit reports:
What are auditor responsibilities with Corporate Governance Code?
- Report by exception if not included
- Report on compliance if included
Modified audit reports:
What are the two types?
Modified report with unmodified opinion
Modified report with modified opinion
Modified audit reports:
What is a modified report with unmodified opinion?
F/S = true and fair
BUT auditor has significant matter to communicate (in additional paragraph)
Modified report with unmodified opinion:
What are the two types of additional paragraphs?
Emphasis of matter
Other matter
Modified report with unmodified opinion
Where do the additional paragraphs go?
After Opinion paragraph
Modified report with unmodified opinion
What is the EMPHASIS of matter paragraph?
Highlight a matter in F/S, important for user to understand
Title: Emphasis of matter
Paragraph: Describe matter and reference to F/S
State audit opinion not changed
Modified report with unmodified opinion
What is the OTHER matter paragraph?
Highlight a matter not in F/S
Title: Other matter
Paragraph: Describe
Modified report with unmodified opinion
What should the auditor do first before additional paragraph?
Communicate to those charged with governance
Audit reports:
What is a modified report with modified opinion?
not true and fair
Modified report with Modified opinion
What are the two problems?
F/S misstated
Not sufficient audit evidence (limitation on scope)
Modified report with Modified opinion
What does it mean to be “Material and Pervasive”
Not confined to a particular part of F/S
Substantial proportion of F/S
Fundamental to understanding
Modified report with Modified opinion
What do you do if no adjustment to misstatement or still no evidence?
Show modified opinion
“Basis for modified opinion paragraph” after it
What opinion is given if Material but not Pervasive?
Qualified opinion
“EXCEPT for the matter in the basis for the qualified opinion paragraph, f/s are true and fair”
What opinion is given if F/S are materially misstated
- Material and Pervasive
Adverse Opinion
“Because of the significance of the matter described in the adverse opinion paragraph, the f/s are not true and fair.”
What opinion is given if there is not sufficient evidence
- Material and Pervasive
Disclaimer Opinion
“Because of the significance of the possible impact of the uncertainties, we do not express an opinion”
