Chapter 12 - Reporting on an audit engagement (development) Flashcards
The auditor only has to report on SIGNIFICANT internal control deficiencies.
How would we determine what is SIGNIFICANT?
- how important are the controls
- size of the item in F/S
- volume of activity
- how likely to give material misstatement
- susceptible to loss/fraud
What should the report on significant internal control deficiencies include?
Covering letter
Deficiencies
Consequences
Recommendations
Scenario: F/s prepared going concern but it is NOT a going concern
What is the opinion?
Adverse
Material and pervasive
Scenario: F/s prepared going concern and it IS a going concern
What is the opinion?
Unmodified opinion
Emphasis of matter: highlight disclosure
What is the period to consider going concern?
According to two standards -
ISA 570 - 12 months after approval of F/s
IAASB - 12 months after reporting period
If management has used less than 12 months:
- disclose
- if not disclosed = auditor disclose in audit report
- does auditor have enough evidence from less than 12 months? (limitation on scope)
What is other information and why could this be a problem?
Auditor reports on F/s which is published in larger annual records
if there is other information that is inconsistent with f/s, this could discredit f/s
What is the procedure for “Other information”?
Management produce “other information” for auditor to read.
Auditor makes statement that nothing to report or any material misstatements.
What actions should be taken if there is an inconsistency between other information and financial statements?
- Discuss with management
- Is the material misstatement in the f/s or other information?
What is the “Opinion on other matters prescribed by Companies Act 2006” for?
- to check if director/strategic report is consistent with F/S
- discuss with management
- if not changed, amend auditor report
