Chapter 13 Flashcards
What is a management letter?
Communications between auditors and those charged with governance when there is deficiencies in internal controls
Who does the management letter go to?
Goes to management not shareholders.
Only goes to shareholders if auditor gives permission to.
Under ISA 260 Communication to those Charged with Governance what matters should be included?
- Auditor’s responsibility (expectation gap)
- Planned scope and timing of the audit
- How any independence/ objectivity issues have been resolved/ safeguarded
- Significant findings from the audit
- Written representations the auditor is requesting
- The auditor’s views about the entity’s accounting policies.
- Significant difficulties encountered during the audit
- Explanations surrounding any auditor’s report modifications
What is the Emphasis of matter paragraph?
A disclosure note that is in the notes to the financial statements.
When do you include an Emphasis of matter paragraph?
It is used when the auditor considers it necessary to draw users’ attention to a matter or matters presented or disclosed adequately in the financial statements when related opinion is unqualified.
Why would you include an Emphasis of matter paragraph?
This note is of such importance that they are fundamental to users’ understanding of financial statements.
The financial statements MUST show a true and fair view.
For example:
- to emphasise that the company is not a going concern
- to emphasis the unknown outcome to exceptional lawsuit
How is an Emphasis of matter paragraph written out?
“Without qualifying our opinion we draw your attention to…”
What is the Other information paragraph?
It identifies an issue in the other information contained in financial reports e.g chairman’s report
When do you include an Other information paragraph?
It is used where the auditor considers it necessary to draw users’ attention to any matter outside of the financial statements but inside the financial reports.
For example:
- to highlight an inconsistency between financial statements and other information
- to identify a material misstatement of fact in the other information
What is an Opinion on other matters prescribed by Co Act paragraph?
Identifies an issue or no issues in Directors and Strategic reports.
When and why do you include an Opinion on other matters prescribed by Co Act paragraph?
The auditor must review the directors’ and strategic reports for consistency with the F/S.
Auditors must state whether the directors/ strategic report is consistent with F/S.
The auditor must also confirm that the directors’ and strategic report have been prepared in accordance with applicable legal requirements e.g Companies Act
What do you include if there is an Material Uncertainty Related to Going Concern paragraph?
When the company cannot confirm if they will continue in business in the next 12 months.
What paragraph is only included in PIEs audit report?
Key audit matters - areas of high risk of material misstatement requiring significant auditor judgement.
What is the financial statement review?
to ensure:
- the appropriate accounting policies have been applied
- F/S consistent with auditor knowledge of entity
- Compliance with laws and regulations
What opinion would you give if there is an inability to obtain sufficient and appropriate evidence on an material matter but it is not pervasive?
Qualified Opinion
“Except for…”
