Chapter 5: Review and reporting Flashcards
Adjusting v non-adjusting events
Adjusting events - an event will provides additional evidence of conditions at the year end. Must be in the financial statements to reflect this event.
Non-adjusting event - condition did not exist at year end. Disclosure in financial statements if material.
Events occurring up to the date of the auditors reports
Procedures to be undertaken in performing a subsequent event review
Auditors have an active duty to search for any material adjusting and non-adjusting events.
Procedures
-Review management procedures to try and ensure events are identified. (Testing whether management has controls capable)
-Read minutes of the post year end company meetings and Board meetings and enquiring into unusual items
-Obtain company’s latest accounts (management), budgets, cashflows to see if they reflect matters which should be reflected in the financial statements
-Ask management if events have occurred.
-Check whether any events have occurred which affect going concern basis
-Enquire company solicitors to any news
-Include matter on management representation letter
Facts discovered after the date of the auditors report but before the date the financial statements are issued
Auditor does not have any responsibility to perform audit procedures or make an enquiry regarding financial statements.
They only have a duty to act if they become aware of something. - Passive duty
Facts discovered after financial statements have been issued
No obligation to make inquiry regarding the financial statements after they have been issued.
If the auditor becomes aware of an event that existed at the date of the auditors report and if known may of caused the report to be modified:
-Consider whether the financial statements needs revision
-Discuss with management
-If needed, issue a new report on the revised financial statements, including a emphasis of matter paragraph referring to the reason for the revision
Procedures to be applied in performing going concern reviews
Key evidence is management’s own assessment - evaluate if reasonable
Obtain forecasts - compare previous years forecasts with actual results to determine the historical accuracy
Written Representation
Written by who?
Why are they required?
What happens if management refuse?
Written by companies directors, sent to the auditor, prior to completion of audit work and before auditors report is signed.
So the directors can acknowledge their collective responsibility for the preparation of the financial statements and to confirm that they have approved those statements.
To confirm any matters, which are material to the financial statements where representations are crucial to obtaining sufficient and appropriate audit evidence.
unable to obtain sufficient and appropriate evidence - qualified opinion or disclaimer of opinion
Unmodified audit opinion
True and fair view
Unqualified = no buts
Ideal opinion ‘unchanged’
Key audit matters
required for listed companies only
most significance during the audit and are selected from matters report to those charged with governance.
Including:
-Areas of high risk of material misstatement
-Significant auditor judgments
-Audit of significant transactions or events such as goodwill, fair values, financial instruments or provisions
Modified audit report with unmodified opinions
Material uncertainty relating to going concern
Emphasis of matter
Material uncertainty relating to going concern
-material uncertainty exists, but has been adequately disclosed, shows true and fair view.
-Basis on opinion paragraph - ‘Material uncertainty relating to going concern’
Emphasis of matter
-Other than going concern
-already appropriately disclosed, true and fair view
Modified audit report with modified opinion
Qualified opinion
Adverse opinion
Disclaimer of opinion
Financial statements are materially misstated
-Material but not pervasive
-Material and pervasive
Material but not pervasive - Qualified opinion
Material and pervasive - Adverse opinion
Unable to obtain sufficient approp evidence
-Material but not pervasive
-Material and pervasive
Material but not pervasive - qualified
Material and pervasive - disclaimer of opinion
