Review and reporting Flashcards
Adjusting and non-adjusting events
Adjusting - additional evidence of conditions that exist at year end
Non-adjusting - event that happened post year end but considered a material change (fire and loss of inventory)
Subsequent events review
Request post year end minutes
Request post year end management accounts
Ask management if any subsequent events have occurred
Check if any have an impact on going concern
Auditors responsibilities after date of auditors report
Before accounts are released the auditor does not have any responsibility to perform audit procedures. They only have a responsibility if they are made aware of something.
After accounts have been released the auditor has no obligation to make any inquiry. But if they auditor is aware of something prior to the date of the audit report then they should consider if they accounts need revision.
Positions that may cast doubt on going concern
Fixed term borrowings approaching maturity with little ability to repay Negative operating cash Loss of key management Labour difficulties Shortage of supplier
Going concern - audit procedures
Compare previous years’ forecast with actual results to determine historical accuracy
Obtain a copy of the cash flow forecast
Make enquirers of the directors - and appropriate supporting evidence
Consider appropriateness of assumptions
Document extent of any concerns
Review aged creditors
Request latest available mgmt accounts
Going concern and the audit report
Company is going concern = unmodified report
Company is not a going concern = Adverse opinion, includes basis for adverse opinion paragraph
Company is not a going concern but all info on it disclosed in accounts = Unmodified opinion with emphasis of matter paragraph in report
Company is going concern but has a material uncertainty, not disclosed in accounts = Unmodified audit opinion with material uncertainty relating to going concern paragraph
Company is going concern but has a material uncertainty, disclosed in accounts = Qualified opinion - material misstatement
Written representations
Form of audit evidence
From company’s director to the auditor
Confirms directors responsibility and approval of accounts
Confirm any matters, which are material to the accounts
Confirms all matters were brought to auditors attention
Confirms all accounting records were available to auditors
Procedure for obtaining written representation
Auditor agrees the need for a letter before the audit starts
Auditor drafts letter for client
Client puts letter on their letterhead
Signed by at least 1 director
Dated as close to audit report as possible
Unmodified audit report
When accounts give a true and fair view
Contain:
Title - that it is report of an independent auditor
Addressee - normally shareholders
Opinion paragraph - that the accounts are true and fair view
Basis for opinion paragraph - ISA’s, ethical requirements and sufficient appropriate evidence
Key audit matters (KAMs) - only for listed entities, high risk areas, significant judgements
Other information
Management’s responsibilities - in repairing accounts
Auditor’s responsibility - opinion in accordance with International standards of auditing
Other reporting responsibility
Name, signature and address of auditor
Date of audit report
Modified audit report with a modified opinion
Reasons for a modified opinion - Material but not pervasive - material and pervasive
Material misstated - qualified opinion - adverse opinion
Auditor unable to obtain sufficient evidence - qualified opinion - disclaimer of opinion
Pervasive = the extent of the effect on the accounts of a misstatement that has not been detected due to an inability to provide sufficient evidence
Disclaimer of opinion
When the auditor is unable to obtain sufficient evidence to form an opinion.
The auditor sates it “does not express an opinion” on the accounts.
Opinion paragraph will state “we do not express an opinion on the financial statements”
Additional paragraph after opinion paragraph called “Basis for Disclaimer of Opinion”.
