Topic 12- Reports

Question 1

what are the contents of an auditors report

list

Answer 1

title
addressee
auditors opinion 
basis for opinion
key audit matters (if listed)
other information

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Auditor’s Responsibilities for the Audit of the Financial Statements

Report on Other Legal and Regulatory Requirements

name of the engagement partner
signature
auditors address
date

Question 2

What is on the opinion section

Answer 2

Provides the auditor’s conclusion as to whether the financial statements give a true and fair view In accordance with the applicable financial reporting framework.

“We have audited the FS of ___ which comprise the SOFP as at 31 December, 20X4, and SOCIE , SOPL and SOCF , and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the FS give a true and fair view of) the financial position of the Company as at December 31, 20X4, and its performance and its cash flows for the year then ended in accordance with IFRS

Question 3

What is on the basis for opinion section

Answer 3

Provides a description of the professional standards applied during the audit to provide confidence to users that the report can be relied upon.

“We conducted our audit in accordance with International Standards on Auditing
and applicable law.

Our responsibilities under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report.

We are independent of the Company in accordance with ethical requirements that are relevant to our audit of financial
statements in the UK…..and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.”

Question 4

What is on the KAM section and give examples

Answer 4

KAM are those that in the auditor’s professional judgement were of most significance in the audit and are selected from matters communicated to those charged with governance

these include

• significant risks of material misstatement
• significant areas of judgement
• significant events or transactions

The auditor must determine which matters are of most significance in the audit of the financial statements and these will be regarded as KAM.

(This section is only compulsory for listed entities)

detailed explanatory material

1) Areas which were considered to be susceptible to higher risks of material misstatement or which were deemed to
be ‘significant risks’ in accordance with ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment.

2) Significant auditor judgments in relation to areas of the financial statements that involved significant
management judgment. This might include accounting estimates which have been identified by the auditor as
having a high degree of estimation uncertainty.

3) The effect on the audit of significant events or transactions that have taken place during the period.

Question 5

What is on the OTHER INFO section

Answer 5

Other information is defined as financial and non-financial information included in a document (i.e. anual report) containing audited financial statements and the auditor’s report. e.g. chair’s statement and directors report

This section is added to the report to clarify that management are responsible for the other information. The auditor’s opinion does not cover the other information and the auditor’s responsibility is only to read the other information and report in accordance with ISA 720.

Question 6

What is on the Managements responsibility section

Answer 6

To clarify that management are responsible for preparing the financial statements and for the internal controls. Included to help minimise the expectation gap.

“Management are responsible for:
the preparation of the financial statements including being satisfied that they give a true and fair view;

such internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error;

assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.”

Those charged with gov are responsible for overseeing the company’s FR process

Question 7

What is on the auditors responsibility section

Answer 7

To clarify that the auditor is responsible for expressing reasonable assurance as to whether the financial statements give a true and fair view and express that opinion in the auditor’s report. in accordance with International Standards on Auditing and ethical requirements and that the auditor plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

The section also describes the auditor’s responsibilities in respect of risk assessment, internal controls, going concern and accounting policies. Included to help minimise the expectation gap.

“Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud, other irregularities or error, and to issue an opinion in an auditor’s report.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.

Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.”

Question 8

what is on the other reporting responsibilities / ‘Report on Other Legal and Regulatory Requirements’. SECTION

Answer 8

To highlight any additional reporting responsibilities, if applicable. This may include responsibilities in some jurisdictions to report on the adequacy of accounting records, internal controls over financial reporting, or other information published with the financial statements.

– If the auditor addresses other reporting responsibilities in the auditor’s report,
these shall be addressed in a separate section in the auditor’s report titled ‘Report on Other Legal and Regulatory Requirements’.

Question 9

The audit opinion is modified under two circumstances

what are they

Answer 9

1) Finance statements are NOT free from material misstatement or
2) The auditor was unable to obtain sufficient appropriate evidence

Question 10

Finance statements are NOT free from material misstatement and the error is

• not pervasive

what opinion will be given?

Answer 10

Qualified opinion

i.e. These FS give a true and fair view .. EXCEPT FOR

Question 11

Finance statements are NOT free from material misstatement and the error is

• pervasive

what opinion will be given?

Answer 11

Pervasive- Adverse opinion

These FS do NOT give a true and fair view as they are not been properly prepared

Question 12

The auditor was unable to obtain sufficient appropriate evidence

• not pervasive

what opinion will be given?

Answer 12

Qualified opinion

i.e. These FS give a true and fair view .. EXCEPT FOR

Question 13

The auditor was unable to obtain sufficient appropriate evidence

• pervasive

what opinion will be given?

Answer 13

Disclaimer of opinion

“We do not express an opinion”

Question 14

An audit report can have a modified report but an unmodified opinion. Modified report means that the standard wording is changed

For this, additional communications are includes

Explain the 4 scenarios when this could apply

Answer 14

1) Material uncertainty relating to going concern
2) Emphasis of matter
3) Other matters

Question 15

An audit report can have a modified report but an unmodified opinion.

For material uncertainty relating to going concern,

when is this included

Answer 15

Included where the directors have made adequate disclosures of material uncertainties relating to going concern to draw the user’s attention to the disclosure made

Question 16

An audit report can have a modified report but an unmodified opinion.

For Emphasis of matter

when is this included

Answer 16

included to draw the users attention to a note already disclosed by mang in the financial statements but just mentioned by the auditor again so that it is highlighted to the reader/use

(usually in relation to the fundamental uncertainties / contingencies)

e.g. Examples being:
✓ Uncertainty
✓ Early application of a new accounting standard, that has a pervasive effect
✓ A major catastrophe which has had a significant effect

Question 17

An audit report can have a modified report but an unmodified opinion.

Other matters

when is this included

Answer 17

An Other Matter paragraph is included in the auditor’s report if the auditor considers it necessary to communicate to the users regarding matters other than those presented or disclosed in the financial statements that, in the auditor’s judgment, are relevant to understanding the audit, the auditor’s responsibilities, or the auditor’s report.

included to draw the users attention to other matters not related to the financial statements and items that haven’t been covered above that the auditor’s feel should be highlighted to the shareholders

This is drawing the readers attention to matters that are relevant to the understanding of the audit

✓ e.g. Last year’s financial statements were not audited
✓ Further responsibilities about the auditor’s responsibilities

Question 18

what does pervasive mean

Answer 18

Pervasive effects on the financial statements are those that, in the auditor’s judgement:

I. Are not confined to specific elements. Accounts or items of the financial statements;

II. If so confined, represent or could represent a substantial proportion of the financial statements; or

III. In relation to disclosures, are fundamental to users’ understanding of the financial statements.

Question 19

with regards to other information, what is the auditor’s responsibility

Answer 19

Their responsibility is to read the other information to identify any inconsistencies (items that are materially misstated) between the information and the financial statements or our audit knowledge of the client.

If the other info is received by the auditor before the date of auditors report, a separate section should be included in the audit report under the OI heading. In this section the auditor should add other details onto it

Question 20

If the other info is received by the auditor before the date of auditors report, a separate section should be included in the audit report under the OI heading. In this section the auditor should add other details onto it

what are they

Answer 20

the OI section should include:

• identify the OI obtained prior to the date of auditor’s report
• State that the auditor has not audited the OI and accordingly does not express an opinion or conclusion on that information
• include a description of the auditors responsibilities with respect to OI
• state either that the auditor has nothing to report or a description of the material misstatement

Question 21

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Answer 21

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Question 22

On reading the other information, the auditor may become aware of a material misstatement of fact. This is where a matter unrelated to the financial statements is incorrectly stated or presented in the other information.

what action should the auditor take

Answer 22

This has no implication for the audit report, as there is nothing to suggest that the financial statements are
misstated.

The auditor should communicate the details of any apparent material misstatement of fact to those
charged with governance.

Question 23

The Auditors will communicate deficiencies in the internal controls to those charged with governance and management.

This will be communicated via a management letter or report to management.

what are the contents of the letter

Answer 23

Auditors Address

Dear Sirs

Please find enclosed an appendix of the deficiencies highlighted on the audit, the potential impact of those
deficiencies and recommendations to manage these deficiencies.

If you should have any questions please do not hesitate to contact me.

Yours sincerely
Auditor

Report to management
To:
From:
Date:
Heading:

This report details the deficiencies found while on the audit of XYZ Ltd, the impact the deficiencies may have on the business and recommendations to improve the internal controls

TABULAR FORMAT (DEFICIENCY/CONSEQ-INPACT/RECOMMENDATION)

Question 24

the auditor’s responsibilities listed completely

do not need to know all but just understand

Answer 24

“Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud, other irregularities or error, and to issue an opinion in an auditor’s report.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.

Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.”

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Question 25

what kind of things are communicated to those charged with governance

do not need to know all, just ensure you understand

Answer 25

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Question 26

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Answer 26

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Question 27

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Answer 27

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Question 28

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Answer 28

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Question 29

how are KAM selected

Answer 29

KAM are selected from matters which are communicated with those charged with governance.

Matters which are discussed with those charged with governance are then evaluated by the auditor who then determines those matters which required significant auditor attention during
the course of the audit.

There are three matters which the ISA requires the auditor to take into account when making this determination: