Week 8 - Completion & Reporting Flashcards
what does the final review of FS consist of?
compliance check and sense check
- compliance with laws & regulations
- does everything in FS make sense
how are misstatements evaluated?
- accumulate misstatements and assess if they’re material
- inform management of misstatements
- seek written representations from management to confirm that the uncorrected misstatements are immaterial
if opening balances are misstated…
the FS for the current year may also be misstated
if the auditor cannot gain certainty over the previous year’s closing balances…
- agree the b/f figures to last year’s FS
- assess accounting policies have been appropriately applied to opening balances
- review previous auditor’s working papers
who’s responsible for determining whether an entity is a going concern?
management
auditor’s responsibility is to assess whether this assumption is reasonable
should going concern be considered at all stages of the audit?
yes
at acceptance, planning and reporting stage
two types of subsequent events?
adjusting events
non adjusting events
adjusting events?
provides evidence of conditions at the date of the FS
FS should be adjusted
non-adjusting events?
provides evidence of conditions arising after the date of the FS
if material, the event should be disclosed
adjust only if going concern is affected
examples of adjusting events?
- resolution of a court case
- inventory write down (NRV ovevalued)
- discovery of fraud/error
- customer goes into liquidation
examples of non-adjusting events?
- destruction of assets
- dividends declared post year end
- plans to close part of the business announcement
auditor duty from y/e to sign off date?
active duty
- perform audit procedures
- ensure subsequent events have been appropriately accounted for
- written reps that subsequent events have been disclosed
auditor responsibilities from sign off date to issuance of FS
passive duty
- no obligation to perform procedures
- discuss w/ management if they become aware of events which require adjustments
when should written representations be signed?
before the audit report is signed
provides assurance that management can attest to the information provided throughout the audit
can you give an unmodified opinion without management written reps?
no
potentially a disclaimer of opinion (opinion cannot be given)
TCWG?
includes directors of a company and audit committee
what does an engagement letter outline for communication w/ TCWG?
- the form which communications w/ TCWG will take
- the appropriate persons to whom such communications will be made
which matters must be communicated to TCWG?
- responsibilities of auditor in relation to FS
- scope & timing of the audit
- significant findings from the audit
- matters relating to auditor independence
effective communication w/ TCWG must be…
- timely
- appropriate form and frequency
- fulfils expectations
- includes mgmg comments
- includes disclaimer
must TCWG conversations be documented?
yes
how are deficiencies in internal controls communicated?
deficiency
consequence
recommendation
which factors determine whether a deficiency is significant?
- likelihood of MM
- susceptibility to loss/fraud
- size of item in FS
- volume of activity
- importance of control
what does a report to TCWG include?
- covering letter
- appendix setting out deficiencies, consequences & recommendations
two types of audit reports?
unmodified and modified report
two types of modified reports?
- modified opinion on FS
- unmodified opinion on FS
types of modified opinions on FS?
- qualified
- adverse
- disclaimer
types of modified audit reports with unmodified opinions?
- other matter paragraph
- emphasis of matter paragraph
qualified?
adverse?
disclaimer?
qualified = isolated error
adverse = whole FS ruined
disclaimer = not enough info
what’s included in the audit report?
- title
- to whom it’s addressed
- audit opinion
- basis for opinion
- going concern
- key audit matters
- other information
- mgmt & auditor responsibilities
- opinion on other matters
- signature of partner
- date
- bannerman paragraph
bannerman paragraph?
extra paragraph in an audit report stating that they don’t accept responsibility to anyone
key audit matters?
significant areas of the FS that the auditor worked heavily on throughout the audit
auditor responsibilities relating to KAMs?
- provide a description of each KAM
- summarise responses in relation to the assessed risks
- explain how each KAM was addressed by the scope of the work
is reporting a KAM a substitute for giving a modified opinion?
no
emphasis of matter paragraph
- applies to something in the financial statements
- purpose is to emphasise an element in the FS
- to divert users’ attention to an area in FS
what does an EOM paragraph include?
- titled ‘EOM’
- describes the matter
- state that opinion isn’t modified in this respect
examples of scenarios where an EOM may be used?
- material uncertainty e.g., regarding litigation
- major catastrophe having an impact on the SOFP
other matter paragraph
used to highlight a matter not in FS
what’s included in other matter paragraph?
- titled ‘other matter’ paragraph
- describe the matter
material?
an error or omission that influences the economic decision of users
can be by size or nature
material and pervasive?
- not confined to one area of the FS
- represents a substantial proportion of the FS
- fundamental to users’ understanding
FS have a MM and it’s pervasive?
FS have a MM?
MM & pervasive = adverse (do not give a true & fair view)
MM = qualified (except for)
inability to obtain evidence - material?
inability to obtain evidence - material & pervasive?
material = qualified (except for)
material & pervasive = disclaimer of opinion (we do not express an opinion)
examples of what other information may include?
- director’s report
- chairman’s statement
- corporate governance statement
- sustainability statement
- internal control / risk assessment
if the auditor identifies inconsistencies between other info & FS…
discuss w/ management
conclude whether a MM exists in either the FS or OI
if MM is in FS…
ask mgmt to correct FS
if no correction is made, consider impact on auditor’s report
if MM is in OI…
- ask mgmt to correct OI
- if they fail to do so, use OI section to describe the uncorrected misstatement
how do you address questions on audit opinions?
what is the opinion
what is the wording
paragraph for basis of opinion
when company is a going concern and there are no material uncertainties regarding going concern?
unmodified opinion
include ‘conclusions relating to going concern’ section
company isn’t a going concern, but directors have prepared FS on going concern basis?
material & pervasive misstatement
don’t include conclusions relating to going concern section
instead, issue adverse opinion
company isn’t a going concern
directors have prepared FS on break-up basis with adequate disclosure of basis of preparation
FS aren’t misstated
don’t include ‘conclusions relating to going concern’ section
unmodified opinion
emphasis of matter paragraph used to highlight
- alternative basis of preparation
- reasons for doing so
- the disclosure
to the users of the FS
going concern status is uncertain and directors have made adequate disclosure of the uncertainty
FS aren’t misstated
don’t include ‘conclusions relating to going concern’ section
unmodified opinion
include ‘material uncertainty related to going concern’ section to
- draw attention to the disclosure note
- state that opinion isn’t modified
- state that material uncertainty may cast significant doubt on entity’s going concern
going concern status is uncertain and director’s haven’t made adequate disclosure of the uncertainty
FS are misstated
don’t include ‘conclusions relating to going concern’ section
could be considered material or material and pervasive
qualified / adverse opinion
explain in the ‘basis for qualified/adverse opinion’ paragraph
what must be done to the auditor’s report when a special purpose FR framework is used? e.g., tax basis, cash basis etc
auditor’s report should include an emphasis of matter paragraph highlighting the use of the special purpose framework
