Auditor's report Flashcards
The following matters should be communicated with those charged with governance
ROLS
ISA 260
- Responsibilities of auditor in relation to the FS’s audit.
- Overview of the planned scope and timing of the audit.
- Significant findings
- [Listed clients], matters relating to auditor independence + respective safeguards
How should the auditor communicate the ROLS matters?
Orally or written.
Discussions documented in WPs
AED
How should sustainability impacts be communicated with those charged with Governance?
Formal communication may be needed where sustainability / climate-related risks require changes to:
Accounting policies
Estimates
Disclosures
Should deficiencies in Internal Controls be communicated?
Yes, Significant deficiencies in ICs that are of sufficient importance to merit attention by client business.
What would a report communicating deficiencies in IC include?
ISA 265
A covering letter
Appendix:
Deficiency / Consequences / Recommendations
What should be included in the Deficiency Appendix table?
Deficiency: statement of fact
Consequences:
1. Risk of non-compliance
2. Cost to the business (losses, adverse impact on cash flow, loss of customer goodwill)
3. Risk of misstatements in FS
Recommendations: who/what/when
Commercially feasible
Unmodified opinion / Unqualified opinion / say the accounts are true and fair
Option 1
When to use:
No MM in FS
No material problem with insufficient evidence
Impact on report:
None
DAD
Modified Reports: Modified Opinion
Qualified ‘except for’ opinion,
Option 2
When to use:
Material not pervasive issue in:
- Double entry
- Accounting policy
- Disclosure in the FS
Impact:
1. Opinion para
2. Basis of qualified opinion para
Modified Reports: Modified Opinion
Adverse opinion:
Option 3
GAS
When to use: Material + Pervasive misstatement:
- GC basis used but inappropriate.
- Adj turns profit > loss.
- Sig sub not consolidated.
Impact:
1. Opinion para
2. Basis of adverse opinion para
Modified Reports: Modified Opinion
Disclaimer of opinion:
Option 4
When to use:
Material + pervasive, insufficient audit evidence:
- All / majority AC / Sales records destroyed, no back up.
- Refusal to sign WRL by directors.
Impact:
1. Disclaimer of opinion
2. Basis of Disclaimer opinion
Modified reports:
Unmodified opinions with material uncertainty relating to GC paragraph.
Option 5
When to use: If all are met:
1. FS follow AC standards, no misstatements.
2. Significant GC issues.
3. Disclosed.
4. Disclosure adequate, in line with IFRS.
Impact:
1. Basis of opinion para
2. Material uncertainty GC para
Modified report: Unmodified opinion: Emphasis of matter
Option 6
When to use:
- FS follow AC standards / no misstatements.
- Significant uncertainty.
- Disclosed.
- Disclosure adequate, in line with IFRS.
Impact:
1. Emphasis of matter para
2. Key audit matters para
Modified report: Unmodified opinion: Other matter paragraph
Option 7
When to use:
Auditors want to explain something, cant reference to the annual report.
- They weren’t auditors last year
- Sub report qualified, group isn’t
Impact:
1. Key audit matters
2. Other matter para
Modified report: Unmodified opinion: Other information paragraph
Option 8
When to use:
Inconsistency in non-audited info
Impact:
1. Other information para
2. Key audit matters para
What is the definition of Material and Pervasive? (3)
Matter:
1. not confined to a particular element of the FS
2. represents a substantial proportion of the FS
3. is fundamental to the users understanding
What opinion should be issued if
- Material but not pervasive
- FS are MM
- Inability to obtain sufficient appropriate audit evidence
Qualified opinion
‘In our opinion, except for the effects of the matter described in the basis for qualified opinion paragraph, the FS give a true and fair view…’
What opinion should be issued if
- Material and pervasive
- FS are MM
Adverse opinion
‘In our opinion, because of the significance of the matter described in the basis for adverse opinion paragraph, the FS DO NOT give a true and fair view…’
What opinion should be issued if
- Material and pervasive
- Inability to obtain sufficient appropriate audit evidence
Disclaimer of opinion
‘because of the significance of the matters described in the basis for disclaimer of opinion paragraph, we DO NOT EXPRESS AN OPINION on the FS…’
What and why are Key Audit Matters (KAM) used?
Used for listed companies.
They include the most significant assessed risks of MM identified by auditor.
PIE
What should the auditor do in respect of work carried out for KAMs?
- provide description of each KAM: why it’s considered to be significant, how it was addressed in audit.
- Include summary of auditor responses
- Explain how scope of auditor work addressed each KAM, influenced by applying materiality.
Modified audit report: Unmodified opinion: Emphasis of matter paragraph
Headed up ‘Emphasis of matter’
Describes matter, refers to disclosures made in FS.
States audit opinion is not modified.
Modified audit report: Unmodified opinion: Other matter paragraph
Highlights matters not in FS.
Headed up ‘Other matter’.
Describes the matter.
In the event that an external auditor of an component does not allow access to audit evidence / information with the directors of the audited firm stating they will not grant access to accounting records of subsidiary. What are the implications on the group audit report?
Management have imposed a limitation on scope of audit and disclose information of its activities.
Unable to obtain sufficient appropriate evidence.
Material / Pervasive ?
Give options for both
Auditor needs to report by exception under CA06 that not all information was obtained.
