CH13 reporting

Question 2

What are the two crucial audit outputs produced by an auditor?

Answer 2

The auditor’s report for the shareholders and a communication to those charged with governance

This communication is often referred to as a management letter.

Question 3

What does ISA 260 explain about matters to be communicated prior to the audit?

Answer 3

The auditor’s responsibilities, planned scope and timing of the audit, auditor declared independence and safeguards

These are essential elements to ensure transparency and clarity before the audit begins.

Question 4

What significant findings must be communicated as per ISA 260?

Answer 4

• Written representations requested by the auditor
• Auditor’s views on qualitative aspects of accounting practices
• Significant difficulties encountered during the audit
• Significant matters discussed with management
• Other significant matters affecting financial reporting oversight

These findings help maintain accountability in the financial reporting process.

Question 5

What does ISA 265 require regarding deficiencies in internal control?

Answer 5

The auditor must report deficiencies in writing to those charged with governance

This includes determining the significance of the deficiencies identified.

Question 6

How should significant deficiencies be communicated according to ISA 265?

Answer 6

In writing to those charged with governance

This ensures that the governing body is aware of critical issues in internal control.

Question 7

What action should be taken for other deficiencies as per ISA 265?

Answer 7

Communicated to management if deemed important enough

This approach ensures that management is informed about issues that may not be significant but still warrant attention.

Question 8

What should written communication about deficiencies include?

Answer 8

A description of the deficiencies and their potential effects

This detail is crucial for understanding the implications of the identified deficiencies.

Question 9

What factors might an auditor consider in determining whether deficiencies are significant?

Answer 9

• Likelihood of leading to material misstatements
• Susceptibility to loss or fraud
• Volume of activity exposed to the deficiency
• Frequency of the deficiency

These factors help assess the impact of the deficiencies on the financial reporting process.

Question 10

What is the first component of an auditor’s report?

Answer 10

Title

The title distinguishes the document from other information.

Question 11

Who is the addressee in an auditor’s report?

Answer 11

Members of the company

This section specifies to whom the report is addressed.

Question 12

What does the auditor’s opinion section express?

Answer 12

An opinion on the financial statements

This is the first opinion expressed in the report.

Question 13

What is detailed in the basis for opinion section?

Answer 13

Reasons and details surrounding the auditor’s opinion

This section supports the auditor’s opinion.

Question 14

What is discussed in the conclusions relating to going concern section?

Answer 14

Material uncertainties facing the company

This is required by ISA 570.

Question 15

What is the purpose of the emphasis of matter section?

Answer 15

To highlight fundamental issues disclosed in the notes to the accounts

Example: ‘We draw your attention to Note X…’

Question 16

What does the application of materiality section show?

Answer 16

The threshold applied and any judgements made in determining it

This section clarifies how materiality was approached.

Question 17

What significant matters are highlighted in the Our approach - Key audit matters section for listed companies?

Answer 17

Areas of high risk of material misstatement, areas requiring significant auditor judgement, effects of significant events or transactions

These matters provide transparency in the audit approach.

Question 18

What does the other information section discuss?

Answer 18

Auditor’s responsibilities for other information in financial reports

This includes consistency considerations.

Question 19

What does the opinion on other matters required by the Companies Act section confirm?

Answer 19

Whether the Directors Report and strategic report are consistent with the financial statements and the Companies Act

This is a requirement under the Companies Act.

Question 20

What must the auditor report on by exception according to the Companies Act?

Answer 20

If adequate accounting records have not been kept, not received all required information, returns from branches not visited, financial statements are not in agreement with records, certain disclosures regarding directors’ remuneration are missing, or material misstatements in reports

This ensures accountability and transparency.

Question 21

What are the responsibilities of directors for the financial statements?

Answer 21

To prepare the financial statements following applicable standards and correct going concern basis

This is a fundamental duty of the directors.

Question 22

What is the auditor’s responsibility for the audit?

Answer 22

To do a reasonable assurance engagement in accordance with ISAs

Additional details apply for companies under the UK Corporate Governance Code.

Question 23

What areas does the auditor consider most at risk of misstatement?

Answer 23

Areas that require significant auditor judgement and risks of material misstatement

This section addresses how these risks were managed.

Question 24

What must be disclosed in the other matters section?

Answer 24

Other matters required by law or standards

This ensures compliance with legal and regulatory frameworks.

Question 25

What information is included regarding the engagement partner?

Answer 25

Name and signature of the engagement partner ## Footnote This applies specifically to listed company audits.

Question 26

What is included at the end of an auditor's report?

Answer 26

Auditor’s address and date of the report ## Footnote This completes the formal documentation of the audit.

Question 27

True or False: Key Audit Matters are only relevant for unlisted entities.

Answer 27

False ## Footnote Key Audit Matters provide transparency for listed entities.

Question 28

Fill in the blank: The auditor highlights significant matters in the _______ section.

Answer 28

Our approach - Key audit matters

Question 29

modified audit opinion table

Answer 29

Question 30

What is the first step in addressing an auditor’s report question?

Answer 30

Identify the ‘issue’ ## Footnote This involves determining if there is a misstatement or a lack of sufficient appropriate audit evidence.

Question 31

What should be concluded and justified regarding a misstatement?

Answer 31

Whether it is material ## Footnote Materiality can be assessed using financial information, such as if it represents 7% of profit.

Question 32

What does determining if an issue is pervasive involve?

Answer 32

Assessing if it is isolated in the financial statements ## Footnote It is rare for issues to be pervasive and they can often be isolated to a few balances or classes of transactions.

Question 33

What is a key consideration when concluding on the impact on audit opinion?

Answer 33

Refer to the grid above – steps 1-3 result in which audit opinion? ## Footnote The conclusion on the audit opinion depends on the evaluations made in the previous steps.

Question 34

What should be considered regarding further impacts on the auditor’s report?

Answer 34

Further impacts may include: * Emphasis of matter (if opinion is unqualified) * MURGC (if opinion is unqualified) * Reporting by exception ## Footnote These considerations are typically rare.

Question 35

Fill in the blank: An issue can be isolated to a few balances or classes of transactions, such as a misstatement in _______.

Answer 35

non current assets ## Footnote A misstatement in non current assets may affect balance and depreciation, leading to multiple DR/CR entries.

Question 36

True or False: If something is immaterial, it can still be considered pervasive.

Answer 36

False ## Footnote If something is immaterial, it cannot be pervasive.

Question 37

What should an auditor include in the auditor’s report if they consider it necessary to draw users’ attention to a significant matter?

Answer 37

An ‘emphasis of matter’ paragraph ## Footnote This paragraph highlights matters that are fundamental to users’ understanding of the financial statements.

Question 38

What is the requirement for financial statements according to the auditor’s report?

Answer 38

The financial statements MUST show a true and fair view ## Footnote This is a fundamental principle in financial reporting.

Question 39

When should the emphasis of matter paragraph be included in the auditor’s report?

Answer 39

Immediately after the opinion on the financial statements paragraph ## Footnote This placement ensures clarity and relevance.

Question 40

What is an example of a situation where an emphasis of matter paragraph may be used?

Answer 40

To emphasise the disclosure note that the company is not a going concern ## Footnote This indicates potential issues with the company's financial viability.

Question 41

Fill in the blank: The emphasis of matter paragraph should state, 'Without qualifying our opinion we draw your attention to __________.'

Answer 41

[specific matter] ## Footnote This phrase introduces the specific issue being highlighted.

Question 42

What is another example of a matter that might require an emphasis of matter paragraph?

Answer 42

To emphasise a disclosure note surrounding unquantifiable litigation facing the company ## Footnote This highlights significant legal risks that could impact financial statements.

Question 43

auditors responsibilities relating to other information

Answer 43