Chapter 12 Flashcards
(33 cards)
What opinion on the audit report if the financial statements had the wrong basis and director refused to change?
Adverse Opinion
Pervasive misstatement
What opinion on the audit report if the financial statements had the correct basis but the wrong disclosure?
Qualified opinion
Material misstatement
Potential adverse if no disclosure exists
What opinion on the audit report if the financial statements had the correct basis and the correct disclosure?
Unmodified opinion
Include emphasis of matter paragraph
Audit completion - Comparatives ISA 710
- Accounting policies consistent
- Free from error
- Any changes adequately disclosed
What basis does the company use if can continue for the foreseeable future?
Going concern basis
What basis does the company use if cannot continue for the foreseeable future?
Break-up basis
Going concern review ISA 570 - Procedures
- Analyse and discuss cash flow forecasts
- Analyse and discuss interim F/S
- Read board minutes
- Enquire about litigation claims
- Assess company’s ability to raise finance
Subsequent events ISA 560
Anything between YE and accounts signed
What duty does the auditor hold in between the YE and the auditor’s report issued?
Active duty
To consider the impact of subsequent events and compliance with IAS 10.
What duty does the auditor hold in between the the auditor’s report issued and the AGM?
Passive duty
No active duty but if something does come to attention:
- discuss with management
- revise auditor’s report (modify or new date)
What is an adjusting impact?
Dr / Cr
What is a non-adjusting impact?
Disclosure e.g warehouse burnt down
Would become adjusting if creates going concern
What is the going concern basis?
If the business can carry on 12 months after
When it comes to the going concern review what is the managements responsibility?
- Prepare the F/S on the correct basis
- Review company’s ability to continue
- Disclose companies going concern status
When it comes to the going concern review what is the auditors responsibility?
- Evaluate management assessment
- Get sufficient and appropriate evidence
- Assess disclosures
- Determine implications on the auditor’s report
What happens if they aren’t certain if they are going concern?
Prepare the F/S under the going concern basis.
Include a Material Uncertainty of going concern paragraph (MURG)
Audit Completion - Evaluating the effect of material misstatement ISA 450
Auditor must consider:
- Effect of identified misstatements
- Effect of accumulated uncorrected misstatements
ISA 450 distinguishes between:
1) Factual misstatements - about which is no doubt
2) Judgemental misstatements - being unreasonable management judgements concerning estimates
3) Projected misstatements - being the results of extrapolated misstatements through the population
What is an extrapolation misstatement?
When you test a sample with a result of a 10% error which is projected to mean 10% of all is wrong.
What is the Written Representation ISA 580?
- Supports other audit evidence
- Auditor drafts
- Directors sign
- Date after all audit work gathered and prior to auditor’s report
What are examples of what is included in the Matters of management judgement?
Shows estimates they’ve included e.g
- Depreciation
- Warranty estimates
- NRV of inventory
What are examples of what is included in the Matters of management intention?
Shows they have told us everything about:
- Related party transactions
- Subsequent events
- Going concern status
What is the purpose of a written representation?
Is a letter from the director to the auditor listing stuff that is confided to management e.g related party transactions
What must the management confirm within the written representation?
- Their responsibility to prepare the financial statements
- They have provided all relevant information to the auditor
- That all transactions are recorded in the financial statements
