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Forming and Reporting the Audit Opinion (Evaluating Misstatements…
Forming and Reporting the Audit Opinion
Evaluating Misstatements
Misstatements, including omissions, are considered to be material if,
individually
or in the
aggregate
, they could reasonably be expected to influence the economic decisions of the users
A misstatement can be be judged to be material due to its
size or nature
Misstatements can occur as a result of either
fraud or error
Communication
Correction of misstatements
(management)
ISA 450 requires the auditor to:
communicate on a timely basis all misstatements to management
request management to correct those misstatements
Not the responsibility of the auditor to correct the financial statements
If management refuse to correct misstatements:
obtain reasons
request a written representation from management (if errors are not material)
Uncorrected misstatements
ISA 450 requires the auditor to:
reassess materiality determined
determine whether uncorrected misstatements are material, individually or in aggregate
Finalisation Procedures
:Star:
ISA 520 - Analytical Procedures
Analytical Procedures have a role at three different stages of an audit:
Mandatory
when carrying out
risk assessment
procedures :check:
Are applicable, but
not mandatory
, as a substantive test when the auditor is
obtaining audit evidence
:warning:
Mandatory
near
end of the Audit
:check:
Further analytical procedures near the end of the audit are more high level view and looks at the overall soundness of the financial statements :eyes:
Three Purposes of Analytical Procedures:
1. Preliminary Analytical Procedures
Helps the auditor better understand the business and assist with the planning of the nature, timing, and extent of audit procedures
2. Substantive Analytical Procedures
Auditor obtains evidence from assertions
3. Final Analytical Procedures
Provides an overall review of financial information during the final stages of an audit
:Star:
ISA 560 - Subsequent Events
Events occurring and facts discovered between the period end and the date the financial statements are authorised for issue
Timing is crucial!
Before Auditors Report
Adjustments can be made
After Auditors Report but before the Financial Statements are issued
Issue a new or modify audit opinion
After the Financial Statements have been issued
Management re-issue's Financial Statements = a new audit opinion
Seek Legal advice if auditor not satisfied
:Star:
ISA 570 - Going Concern Review
Provides procedures to determine whether there is significant material uncertainty about the ability of the organisation to continue as a going concern
Entity can continue for the foreseeable future to be a period of 12 months from the entity’s reporting date :smiley:
Supervisory review of Audit Evidence
performed by a senior member of the audit team or audit engagement partner from the firm
Review consists of:
Work as performed in accordance with professional standards
Matters have been raised for further consideration
Consultations have taken place and have been documented
Work performed supports the conclusions reached and appropriately documented
Evidence obtained is sufficient and appropriate
Formal audit report issued after review has been completed :check:
Forming the Audit Opinion
Financial Statements...:
free from material misstatement
give a true and fair view
prepared in accordance with the framework
whether uncorrected misstatements are material, individually or in aggregate
Auditors Report
Must contain :check:
Title
Who the report is addressed to
Responsibilities of TCWG
Responsibilities of the auditor
Scope of the audit
Auditor's opinion
Date of report
Location of the Auditor's office
Auditor's signature
Auditor's Opinion
Unmodified
:smiley:
No Errors = True & Fair view
Unqualified Opinion
Emphasis of matter
:warning:
Could modify with an emphasis of matter paragraph for significant event
(i.e. uncertainty relating to the future outcome)
Modified Opinion
:warning:
Auditor
cannot
affirm that the accounts are true and fair
Not free from material misstatement
Unable to obtain sufficient audit evidence
Auditor
unable to obtain sufficient appropriate evidence
?
Material
and
Pervasive
Disclaimer
Cannot obtain evidence
Material but
not
Pervasive
Qualified Opinion
"Except for"
Financial Statements
materially misstated
?
Material but
not
Pervasive
Qualified Opinion
"Except for"
Material
and
Pervasive
Adverse Opinion
Pervasive
= completely mislead users :angry:
