Question: Write an essay on Audit Opinion & Audit Report. Explain FORMING AN OPINION AND REPORTING ON FINANCIAL STATEMENTS. (Advanced Audit and Assurance)
Write an essay on Audit Opinion & Audit Report. Explain FORMING AN OPINION AND REPORTING ON FINANCIAL STATEMENTS. (Advanced Audit and Assurance)
Step by Step Solution
There are 3 Steps involved in it
The detailed answer for the above question is provided below Audit Opinion Audit Report Misstatements in the FS 1 Communicate to management and ask them to adjust 2 If they refuse obtain an understanding of reasons for their refusal to adjust 3 Communicate to TCWG 4 If still uncorrected opinion might be affected of they are material can be material individually or in aggregate 5 For listed client QCR before issuing the audit report a The reviewer will review the FS the proposed audit report and the working papers b He will ensure adequate documentation for any judgments made by the auditor in making the opinion c He will ensure adequate communication has been done with TCWG Emphasis of matter paragraph EOMP A paragraph included in the auditors report that refers to a matter appropriately presented or disclosed in the financial statements that in the auditors judgment is of such importance that it is fundamental to users understanding of the financial statements Circumstances where EOMP may be necessary An uncertainty relating to the future outcome of exceptional litigation or regulatory action Contingent liability disclosure To highlight a correctly given disclosure regarding the fact that the FS have been made on an alternate break up basis Early application where permitted of a new accounting standard that has a material effect on the financial statements Other Matter ParagraphOMP A paragraph included in the auditors report that refers to a matter other than those presented or disclosed in the financial statements that in the auditors judgment is relevant to users understanding of the audit the auditors responsibilities or the auditors report Examples of circumstances in which an Other Matter Paragraph may be necessary Prior Period Financial Statements Audited by a Predecessor Auditor Prior Period Financial Statements Not Audited Auditors report on FS prepared in accordance with a fair presentation framework 1 Title 2 Addressee 3 Opinion 4 Basis for opinion 5 Key Audit Matters 6 Other information in the document containing the FS 7 Responsibilities of management TCWG 8 Auditors responsibilities for audit of FS 9 Report on other legal and regulatory requirements 10 Engagement partners name 11 Signatures 12 Auditors address 13 Date Impact of various issues on the audit report 1 Title 2 Addressee 3 Opinion If modified heading changes to name of modified opinion wording of opinion changes 4 Basis for opinionIf modified heading changes to Basis for QualifiedAdverseDisclaimer need to explain nature amount impact of issue and the relevant accounting standard 5 If needed Material uncertainty re going concern paragraph will be placed here 6Key Audit Matters 7 If needed EOMP can be placed either here or before KAM 8 If needed OMP will be placed here 9 Other information in the document containing the FS any uncorrected inconsistencies in other information will be explained here This paragraph will then be moved from here to underneath the Basis for opinion paragraph 10 Responsibilities of management TCWG 11 Auditors responsibilities for audit of FS 12 Report on other legal and regulatory requirements 13 Engagement partners name 14 Signatures 15 Auditors address 16 Date Questions in AAA where you are asked to critically evaluate the extract of an audit report Is the type of opin ion correct Opinion and Basis for opinion para headings correct Placement of Opinion and Basis for opinion correct Basis for opinion All FOUR of these mentionedNature amount impact ifrs Additional Paras needed If yes placement correct KAM Do matters identified as KAM actually fulfill the criteria of being called KAM Introduction proper ie to explain the concept of KAM etc Significance of issues identified as KAM and how these affected auditors efforts explained How each KAM was addressed in the audit explained Placement of the paragraph correct 7Unprofessional wording Applied to a past exam question MJ 2018 Blackmore Is the type of opin ion correct Yes Qualified Except for is correct as material 13 of loss 2 of Total Assets Opinion and Basis for opinion para headings correct NO Heading of opinion paragraph should be Qualified Opinion Instead of Customer Liquidation the heading should be Basis of Qualified Opinion Placement of Opinion and Basis for opinion correct NO Opinion para comes BEFORE basis for opinion para Basis for opinion All FOUR of these mentionedNature amount impact ifrs IFRS name not mentioned Additional Paras needed If yes placement correct EOMP not needed Should have the Material Uncertainty re Going Concern Para instead KAM Do matters identified as KAM actually fulfill the criteria of being called KAM Yes as judgment and high risk Introduction proper ie to explain the concept of KAM etc Not done Significance of issues identified as KAM and how these affected auditors efforts explained Not done How each KAM was addressed in the audit explained Not done Placement of the paragraph correct No Cannot come above the opinion paragraph Unprofessional wording Yes Why is the finance directors name being used Why is his inexperience mentioned Questions on audit reports in Paper THE ADVANCED AUDIT ASSURANCE EXAM typically fall into two distinct types critical appraisal of an audit report that has already been written or explanation of how matters will affect an audit opinion Form of opinion Unmodified opinion The auditor shall express an unmodified opinion when the auditor concludes that the financial statements are prepared in all material respects in accordance with the applicable financial reporting framework Modified opinion If the auditor a concludes that based on the audit evidence obtained the financial statements as a whole are not free from material misstatement or is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement the auditor shall modify the opinion in the auditors report in accordance with ISA 705 Revised Key terms Inability to obtain appropriate and sufficient evidence The auditor cannot obtain sufficient appropriate audit evidence on which to base the opinion The auditors inability to obtain sufficient appropriate audit evidence is also referred to as a limitation on the scope of the audit and could arise from Circumstances beyond the entitys control eg accounting records destroyed Circumstances relating to the nature or timing of the auditors work eg the timing of the auditors appointment prevents the observation of the physical inventory count Limitations imposed by management eg management prevents the auditor from requesting external confirmation of specific account balances Pervasiveness Pervasive A term used in the context of misstatements to describe the effects on the financial statements of misstatements or the possible effects on the financial statements of misstatements if any that are undetected due to an inability to obtain sufficient appropriate audit evidence Pervasive effects on the financial statements are those that in the auditors judgment Are not confined to specific elements accounts or items of the financial statements If so confined represent or could represent a substantial proportion of the financial statements or In relation to disclosures are fundamental to users understanding of the financial statements Pervasiveness is a matter that confuses many candidates as once again it is a matter that requires professional judgment In this case the judgment is whether the matter is isolated to specific components of the financial statements or whether the matter pervades many elements of the financial statements rendering them unreliable as a whole The bottom line is that if the auditor believes that the financial statements may be relied upon in some part for decision making then the matter is material and not pervasive If however they believe the financial statements should not be relied upon at all for making decisions then the matter is pervasive Material misstatement of the financial statements They may arise in relation to The appropriateness of the selected accounting policies For example the valuation of inventories at cost instead of the lower of cost or net realisable value as prescribed by IAS 2 Inventories The application of the selected accounting policies For example the valuation of noncurrent assets is done using the cost model for one financial year and in the next year the same assets are valued using the revaluation model Furthermore during the third year the cost model is adopted to value the same noncurrent assets The appropriateness or adequacy of disclosures in the financial statements For example the financial statements of a manufacturing company prepared under IFRS do not include all of the disclosures relating to revenue recognition and noncurrent assets The auditor shall form an opinion on whether the financial statements are prepared in all material respects in accordance with the applicable financial reporting framework In particular the auditor shall evaluate whether in view of the requirements of the applicable financial reporting framework The financial statements adequately disclose the significant accounting policies selected and applied The accounting policies selected and applied are consistent with the applicable financial reporting framework and are appropriate The accounting estimates made by management are reasonable The information presented in the financial statements is relevant reliable comparable and understandable The financial statements provide adequate disclosures to enable the intended users to understand ... View full answer
Get step-by-step solutions from verified subject matter experts
Study Help