When an auditor is ready to form an opinion, what must they consider?
- Whether sufficient appropriate audit evidence has been obtained
- Whether uncorrected misstatements are material
Basic elements of the auditor’s report
a) Title
b) Addressee
c) Auditor’s opinion
d) Basis for opinion
e) Going concern
f) Date of the auditor’s report
g) Auditor’s address
h) Signature of the auditor
i) name of audit engagement partner
j) other matter paragraph
k) Key audit matters
l) responsibilities for the financial statements
m) emphasis of matter paragraph
n) auditor’s responsibilities for the audit of the financial statements
Unmodified opinion
an unmodified opinion is the opinion expressed by the auditor when the auditor concludes that the FS are prepared, in all material aspects in accordance with the applicable financial reporting framework
When should an auditor modify their opinion?
if the auditor concludes that the FS as a whole are not free from material misstatement or cannot obtain sufficient appropriate audit evidence to make this conclusion, the auditor must modify the opinion in accordance with ISA 705 (Modifications to the Opinion in the Independent Auditor’s Report)
What are KAM’s (Key Audit Mattes)
those matters that, in the auditor’s professional judgment, were of most significance in the audit of the FS of the current period. Key audit matters are selected from matters communicated with those charged with governance
Examples of key audit matters include:
- The effect on the audit of significant events or transactions that occurred during the period of eg the acquisition of a subsidiary
- Areas where the risk of material misstatement has been assessed as high at the planning stage for eg. complex accounting transactions
- Areas of the FS where management have had to exercise significant judgment for eg. asset valuations or accounting estimates where there is a high level of uncertainty
Where is the communication of KAM’s only relevant?
It is only relevant to the audit of listed entities
Examples of KAM’s
areas where the risk of material misstatement has been assessed on high at the planning stage eg. complex accounting transactions
areas in the FS where management had to exercise significant judgement eg. asset valuations/accounting estimates
effect on the audit of significant events or transactions that occurred during the period eg. the acquisition of a subsidiary
Do KAM’s only relate to matters which are already included in the FS?
Yes
What is a modified opinion in audit?
A modified opinion in an audit is an auditor’s opinion indicating that the financial statements are not completely free from material misstatement or there is some limitation in the scope of the audit
What are the two levels of modified opinion?
material but pervasive (there was a material misstatement but it only affects one part of the FS)
material and pervasive ( the whole FS is misleading)
What opinion is given if material but not pervasive due to insufficient appropriate evidence?
Qualified opinion ‘except for’
What opinion is given if materail and pervasive
Explain the purpose of written representations
Written representations are audit evidence obtained from management in written form, confirming responsibilities and specific assertions to the financial statements. It’s purpose is to
1. Acknowledge management responsibilities
2. Provide evidence about matters that are not otherwise easily verifiable
3. Document oral representations made during the audit
4. Reduce misunderstandings between auditor and management
Procedures for obtaining written representations
1.
Do KAM’s constitute a modification of the report or of the opinion?
No
Is a separate audit opinion issued in relation to each KAM ?
No
What is an emphasis of matter paragraph?
a paragraph included in the auditor’s report that refers to a matter appropriately presented or disclosed in the FS that in the auditor’s judgment is of such importance that it is fundamental to users’ understanding of the FS
list the audit procedures that can be used prior to the auditor’s report being signed to identify events that may require adjustment or disclosure in the FS
Review the procedures management has established to ensure that subsequent events are identified
Read board minutes held after the date of the FS up to the date of signing the auditor’s report
Read the entity’s latest available interim FS, budgets and cash flow forecasts
Enquire of management as to whether any subsequent events have occurred which might affects the FS
Obtain written representation as to the completeness of subsequent events identified by mgmt.
Enquire or extend previous oral or written enquiries of the entity’s legal counsel concerning litigation and claims
