Chapter 6: Section 2

Question 1

Once all completion procedure have been satisfactorily addressed, what should the auditor have?

Answer 1

All evidence required to reach the necessary conclusions for the audit opinion

Question 2

What does the auditor have to make sure are completely discharged?

Answer 2

Both legal and best practice responsibilities

Question 3

What does the auditor have to do in order to completely discharge both legal and best practice responsibilities?

Answer 3

Now has a number of reporting tasks to complete.

Question 4

What are the 3 reporting tasks the auditor has to complete to completely discharge both legal and best practice responsibilities and what ISAs they belong to?

Answer 4

1. Ensuring that all material and significant errors, deficiencies or other variations from standard are reported internally within the firm (ISA 450)
2. Ensuring that such findings are reported to those charged with governance within the entity (ISAs 260 and 265)
3. Ensuring that the shareholders are given the most appropriate audit report that reflects the auditor’s experience (ISAs 700, 705 and 706)

Question 5

What is almost inevitable during the course of the audit?

Answer 5

Number of misstatements will be uncovered, some of them material, others clearly trivial

Question 6

In regard to misstatements, what does the auditor need guidance about?

Answer 6

Needs guidance to ensure all such misstatements are both identified and recorded and that the most appropriate action is taken as a result

Question 7

What must auditors do with misstatements in regards to their record and give the exception for this?

Answer 7

Auditor must maintain a record of all identified misstatements (except those that are clearly trivial).

Question 8

What must the auditor do with misstatements as part of completion procedures?

Answer 8

Must evaluate the effect of identified misstatements on the audit and effect of uncorrected misstatements on the financial statements

Question 9

What give guidance on the evaluation of misstatements?

Answer 9

ISA 450 Evaluation of Misstatements Identified During the Audit

Question 10

According to ISA 450, the auditor must consider if the audit strategy and plan need revision if what?

Answer 10

1) The nature and circumstances of identified misstatements indicate that other unidentified misstatements exist, the combined total of which might be material

2) The aggregate of identified misstatements approaches the materiality level set by the auditors during planning (ISA 450: para. 6)

Question 11

What must auditors relay to management in regard to misstatements?

Answer 11

Make aware of identified misstatements and request they are adjusted

Question 12

What must auditors do if management refuse to adjust identified misstatements?

Answer 12

Auditors should take their reasons into account when evaluating if the financial statements as a whole are free from material misstatement

Question 13

Before assessing the effect uncorrected misstatements have on the financial statements, what must the auditor do?
What is the step after that?

Answer 13

Reconfirm the materiality level remains appropriate
Should then determine whether the aggregate of the uncorrected misstatements is material

Question 14

Who should auditors communicate uncorrected misstatements to?

Answer 14

Those charged with governance (listed individually)

Question 15

After communicating uncorrected misstatements to those charged with governance, what should auditors obain?

Answer 15

Obtain a written representation from management and, where appropriate, from those charged with governance about, whether they believe the uncorrected misstatements to be immaterial

Question 16

In addition to the list of uncorrected misstatements, what else should the auditor document?

Answer 16

The level below which items will be considered trivial and the auditor’s conclusion as to whether uncorrected misstatements are material, and the reasons for that conclusion (ISA 450: paras 7 to 15)

Question 17

What is ISA 260 about?

Answer 17

Communication with Those Charged with Governance

Question 18

Define ‘those charged with governance’

Answer 18

Directors of a company who are responsible for managing the company on behalf of the shareholders

Question 19

What does the auditor complete the reporting task by doing?

Answer 19

Informing those charged with governance at the entity who have a right to such information of any uncorrected misstatements and their impact on the financial statements, requesting formal acknowledgement that they accept these misstatements and believe them to be immaterial to the financial statements

Question 20

What will the auditor also report to those charged with governance as well as informing of uncorrected misstatements etc?

Answer 20

Also report any other issues that may have been discovered during the audit (such as availability of information or any delays in providing necessary audit evidence)

Question 21

What does the acknowledgement coming from those charged with governance come as part of?

Answer 21

Written representation under ISA 580 Written Representation

Question 22

What is those charged with
governance’s acknowledgement added to?

Answer 22

Auditor’s documentation which lists all such misstatements as one of 3 things

Question 23

What are 3 things misstatements could be listed as in auditor’s documentation under ISA 580: Appendix 2)?

Answer 23

1) Clearly trivial, as they fall below a threshold specified by the auditor

2) Those that have been identified and corrected during the course of the audit

3) Uncorrected misstatements, along with the auditor’s conclusion as to whether they are material or not

Question 24

What is ISA 265 about?

Answer 24

Communicating Deficiencies in Internal Control to Those Charged with Governance and Management

Question 25

Define 'deficiency in internal control'.

Answer 25

When a control is designed, implemented or operated in such a way that it is unable to prevent, or detect and correct, misstatements, in the financial statements on a timely basis, or a necessary control is missing (ISA 265: para 6 (a))

Question 26

What does ISA 265, paras 7-9 say about finding deficiencies in internal control?

Answer 26

Auditor shall determine whether, on basis of audit work performed, auditor has identified one or more deficiencies in internal control. If auditor has identified one or more deficiencies in internal control, auditor shall determine, on basis of audit work performed, whether, individually or in combination, they constitute significant deficiencies. Auditor shall communicate in writing significant deficiencies in internal control identified during the audit to those charged with governance on a timely basis

Question 27

How does an auditor determine if deficiencies are significant?

Answer 27

Auditor's judgement is called into question here to determine what merits 'significant'

Question 28

What will the process of communicating significant deficiencies to those charged with governance include?

Answer 28

Non-executive directors who represent shareholders

Question 29

What does IA 265: para. 10 say about communication with management?

Answer 29

Auditor shall also communicate to management at an appropriate level of responsibility on a timely basis: a) In writing, significant deficiencies in internal control that the auditor has communicated or intends to communicate to those charged with governance, unless it would be inappropriate to communicate directly to management in the circumstances b) Other deficiencies in internal control identified during the audit that have not been communicated to management by other parties and that, in the auditor's professional judgement, are of sufficient importance to merit management's attention

Question 30

When writing to management what could the audit suspect? What could this mean is breached?

Answer 30

Auditor may suspect that members of management may be involved in fraud. Reporting would technically be in line with ISA 265: para. 10 but might breach certain criminal protocols (such as 'tipping' off when dealing with money laundering)

Question 31

In part b) of ISA 265: para. 10 on communicating to management, who might other parties involved here include and why?

Answer 31

Internal auditors or regulators, allowing the external auditor to inform management of their findings

Question 32

What does ISA 265: para.11 say the 2 things that should be included in the written communication of significant deficiencies in internal control are?

Answer 32

a) Description of the deficiencies and an explanation of their potential effects b) Sufficient info to enable those charged with governance and management to understand the context of the communication

Question 33

In point b) of what should be included in written communication of significant deficiencies in internal control, what, in particular, should the auditor explain?

Answer 33

(i) Purpose of the audit was for the auditor to express an opinion on the financial statements (ii) The audit included consideration of internal control relevant to the preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control (iii) The matters being reported are limited to those deficiencies that the auditor has identified during the audit and that the auditor has concluded are of sufficient importance to merit being reported to those charged with governance

Question 34

What does significant mean when referring to significant deficiencies as per ISA 265: para. 6 (b)?

Answer 34

Significant mean 'in the auditor's opinion, matters that warrant the attention of those charged with governance