Seminar questions chapter 12 and 14
Seminar Auditing (FEM71001)
Erasmus Universiteit Rotterdam
Aanbevolen voor jou
Reacties
Gerelateerde Studylists
auditing seminarPreview tekst
Chapter 12
12–3 What elements make up an audit report? Briefly discuss each (12)
Eg= for example page 463 for more explanation of each thing
The auditor’s report include the following basic elements: ■ A title, e. ‘Independent Auditor’s Report’. ■ An addressee, as required by the circumstances of the engagement, e. ‘Shareholders of ABC company’. ■ An introductory paragraph that identifies the financial statements audited. ■ A description of the responsibility of management for the preparation of the financial statements. ■ A description of the auditor’s responsibility to express an opinion on the financial statements and the scope of the audit, which includes: – A reference to International Standards on Auditing and the law or regulation; and – A description of an audit in accordance with those standards.
■ An opinion paragraph containing an expression of opinion on the financial statements and a reference to the applicable financial reporting framework used to prepare the financial statements (including identifying the jurisdiction of origin of the financial reporting framework that is not International Financial Reporting Standards or International Public Sector Accounting Standards). ■ The auditor’s signature. ■ The date of the auditor’s report. ■ The auditor’s address.
12–6 There are the four different opinions an auditor can issue. Briefly discuss each and the requirements to give that opinion. (12)
- Unmodified (Unqualified) opinion – An audit opinion expressed when the auditor concludes that the financial statements give a true and fair view (or are presented fairly, in all material respects) in accordance with the identified financial reporting framework.
The auditor’s unmodified report should be expressed when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the identified financial reporting framework.
Requirements: the auditor shall conclude as to whether he has obtained reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. That conclusion shall consider whether sufficient appropriate audit evidence has been obtained, if uncorrected misstatements are material, individually or in aggregate the auditor must evaluate whether the financial statements adequately disclose the significant accounting policies selected and they are consistent and appropriate; the auditor must evaluate accounting estimates made by management are reasonable; the auditor must evaluate information presented in the financial statements is relevant, reliable, comparable and understandable;
the auditor must evaluate disclosures to enable the intended users to understand the effect of material transactions and events on the information conveyed in the financial statements; and the auditor must evaluate terminology (word-gebruik) used in the financial statements, including the title of each financial statement, is appropriate.
- Qualified opinion – A qualified opinion is expressed when the auditor concludes that an unqualified opinion cannot be expressed but that the effect of any disagreement with management, or limitation on scope, is not so material and pervasive as to require an adverse opinion or a disclaimer of opinion
The auditor will express a qualified opinion when having obtained sufficient appropriate audit evidence, the auditor concludes that misstatements, individually or in the aggregate, are material, but not pervasive, to the financial statements; the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, but the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be material but not pervasive.
Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. materiality provides a threshold or cut-off point rather than being a primary qualitative characteristic which information must have if it is to be useful
Pervasive is a term used to describe the effects on the financial statements of misstatements or the possible effects on the financial statements of misstatements that are undetected due to an inability to obtain sufficient appropriate audit evidence. Pervasive effects on the financial statements are those that, in the auditor’s judgement: ■ are not confined (beperkt) 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. (BLZ 470)
What is de difference between material and pervasive?? In simple words pervasive effects relates to the scope of the effect which reflects the wide spread effect of misstatement
For example, cash embezzlement (verduistering= zwart maken van geld) by cashier is discovered. This fraud be material in nature but it will hardly be pervasive whereas if the same embezzlement is discovered in relation to key personnel in the management then it is bound to have pervasive effect as many other assertions might also be misstated.
- Adverse opinion – An adverse opinion is expressed when the effect of a disagreement is so material and pervasive to the financial statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements.
The auditor shall express an adverse opinion when the auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements.
12–23 Unmodified (Unqualified) Audit Report.(12)
Upon completion of all fieldwork on 23 September 20X1, the following audit report was rendered by Alexander Dlouhy, Auditor, to the directors of Rabochaya Raum Company of Docesky, the Czech Republic.
To the Directors of the Rabochaya Raum Company: We have examined the balance sheet and the related statement of income and retained earnings of the Rabochaya Raum Company as of 31 July 20X1. In accordance with your instructions, a complete audit was conducted.
In many respects, this was an unusual year for the Rabochaya Raum Company. The weakening of the economy in the early part of the year and the strike (staking) of plant employees in the summer of 20X1 led to a decline in sales and net income. After making several tests of sales records, nothing came to our attention that would indicate that sales have not been properly recorded.
In our opinion, with the explanation given above, and with the exception of some minor errors that are considered immaterial, the aforementioned financial statements present fairly the financial position of the Rabochaya Raum Company at 31 July 20X1, and the results of its operations for the year then ended, in conformity (overeenstemming )with pronouncements ((statements) of International Accounting Standards Committee applied consistently throughout the period.
Alexander Dlouhy, Auditor 23 September 20X
Required: List and explain the deficiencies (zwakheden) and omissions (neglect) in the auditor’s report. Organise your answer sheet by section (introduction, management’s responsibility, auditor’s responsibility and opinion) of the auditor’s report.
Answer: (zie blz 462 voor voorbeeld)
To the Directors of the Rabochaya Raum Company: We have examined the balance sheet and the related statement of income and retained earnings of the Rabochaya Raum Company as of 31 July 20X1. In accordance with your instructions, a complete audit was conducted.
Introduction:
(Omission= weg gelaten)
no title= omission/ negligence, (should have been for example ‘ (independent) auditors report’
paragraphs have no titles, = omission/ negligence
the introduction should be named for example “report on financial statements”
the introduction should contain details on:
-entity whose financial statements that have been audited. name of the entity and the date and period covered by the financial statements. = correct except for period is not given, the date is given but the year (period) that is audited should be explicitly stated = omission/ negligence
-The report should state that the financial statements have been audited, identifying the title of each statement that comprises the financial statements. = not correct= deficiency
- it should be something like, for example:
we have audited the financial statements of 20xx of rabochaya company, which comprise the consolidated and company statement of financial position as at 31 july 20x1, the consolidated and company profit and loss account for the year then ended and the notes , comprising a summary of the significant accounting policies and other explanatory information
The report should also refer to the summary of significant accounting policies and other explanatory information = deficiency, In accordance with your instructions, a complete audit was conducted= this is unclear
Managements responsibility:
-no title: omission, should have been ‘managements responsibility’
- nothing written about managements responsibility
-paragraph on management responsibility: describes the responsibilities of those in the organisation that are responsible for the preparation of the financial statements.
The auditor’s report must describe management’s responsibility for the preparation of the financial statements. The description shall include an explanation that management is responsible for the preparation of the financial statements in accordance with the applicable financial reporting framework, and for internal control to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
-should have been voorbeeld: Management is responsible for the preparation and fair presentation of these financial statements and for the preparation of the management board report, both in accordance with the civil code of the Czech Republic. Furthermore, management is responsible for
-there is a deficiency in the signature, first the place and date should be written down, afterwards the name and the audit firm should written down. At last, the name of the external auditor and the signature have to be written down
( - niet zeker, paragraphs on Report on other legal and regulatory requirement missing= omission, )
Chapter 14
14–1 What are auditor services? List the major categories (except for consulting) of auditor’s services (14)
Auditor services are work that an audit firm performs for their clients. Except for consulting services, the work that auditors do for their clients falls under the guidance of engagement standards set by the International Auditing and Assurance Standards Board (IAASB) (blz 572)
assurance engagements related services engagements
Assurance engagement – Means an engagement in which a practitioner expresses a conclusion that is designed to enhance the degree of confidence intended users can have about the evaluation or measurement of a subject matter, which is the responsibility of a party other than the intended users or the practitioner, against criteria.
Related services – Related services comprise reviews, agreed-upon procedures and compilations.
14–6 Describe what is meant by ‘prospective financial information’. Give some examples of when a prospective financial information report might be used. (14)
‘Prospective financial information’ means financial information based on assumptions about events that may occur in the future. Prospective financial information can be in the form of a forecast, a projection or a combination of both.
Examples: sales forecast of, for example, a concert. If a certain concert is sold out every year, you can forecast the revenue you will make.
Extra:
A ‘forecast’ is prospective financial information prepared on the basis of management’s assumptions as to future events (best-estimate assumptions).
A ‘projection’ means prospective financial information prepared on the basis of hypothetical assumptions about future events and management actions which may or may not take place, such as a possible merger of two companies. A projection is a ‘what-if’ scenario.
14–13 Da Xing Fan, CPA, is engaged by the management of Ky-lin, a non-public company, to review the company’s financial statements for the year ended 28 February 20XX. (14)
Required: A. Discuss the content of the report on a review of financial statements. B. Summarise Fan’s responsibilities if she finds the financial statements contain a material departure from IFRS. (14)
Answer:
A) Discuss the content of the report on a review of financial statements.
The report on a review of financial statements should contain the following basic elements: (BLZ 580)
(a) Title. (b) Addressee. (c) Opening or introductory paragraph including:
(i) identification of the financial statements on which the review has been performed; and (ii) a statement of the responsibility of the entity’s management and the responsibility of the auditor.
(d) Scope paragraph, describing the nature of a review, including:
(i) a reference to this ISRE applicable to review engagements, or to relevant national standards or practices; (ii) a statement that a review is limited primarily to inquiries and analytical procedures; and (iii) a statement that an audit has not been performed, that the procedures undertaken provide less assurance than an audit, and that an audit opinion is not expressed.
(e) Statement of negative assurance. (f) Date of the report. (g) Practitioner’s address. (h) Practitioner’s signature.
Extra:
Review of financial statements – The objective of a review of financial statements engagement is to enable an auditor to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the auditor’s attention that causes the auditor to believe that the financial statements are not prepared, in all material respects, in accordance with an identified financial reporting framework.
Difference: Where reviews of financial statements differ most from a financial statement audit is that in a review report engagement only limited procedures are performed (primarily inquiry of management and analytical procedures). (chapter 4 I think)
Inquiry consists of seeking information of knowledgeable persons inside or outside the entity. Analytical procedures (discussed in Chapter 8) consist of the analysis of significant ratios and trends including the resulting investigation of fluctuations and relationships that are inconsistent with other relevant information or deviate from predictable amounts. Inspection (discussed in Chapter 10), which consists of examining records, documents, or tangible assets, is carried out on a limited basis.
D. Unaudited financial statements for a public company were accompanied by the following letter of transmittal from Franz Ravel, Expert Comptable: To determine appropriate account classification, Jose Torres, CP Titulado, examined a number of the client’s invoices. He noted in his working papers that some invoices were missing, but did nothing further because it was felt that the invoices did not affect the unaudited financial statements he was compiling. When the client subsequently discovered that invoices were missing, he contended that the Torres should not have ignored the missing invoices when compiling the financial statements and had a responsibility to at least inform him that they were missing.
if information is inappropriate, discuss with management
E. Omar El Qasaria, CA, compiled a draft of unaudited financial statements from the client’s records. While reviewing this draft with his client, El Qasaria learnt that the land and building were recorded at appraisal (estimated) value.
Answer: The audit form should inform the management. However, the services only involves compilation (no-assurance).
Ask management how land and building should normally be recorded, ( at cost?)
F. Tomoko Nakagawa, CPA, is engaged to compile the financial statements of a nonpublic company. During the engagement, Nakagawa learns of several items for which IFRS would require adjustments of the statements and note disclosure. The controller agrees to make the recommended adjustments to the statements but says that she is not going to add the notes because the statements are unaudited. (14)
Answer: It is not an issue at all because the financial information contains the correct amount it is only missing the disclosure
Seminar questions chapter 12 and 14
Vak: Seminar Auditing (FEM71001)
Universiteit: Erasmus Universiteit Rotterdam
- Ontdek meer van:
