Beruflich Dokumente
Kultur Dokumente
Risk: Audit Procedures When Audit Testing / Audit Evidence When Reviewing
Enquiry Assets
<Written Representation, Board Minutes> <Physical, Intangibles>
Audit Report:
Structure of an Audit Report: Matters in an Audit Report (Criticism): Audit Report Outcomes:
TAOBMEKOORAD Availability, Relevance, Comparability, Under stability
ISA Material Pervasive Other Outcome
- Title/Headings 560 Yes No When there is material Material
- Structure uncertainty
uncertainty over the
<Correct place of Audit Report components> regarding
- Opinion correctness
entity’s going concern
going
- Basis Paragraph concern
Lack of Explanation of 700 No No Something or Nothing Standard
what’s IFRS breached
Report
Lack of Amounts
Lack of Impact Analysis NEW Yes Significant Significant Matters to To be
Why is materiality mention? 701 Matter the Audit and Auditors presented
- Material uncertainty going concern? (IF ANY) Listed response to those in all cases
- EOM: correctly used? (IF ANY) Clients Matters and Therefore except for
- Key Audit Matters: conclusions. disclaimer
Does it explain why the 705 Yes No Lack of Evidence Except For
matter is significant? Yes Yes Lack of Evidence Disclaimer
Reference to related
of Opinion
disclosure included?
Is how the matter
Yes No Material Misstatement Except For
addressed in the audit Yes Yes Material Misstatement Adverse
explained? 706 Yes No Refer to ISA details Other
Any conclusions drawn by below Matter
auditor missing? Yes No Correctly disclosed but Emphasis
- OM: correctly used? (IF ANY) is Fundamental to users of Matter
- Other Info: Explained Other Info responsibility understanding F/S
for auditor? Significant Matter
- Engagement Partner name disclosed?
720 Yes No Mistake in other Other
- Clarity/Use of Professional Words
information in F/S Information
P7 Audit and Assurance Summary
ISA 260 ISA 260 Communication with those charged with governance
- To communicate clearly with those charged with governance the responsibilities of the auditor in relation to the financial statement audit, and planned scope and timing of the audit;
- To obtain from those charged with governance information relevant to the audit;
- To provide those charged with governance with timely observations arising from the audit that are significant and relevant to their responsibility to oversee the financial reporting
process;
- To promote effective two-way communication between the auditor and those charged with governance to communicate matters of Auditor’s independence or Difficulties faced by
Auditor
ISA 265 Communicating Deficiency in internal controls
- An internal control of significant importance is weak
- A description of deficiency in internal control and its possible implications
- Some suggestive measures to make control efficient
ISA 300 Planning an Audit of Financial Statements
- Audit Strategy
Characteristics of engagement Reporting objectives , timing of communications Significant factors identified to audit engagement Nature timing and extent of resources
- Audit plan: Continuous effort to implement the audit strategy via course of activities. An audit plan is not rigid, it is effected by the dynamic circumstances identified during the
course
Planning initial Audit engagements:
o Consult predecessor auditor for any info about engagement and management itself : Review working papers
o Discuss major Financial Standards applicable to Entity with Management
o Audit Procedures in relation to ISA 510 Initial Audit engagements for opening balances
o Review of the audit strategy by another senior partner within the firm
o High Fee and increased materiality screening and big samples more audit work
- High professional skepticism as the risk will be high on detection of MM
ISA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment
- Auditor is required to devise and audit plan and strategy in such a way that all material misstatements in F/S and risk are identified and responded in an effective manner.
- Auditor should gain understanding of :
SIGNIFICANT RISKS
1 Industry and Environment
2 Regulatory and Industry Laws - Risk of fraud
3 Financial Performance and Entity’s Business Model - Degree of subjectivity
4 Internal controls and Managements attitudes - Unusual transactions (M.L)
- Auditor shall inquire from management , Analyze regulations affecting f/s, and use prior audit knowledge and experience - Related Party Transactions
- Auditor shall assess identified risks and there effects at F/S level, assertion level and basis for other audit procedures - Complexity of Transactions
- Auditor shall respond effectively by detailed procedures, audit work and use of experts.
ISA 320 Materiality in Planning and Performing an Audit
- Planning Materiality & Performance Materiality concept Profit before Tax: 5%, Total Assets: 1-2%, Profit after Tax: 5-10%, Revenue: 0.5-1%
- Material by Amount, Nature, Impact
- Materiality in Planning and Performing an Audit requires that.PAT materiality should be revised if necessary as the audit progresses and circumstances develop
ISA 330 The Auditor’s Responses to Assessed Risks
Overall responses include emphasising to the audit team the need for professional scepticism, assigning additional/alternative staff to the audit, using experts, providing more
supervision on the audit and incorporating more unpredictability into the audit.
- Testof Controls? , - Substantive Procedures? , - Combined?
- Consider whether external confirmation procedures are to be performed as substantiveaudit procedures.
Document Risk assesments and responses via audit procedures and eveidences sought against them
P7 Audit and Assurance Summary
IAPN 1000:
Why is audit of financial instruments challenging?
- Financial reporting requirements complex
- Transactions themselves difficult to understand
- Lack of evidence and need to rely on management judgement
- Auditor may need to rely on expert
- May be hard to maintain attitude of skepticism
- Internal controls may be deficient in this area
ISA Related Party Transactions
550 - Auditor is not expected to find all related party transactions but is required to obtain SAAE over RPTs affecting Financial statements and those need to be reported under IAS-24 Related
Party transactions
- Auditor may face risk that RPTs are unknown to auditor when management conceals or related party is itself not evident to auditor
- Auditor shall Inquire that all RPTs have been disclosed and also perform procedures such as checking cross company ownerships and shareholding of directors in other companies
- Transactions with directors are Related Party transactions and are always MATERIAL by nature.
- A written representation from management stating that management has disclosed to the auditor the identity of the entity’s related parties and all the related party relationships and
transactions of which they are aware, that management has appropriately accounted for and disclosed such relationships and transactions in accordance with the requirements of IAS 24.
Problems in identifying related parties and transactions:
(i) Complex/subjective definition of related party (some of the definitions in IAS 24 Related Party)
(ii) Reluctance of management to disclose and Hard to identify from accounting system
(iii) Deliberate concealment for fraud/window dressing and Materiality relatively complex to apply
P7 Audit and Assurance Summary
Events between Auditor’s report and publish of F/S or Events after publish of F/S
- No obligation to perform any audit procedures regarding the financial statements after the date of the auditor's report. However if auditor discovers EARP and if had
been discovered at date of auditors report and would have caused amendment to report then:
· Auditor shall discuss with management and if required then suggest to amend F/S
Management does amend: Amend F/S and review and extend audit procedures and issue a new auditor’s report and OM should be included.
Management does not amend : Ask management to stop issue to 3rd parties or if issued then take legal advice to prevent reliance on F/S
ISA Going Concern
570 - An entity is said to be going concern when its able to continue normal course of business in force-able future (Force-able future is 12 months from reporting date)
- Auditor is required to asses managements going concern assumption and obtain SAAE about it
Indicators:
See if management has done any preliminary assessment of going concern and if not ask to conduct one
- Adverse Financial ratios
Evaluate evidences and assumptions and material uncertainties - Net Liabilities or Negative cash flows
Inquire management about plans to mitigate risks over going concern - Substantial operating losses
Cash flow analysis for in the context of going concern - Loss of key management without replacement
Obtain managements written representation regarding the correctness of their assumptions - Uninsured or underinsured catastrophes when
- Conclude based on Audit evidence obtained for any material uncertainty exists that challenges going concern. they occur
- Indications of withdrawal of financial support
Audit Opinion:
1 Material uncertainty Exist and Properly disclosed : Section headed 'Material Uncertainty Related to Going Concern' and unqualified Opinion
2 Material uncertainty Exist and not disclosed : Qualify or adverse based on pervasiveness
3 Inappropriate assumptions used : Qualify or adverse based on pervasiveness
4 Multiple Material Uncertainties exist : Auditor Unable to Provide Opinion on truth and fairness of F/S (DISCLAIMER OF OPINION is advised)
What Should be Written in 'Material Uncertainty Related to Going Concern:
The paragraph should highlight that a material uncertainty exists, and should describe the uncertainty, including any relevant financial information,
such as the amount of net liabilities at the year end. The paragraph should clearly state the existence of a material uncertainty that may cast
significant doubt over the company’s ability to continue as a going concern. The paragraph should also state that the audit opinion is not qualified in
this respect, and refer to the note to the financial statements where the material uncertainty is discussed.
ISA Special Considerations - Audits of Group Financial Statements (Including the Work of Component Auditors)
600 - Group Audit partner is responsible for the audit of the group
- Group auditor is required to react as auditor of group and also coordinate with component auditor and corroborate findings and assessments.
1 Responsible for assessing the competency, objectivity level of the component auditor and the extent to which reliance can be placed over their work.
2 Group auditor is solely responsible for the group audit and shall not place reference over component auditor, however while referencing incase group auditor
has to mention then also state that it won’t give up group auditors liability
3 Component Report shall be modified at component level while impact shall only be made when it’s over the group materiality
4 In order to obtain SAAE the group auditor needs to look at – Group level , - Component level
Consolidation Problems:
IFRS 8: Operating Segment Identification , IAS 24: Related Party Disclosures IFRS3 : Intra group trading/ Un-realized Profits IAS 1: Presentation and Disclosure
- ISA 610 envisages three ways of using the work of internal auditors:
(1) To obtain information to be used when assessing the risk of material misstatement
(2) To use internal auditors' work instead of performing procedures
(3) To use internal auditors themselves to perform audit procedures (direct assistance) |only when external auditor properly reviews and oversees the work of Internal Auditor|
ISA Using the Work of an Auditor’s Expert
620 - Auditor shall make use of Auditor’s Experts work provided Auditor is assured that SAAE has been obtained from experts work
- Auditor shall Review before choosing Expert
1 Qualification 2 Experience 3 Independence
- Auditors shall provide all the necessary guidance
1 Purpose, intended use and context of expert’s work
2 assumptions and methods intended
- Auditor shall seek review of experts work and confirm that expert has followed discussed guidelines and has devoted sufficient time and effort. This will enable auditor to place reliance
over experts work. Checking Auditors Work:
1 The source data used
2 The assumptions and methods used
3 When the expert carried out the work
4 The reasons for any changes in assumptions and methods
5 The results of the expert's work in the light of the auditors' overall knowledge of the business and the results of other audit procedures
Auditor shall not include reference to expert’s work and wherever necessary include it with statement that the reference doesn’t disclaim auditor’s liability over the opinion formed
ISA DEFINITION KAM:
701 Those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements of the current period. Key audit matters are selected from matters
NEW communicated with those charged with governance. KAMs must always relate to matters already included within the financial statements.
SEP - Improves the quality of information given to stakeholders by highlighting the difficulties encountered by the auditor
2016 - Provides an insight on how the audit is performed and what goes through the mind of the auditor, whereas up to now it only focused on the users of the Report
DETERMINATION OF KAM
- Areas of higher risks of material misstatement or which were deemed to be ‘significant risks’ in accordance with ISA 315
- Significant auditor judgments in relation to areas of the financial statements that involved significant management judgment.
- The effect on the audit of significant events or transactions that have taken place during the period.
REPORTING KAM
- Contents:
1 These are the 'matters of most significance'
2 No separate opinion is provided on them because they are covered by the audit opinion
3 Why the matter was determined to be one of most significance and therefore a key audit matter, and
4 How the matter was addressed in the audit
A description of the auditor’s approach, a brief overview of procedures performed with an indication of their outcome and any other Key observations.
- Exception : Law or regulation precludes public disclosure about the matter such as Mentioning money laundering may tipoff
- In case of conflict with matters to be discussed in Basis for opinion para or Material uncertainty relating to going concern the former paragraph will be given preference and KAM will refer
P7 Audit and Assurance Summary
ISA Emphasis of Matter paragraphs and Other Matter paragraphs in the independent auditor's report
706 - EOM: When a matter of Fundamental Understanding
1 When a financial reporting framework prescribed by law or regulation would be unacceptable but for the fact that it is prescribed by law or regulation
2 To alert users that the financial statements are prepared in accordance with a special purpose framework
3 When facts become known to the auditor after the date of the auditor's report and the auditor provides a new or amended auditor's report (i.e. subsequent events)
- OM: When matter is instructed to be highlighted In auditors report other than those paragraphs
1 Where prior period financial statements were audited by a predecessor auditor (ISA 710)
2 Where prior period financial statements were not audited (ISA 710)
3 When reporting on prior period financial statements in connection with the current period's audit, if the auditor's opinion on such prior period financial statements differs from
the opinion the auditor previously expressed (ISA 710)
ISA Comparative Information – Corresponding Figures and Comparative Financial Statements
710 - Auditor shall obtain SAAE that accounting policies used for the comparatives are consistent with those applied in prior period and any changes is reasoned and disclosed properly.
- Auditor shall see that comparative amounts match with current period and are free from material misstatements in context of current year F/S
- ISA 710 requires that the auditor obtains written representations for all periods referred to in the audit opinion.
Reporting: Prior year Unaudited or audited by another auditor:
· Incase audited by other auditor in past : also mention the - Type of report and if modified therefore reasons, - date of that report
State prior F/S were unaudited or audited by other auditor
State Auditor is not relived of requirement to carry out procedures to obtain SAAE over opening balances (ISA 510)
If auditor finds a misstatement then ask management to revise else modify appropriately.
- Case: If there was a matter in Past :
Prior matter Resolved as of now and modified before: No modification. IF Material to current period then EOM
Prior matter Unresolved as of now and was Modified before: Modify for current as well as for corresponding figures
Prior matter Unresolved as of now and Unmodified before: Modify due to misstatement in current figures and identify that previous one was unmodified incorrectly
ISA The Auditor’s Responsibilities Relating to Other Information
720 - Auditor is not responsible for other information disclosed in Financial report or incase Auditor might be required to audit other information under local statutory laws.
- Auditor is required to read out other information in F/S i.e. Chairman’s note and see if it doesn’t clash with knowledge present in Audited F/S.
- Incase other information is materially different, then the auditor shall seek :
1 Rework specific accounts
2 Ask management to prove their other information
- If there is a rework and misstatement is found auditor shall ask management to correct misstatement in the F/S considering management integrity as well.
- If management refuses above then modify as per ISA 705
- If there is a restatement required in other info then auditor shall ask management to revise other info
- In case management refuses auditor shall disclose inconsistency in other matter paragraph of its auditor’s report and also consider management integrity.
Non Audit Assignments: (NEGATIVE ASSURANCE) > Based on our XYZ, nothing has come to our attention...
ISAE 3400 ISAE 3402 ISAE 2410 & 2400 ISRS 4400
Audit of Prospective Financial Information Due Diligence Review of Historical and Interim F/S Agreed Upon Procedures <UPRCM>
Benefits: <IVRECNA> – Consistent accounting policies – User Intended
Matters be consider for PFI terms of engagement: <MUPARFD> – Identification of assets and liabilities – Consider work of internal audit – Procedures Intended
The auditor and the client should agree on the terms of the – Valuation of assets and liabilities – Inquiries from management about significant – Rationale behind procedures
engagement. – Review of operational and synergy change in business risks – Conditions of Engagement are clear
– Management Competence & Responsibilities for preparing PFI issues – Obtain written representations form – Management responsibility for
– Use Intended: Is it to be disclosed to 3rd parties? Disclaimer? – Examination of financial position and management regarding preparation of interim procedures.
– Period of Forecast performance f/s
– Assumptions Nature – Added credibility and expertise – Look for compliance of IAS 34. Reporting: <IERPFO>
– Report To whom, Form & Contents – Added value for negotiation of 1. Identification of Info on which
– Fees purchase price The Code: specific procedures are applied
– Deadlines – Other advice can be given, e.g. on - The practitioner performs primarily inquiry 2. Statement that procedures
The auditor should not accept, or should withdraw from, an obtaining finance and analytical procedures to obtain sufficient performed was in line with recipient’s
engagement when the assumptions are clearly unrealistic appropriate evidence expectation.
or when the auditor believes that the prospective financial Consider: - The practitioner shall comply with relevant 3. Identification of Rationale
information will be inappropriate for its intended use. – Post acquisition benefits and synergies ethical requirements, including those pertaining 4. Listing of Procedures
– Any Assets of 3rd party currently used to independence. 5. Auditors Factual Findings
Reporting: <TIPNAC> by target. - The practitioner shall plan and perform the 6. Statement that Auditor doesn’t
- Title/Addressee – Any liabilities engagement with professional skepticism express any opinion over it.
- Identification of PFI information to be reported on – Valuation of assets especially recognizing that circumstances may exist that
- Reference to the purpose intangibles causes the financial statements to be materially Forensic Auditing
– Report: – Key Personnel and management misstated. For investigating financial frauds and
– Negative assurance over assumption – Reputational Risks - The practitioner shall exercise professional cases of disputes
– opinion that PFI is based on assumptions judgment in conducting a review engagement – Expert witness
– Appropriate Caveats of Assumption Terms of engagement: <ODDTMF> - Perform procedures necessary to validate the – Duty of due care
When the auditor believes that the presentation - Nature of the opinion true and fair presentation of interim financial
and disclosure of the prospective financial - deadline of the review statements in accordance with IAS 34. Matters:
information is not adequate, the auditor should - Liability disclaimer - Perform analytical procedures and enquiries <CRE&P>
express a qualified or adverse opinion in the report - Terms of reference regarding changes in entity positions such as – Context of investigation
on the prospective financial information, or - Managements responsibility significant transactions, agreements or loan – Report will be consumed by whom
withdraw from the engagement as appropriate. of decision making and covenants signed that affect the matter. – Evidences and procedures just like
- Date/Address/Sign/ ownership - Practitioner must ensure consistency of audit.
- Fee accounting policies and any deviations are
General Procedures: reasonable to auditors understanding Social/Environmental Audit
– Re-perform calculations Due diligence vs Historical F/S Audit - Practitioner should inquire whether
– consistency of the accounting policies <SAPFC> management has identified all events up to the Difficulty in measurement
– accuracy of forecasts prepared in prior by comparison with actual date of the review report that may require <DQSC>
– Perform analytical procedures adjustment to or disclosure in the interim – Difficult to define
– Test the facts & assumptions financial information – Difficult to quantify
– Verify Opening Cash Positions – Systems not set up to capture data
– Look for missing impacts such as Finance costs and Taxation – Hard to make comparisons
– Competency of the person who prepared forecast
P7 Audit and Assurance Summary
Accounting Standard
Accounting Audit
IFRS -13 FAIR VALUE MEASUREMENT
- Input 1 : Quoted prices for identical assets in an Active market - Correct measurement criteria used?
- Input 2 : Quoted prices for identical assets in an Inactive market or Similar assets - Did management follow the Input level requirement?
- Input 3 : Unobservable valuation methods: - Valuation expert involved? Did Auditor assess the adequacy of expert?
1 Income based > PV of all future benefits - Valuation reports? Assumptions involved are they reasonable?
2 Cost based > Replacement cost - Management Written representations on correctness of FV amounts
3 Market approach > Market valuation by expert - Level of judgement involved and deviation from expected in actual results
IAS -2 INVENTORY
- Inventory should be valued at lower of cost or NRV - Is inventory value at lower of cost or NRV
- Difference should be charged to PnL - Did auditor check inventory valuation by attending stock count and reconciling stock from
- Slow moving stock need to be tested for NRV F/S to actual stock taking figures and stock value
- Cost Measurement Techniques: FIFO and W.AV method - Fair valuation of inventory and standard costing of inventory checked?
1 Standard Cost (DM,DL,DOH) - Have all calculations been re-casted?
2 Retail method ( Sale value less gross margin) - Is the method of costing inventory still gives reliable measure of cost amount?
IAS – 16 NON CURRENT ASSETS
- Dismantling Cost: Capitalized in the cost of the asset at present value discounted at risk - Check that costs to bring the asset into usable condition are capitalized and expenses are
adjusted weighted average WACC and depreciated with asset’s useful life and un-winded charged to income statement.
each year end - Did auditor verify documents and invoices to verify consideration of asset and expenses
- Environmental Cost: Expensed out each year in the consumption pattern of the asset. incurred other than that.
- Asset Held at Cost: Depreciate the asset over the useful economic life. - Did auditor inspected asset and verified that it does not subject to impairment
- Asset Held at Revaluation: Revaluation at the end of each year for all assets in a similar class - Depreciation of asset? Charged to PnL?
and depreciate the asset over the useful economic life and any gain or loss of revaluation is - Revaluation: FV measurement checked?
taken through equity and excess depreciation is adjusted in equity. Deferred Tax implication - Have deferred tax and excess depreciation aroused addressed?
- Disclosures are a significant requirement in revaluation for assumptions and methods used. - Verification of useful life by document and board notes
- Complex Asset concept, Overhauling concept, DE-recognition of asset. - Recasting of all calculations of depreciation
IAS – 36 IMPAIRMENT
- Internal and External Indications of impairment - Did auditor look for impairment indications?
- Assets to review without indication : Goodwill, Intangible Assets with indefinite life and - Have management conducted impairment review?
intangible asset under development - Did Auditor verify CA from asset register?
- Impairment when CA > RA = RA is the higher of - Did Auditor verify RA which is higher of FV-CTS & Value in use?
1 Value in Use: Present value of all future benefits from continuing use based on - Is Value in use exclusive of financing and taxation activity?
current form excluding financing and taxation adjustments. Discount rate should - Is FV according to IFRS-13?
be used is Pre-tax Risk adj. WACC - Did auditor recast the impairment amount?
2 FV – CTS : FV can be binding sale agreement or an active market quote, CTS is - Did auditor review all the disclosures required by IAS 36
attributable to disposal - Have the reversal of Impairment been checked for adherence to IAS-36 guidelines
- Impairment Reversal: Reverse to the extent recognizes in PnL or OCI then charge excess to
other account i.e. PnL or OCI.
P7 Audit and Assurance Summary