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Audit Report

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78 views2 pages

Audit Report

business analysis

Uploaded by

muhammad ali
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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How Acca F8 And P7 Students Should Deal With

Changes In Audit Report ? Article By Paul Merison


During recent years, there have been changes in audit reports in the real world, and gradually this
has resulted in audit standards being changed. From the September 2016 exam sitting these changes
ceased to be just a current discussion issue and have hit F8 and P7 in full (note, for P7 UK Stream it
remains just a current issue topic until the September 2017 sitting). Audit reports have a number
of issues for students, and always have had:

Understanding the content of an audit report, given many students will never actually try to read a
real one.
For those who DO read a real one, the problem that some of the content is beyond where an ACCA
exam question is likely to go.
The fact that there are so many possible outcomes for an audit report. And the problem is that it has
now got a bit harder.
Lets go straight to an example, aimed at showing all the possibilities:

You are the auditor of a listed company, and the audit process is nearing completion. You are
discussing the companys going concern position with the Audit Committee.

Describe the potential audit report outcomes that could arise ?

My approach for any audit report outcome question is as follows:

1: Have you got all the audit evidence you need?


Well, if we are having a full discussion with the audit committee I guess the answer is yes. If not, the
Opinion would be either a Disclaimer, or an Except for Qualified Opinion, possibly the former given
the lack of evidence relates to going concern, so feels pervasive.

2: How has company accounted for the situation, and is it correct? Two issues here.
First, the company either uses the going concern basis of preparing the Financial Statements (FS),
or it doesnt.
Second, if using the going concern basis, is there any material uncertainty relating to going concern
(a MURGC), because if there is the company needs a disclosure note explaining this uncertainty in its
Financial Statements.
If the company uses the going concern basis, but the auditor thinks the company is not a going concern,
the Opinion will be adverse.

If the company uses the going concern basis but there is a material uncertainty relating to going
concern that they fail to disclose in the Financial Statements, the Opinion will be either Adverse, or
an Except for Qualified Opinion, as the missing disclosure represents a breach of IAS 1. Take a deep
breath before reading the next paragraph
If the company uses the going concern basis, there is a material uncertainty relating to going concern
and they have correctly disclosed it in a Financial Statements Note then the Opinion is unmodified
(the Financial Statements are not misstated), but the auditor adds their own material uncertainty
relating to going concern paragraph directly under the Basis For Opinion, to draw attention to the
Financial Statements Note and ensure shareholders are aware of it, and understand that the auditor
agrees with its content.
3: Do we need to consider mentioning the issue:
1. in the Key Audit Matters (KAM)?
2. in an Emphasis of Matter paragraph?
3. in an Other Matter paragraph?
The company is listed, so the audit report needs a Key Audit Matters (KAM) section, which in simple
terms will explain anything discussed at length with the clients audit committee that is not already
mentioned in a modified audit opinion, or as a material uncertainty relating to going concern (as there
is no
point repeating ourselves).
So if there is a material uncertainty relating to going concern in the Financial Statements notes, the
auditor will already have referred to this either by modifying the Opinion, or by adding a material
uncertainty relating to going concern paragraph below the Basis For Opinion, as described above
in point 2.
If there is no material uncertainty relating to going concern, but going concern remained an issue that
caused a detailed discussion with the audit committee, then it will be discussed within the Key Audit
Matters.
An Emphasis of Matter paragraph highlights an important Financial Statements disclosure note to the
shareholders as long as the note is not a going concern uncertainty (as this is dealt with by the
material uncertainty relating to going concern paragraph). So Emphasis of Matter is not going to be
relevant to going concern issues in an exam question, unlike in the past when it certainly was.
An Other Matter paragraph is used where the un audited Annual Report content is inconsistent with
the audited Financial Statements.So, if the Financial Statements are considered correct, but the
Annual Report says contradictory things about the going concern status of the company, an Other
Matter paragraph would refer to the inconsistency, with the Opinion section remaining unmodified.
Conclusion
Audit reports have changed recently, and the changes are already being examined. Invest some time
learning, understanding and practicing them.

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