6- AUDIT CONCLUSIONS AND REPORTING ISA700-705-706.pptx

AUDIT CONCLUSIONS AND REPORTING ISA700;705;706 Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-1 2013 Edition Volume I  FORMING AN OPINION AND REPORTING ON FINANCIA...

AUDIT CONCLUSIONS AND REPORTING ISA700;705;706 Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-1 2013 Edition Volume I  FORMING AN OPINION AND REPORTING ON FINANCIAL STATEMENTS ISA 700 Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-2 2013 Edition Volume I  Scope of this ISA This International Standard on Auditing (ISA) deals with the auditor’s responsibility to form an opinion on the financial statements. It also deals with the form and content of the auditor’s report issued as a result of an audit of financial statements. This ISA is written in the context of a complete set of general purpose financial statements. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-3 2013 Edition Volume I  Objective The objectives of the auditor are: (a) To form an opinion on the financial statements based on an evaluation of the conclusions drawn from the audit evidence obtained; and (b) To express clearly that opinion through a written report that also describes the basis for that opinion. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-4 2013 Edition Volume I  Definitions (a) General purpose financial statements – Financial statements prepared in accordance with a general purpose framework. (b) General purpose framework – A financial reporting framework designed to meet the common financial information needs of a wide range of users. (c) Unmodified opinion – The opinion expressed by the auditor when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-5 2013 Edition Volume I  Requirements Forming an Opinion on the Financial Statements: The auditor shall form an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. In order to form that opinion, the auditor shall conclude as to whether the auditor has obtained reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-6 2013 Edition Volume I  In particular, the auditor shall evaluate whether, in view of the requirements of the applicable financial reporting framework: (a) The financial statements adequately disclose the significant accounting policies selected and applied; (b) The accounting policies selected and applied are consistent with the applicable financial reporting framework and are appropriate; (c) The accounting estimates made by management are reasonable; (d) The information presented in the financial statements is relevant, reliable, comparable, and understandable; (e) The financial statements provide adequate disclosures to enable the intended users making decisions; and (f) The terminology used in the financial statements, including the title of each financial statement, is appropriate. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-7 2013 Edition Volume I  Cont. Form of Opinion: The auditor shall express an unmodified opinion when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. If the auditor: (a) concludes that, based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement; or (b) is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement, the auditor shall modify the opinion in the auditor’s report in accordance with ISA 705. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-8 2013 Edition Volume I  Cont. Auditor’s Report: The auditor’s report shall be in writing. The auditor’s report shall have a title that clearly indicates that it is the report of an independent auditor. The auditor’s report shall include a description of the responsibility of management and the auditor’s responsibility. The auditor’s report shall include a section with the heading “Opinion.” The auditor’s report shall be signed. The auditor’s report shall be dated no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the auditor’s opinion Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-9 2013 Edition Volume I  MODIFICATIONS TO THE OPINION IN THE INDEPENDENT AUDITOR’S REPORT ISA 705 Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-10 2013 Edition Volume I  Scope of ISA This International Standard on Auditing (ISA) deals with the auditor’s responsibility to issue an appropriate report in circumstances when, in forming an opinion in accordance with ISA 700, the auditor concludes that a modification to the auditor’s opinion on the financial statements is necessary. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-11 2013 Edition Volume I  Types of Modified Opinions This ISA establishes three types of modified opinions, namely, a qualified opinion, an adverse opinion, and a disclaimer of opinion. The decision regarding which type of modified opinion is appropriate depends upon: (a) The nature of the matter giving rise to the modification, that is, whether the financial statements are materially misstated or, in the case of an inability to obtain sufficient appropriate audit evidence; and (b) The auditor’s judgment about the extent of the effects or possible effects of the matter on the financial statements. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-12 2013 Edition Volume I  Objective The objective of the auditor is to express clearly an appropriately modified opinion on the financial statements that is necessary when: (a) The auditor concludes, based on the audit evidence obtained, that the financial statements as a whole are not free from material misstatement; or (b) The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-13 2013 Edition Volume I  Definitions (a) Pervasive – A term used, in the context of misstatements, to describe the effects on the financial statements of misstatements. Pervasive effects on the financial statements are those that, in the auditor’s judgment: (i) Are not confined to specific elements, accounts or items of the financial statements; (ii) If so confined, represent or could represent a substantial proportion of the financial statements; or (iii) In relation to disclosures, are fundamental to users’ understanding of the financial statements. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-14 2013 Edition Volume I  Cont. (b) Modified opinion – A qualified opinion, an adverse opinion or a disclaimer of opinion. Qualified opinion—Can be used for a scope limitation or departure from IFRS, but only when the auditor concludes that the overall financial statements are fairly stated. Adverse opinion—Used when financial statements are so materially misstated or misleading that they do not present fairly the financial position of the entity. Disclaimer of opinion—Used when the auditor cannot form an opinion on the financial statement due to a severe scope limitation, lack of knowledge on the part of the auditor, or lack of independence. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-15 2013 Edition Volume I  Requirements: Circumstances When a Modification to the Auditor’s Opinion Is Required: The auditor shall modify the opinion in the auditor’s report when: (a) The auditor concludes that, based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement; or (b) The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-16 2013 Edition Volume I  Determining the Type of Modification to the Auditor’s Opinion Qualified Opinion: The auditor shall express a qualified opinion when: (a) The auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are material, but not pervasive, to the financial statements; or (b) 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. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-17 2013 Edition Volume I  Cont. Adverse Opinion: 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. Disclaimer of Opinion The auditor shall disclaim an opinion when the auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-18 2013 Edition Volume I  Consequence of an Inability to Obtain Sufficient Appropriate Audit Evidence Due to a Management-Imposed Limitation after the Auditor Has Accepted the Engagement: If, after accepting the engagement, the auditor becomes aware that management has imposed a limitation on the scope of the audit that the auditor considers likely to result in the need to express a qualified opinion or to disclaim an opinion on the financial statements, the auditor shall request that management remove the limitation. If management refuses to remove the limitation, the auditor shall communicate the matter to those charged with governance, unless all of those charged with governance are involved in managing the entity, and determine whether it is possible to perform alternative procedures to obtain sufficient appropriate audit evidence. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-19 2013 Edition Volume I  Cont. If the auditor is unable to obtain sufficient appropriate audit evidence, the auditor shall determine the implications as follows: (a) If the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be material but not pervasive, the auditor shall qualify the opinion; or (b) If the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive so that a qualification of the opinion would be inadequate to communicate the gravity of the situation, the auditor shall: (i) Withdraw from the audit, where practicable and possible under applicable law or regulation; or (ii) If withdrawal from the audit before issuing the auditor’s report is not practicable or possible, disclaim an opinion on the financial statements. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-20 2013 Edition Volume I  EMPHASIS OF MATTER PARAGRAPHS AND OTHER MATTER PARAGRAPHS IN THE INDEPENDENT AUDITOR’S REPORT ISA706 Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-21 2013 Edition Volume I  Scope of ISA This International Standard on Auditing (ISA) deals with additional communication in the auditor’s report when the auditor considers it necessary to: (a) Draw users’ attention to a matter or matters presented or disclosed in the financial statements that are of such importance that they are fundamental to users’ understanding of the financial statements; or (b) Draw users’ attention to any matter or matters other than those presented or disclosed in the financial statements that are relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-22 2013 Edition Volume I  Objective The objective of the auditor, having formed an opinion on the financial statements, is to draw users’ attention, when in the auditor’s judgment it is necessary to do so, by way of clear additional communication in the auditor’s report, to: (a) A matter, although appropriately presented or disclosed in the financial statements, that is of such importance that it is fundamental to users’ understanding of the financial statements; or (b) As appropriate, any other matter that is relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-23 2013 Edition Volume I  Definitions (a) Emphasis of Matter paragraph – A paragraph included in the auditor’s report that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor’s judgment, is of such importance that it is fundamental to users’ understanding of the financial statements. (b) Other Matter paragraph – A paragraph included in the auditor’s report that refers to a matter other than those presented or disclosed in the financial statements that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-24 2013 Edition Volume I  Requirements: Emphasis of Matter Paragraphs in the Auditor’s Report: If the auditor considers it necessary to draw users’ attention to a matter presented or disclosed in the financial statements that, in the auditor’s judgment, is of such importance that it is fundamental to users’ understanding of the financial statements, the auditor shall include an Emphasis of Matter paragraph in the auditor’s report provided the auditor has obtained sufficient appropriate audit evidence that the matter is not materially misstated in the financial statements. Such a paragraph shall refer only to information presented or disclosed in the financial statements. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-25 2013 Edition Volume I  When the auditor includes an Emphasis of Matter paragraph in the auditor’s report, the auditor shall: (a) Include it immediately after the Opinion paragraph in the auditor’s report; (b) Use the heading “Emphasis of Matter,” or other appropriate heading; (c) Include in the paragraph a clear reference to the matter being emphasized and to where relevant disclosures that fully describe the matter can be found in the financial statements; and (d) Indicate that the auditor’s opinion is not modified in respect of the matter emphasized. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-26 2013 Edition Volume I  Cont. Other Matter Paragraphs in the Auditor’s Report: If the auditor considers it necessary to communicate a matter other than those that are presented or disclosed in the financial statements that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report and this is not prohibited by law or regulation, the auditor shall do so in a paragraph in the auditor’s report, with the heading “Other Matter,” or other appropriate heading. The auditor shall include this paragraph immediately after the Opinion paragraph and any Emphasis of Matter paragraph, or elsewhere in the auditor’s report if the content of the Other Matter paragraph is relevant Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-27 2013 Edition Volume I  Cont. Communication with Those Charged with Governance: If the auditor expects to include an Emphasis of Matter or an Other Matter paragraph in the auditor’s report, the auditor shall communicate with those charged with governance regarding this expectation and the proposed wording of this paragraph. Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-28 2013 Edition Volume I  Questions? Thank you Reference: Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements 1-29 2013 Edition Volume I