Notes-4 - Notes PDF

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Higher detection risk is associated with new audit and there should be greater emphasis on tests of details and limited use of analytical procedures as there is no prior year comparisons, and lack of cumulative knowledge.

The use of analytical procedures may be limited if a business is growing as they could lack of comparability

A sales credit note, relating to a large pre-year-end delivery of inventory should be investigated by an external audit team because it could be a cut off error and may be a material misstatements in financial statements if excluded from inventory

An auditor can review any additional correspondence up to date of auditor's report for indication of whether accounts receivables in dispute will be paid. Profit forecasts are prepared using the accruals principle whereas cash flow forecasts are prepared using the cash basis of accounting Q: Implications for the audit A: Firm will need to audit the following Auditors should exercise greater professional skepticism on impairment of assets and basis of preparation of when auditing a mining client Walk-through tests are designed to establish that internal controls exist and are as documented and will influence auditor's decision whether to plan to rely on internal controls or perform substantive procedures only Tests of controls are designed to obtain sufficient appropriate evidence as to the operating effectiveness of relevant internal controls where substantive procedures alone cannot provide sufficient appropriate audit evidence. When an audit client has recalled its products, it raises a risk of material misstatement of refunds for returns, irrecoverable trade receivables and inventory to be written off. Comparing the last time an item was bought with the last time it was sold, for inventory valuation purposes can be done using data analytics.

A review of the profit and cash flow forecasts provides limited assurance as to the credibility of the forecast financial information. A limited assurance engagement reduces the risk to a level that is acceptable in the circumstances. The conclusion is expressed negatively in the form of 'nothing has come to our attention which causes us to believe that these assumptions do not provide a reasonable basis for the forecasts. A statutory audit provides reasonable assurance as to the credibility of the financial statements. A reasonable assurance engagement reduces the risk to an acceptably low level. It provides a high, but not absolute, level of assurance that the financial statements are free from material misstatement. The conclusion is expressed positively in the form of 'in our opinion the financial statements give a true and fair view of the state of the company's affairs…' An auditor's report is addressed to the shareholders of a company The work undertaken in examining the profit and cash flow forecasts will be less in scope than that of the audit. It will involve checking the reasonableness of the assumptions and the calculations based on the assumptions. It is likely to include analytical procedures, enquiry of management and computation

An opinion must be disclaimed when the auditor cannot obtain sufficient appropriate audit evidence on which to base the opinion and concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive.

The opinion must also be disclaimed in situations involving multiple uncertainties when the auditor concludes that, despite having obtained sufficient appropriate audit evidence for the individual uncertainties, it is not possible to form an opinion on the financial statements due to the potential interaction of the uncertainties and their possible cumulative effect on the financial statements. The Bribery Act 2010 makes bribery or failing to prevent bribery a criminal offence. The Bribery Act is global in scope and makes the company responsible for the actions of its employees. The company is liable if employees or persons associated with the company offer or accept or bribe a foreign public official. If the auditor is unable to obtain enough and appropriate audit evidence for a balance that is material but not pervasive the audit opinion should be modified with a qualified “except for’ opinion and the opinion paragraph headed up 'qualified opinion on financial statements'. The auditor should also report by exception under the Companies Act 2006 that all information required for the audit was not obtained.

Thuto Moyei (BW) 6:23 PM (15 minutes ago) to me

If an audit firm concludes there is an uncertainty about the going concern status of its client who does not make appropriate disclosures. There is a material misstatement due to the lack of appropriate disclosure and therefore a modified opinion/report is required.

An overdraft facility is an expensive form of funding an could be withdrawn at any time.

There is a difference between a modified report and a modified opinion. If an opinion is modified (except. For, disclaimer, adverse) then the audit report has been modified. However, a report can be modified without the opinion being affected. For example, an emphasis of matter paragraph can be added to the report, but this does not modify the opinion

Under International Standards of Auditing, report is modified in the following two situations, when the opinion is not modified but addition of emphasis of matter and when the opinion is modified.

ES S2 Financial, Business, Employment and Personal Relationships, which only permits business relationships with audit clients if they are inconsequential to both parties.

ES S2 states firms should not enter business relationships with an audited entity unless clearly inconsequential.

ES S4 states that audit fee must not be influenced by the provision of other services

Performance materiality refers to an amount set at less than level(s) for the FS as a whole or particular class of transactions, account balances or disclosures to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the FS as whole.

·ES S4 states that audit fee must not be influenced by the provision of other services modified report

o Unmodified opinion

·

Modified report

o Unmodified opinion + Emphasis of matter paragraph and/or Other matter paragraph

o Modified opinion

Qualified opinion

Adverse opinion

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