Reports phase 1
What should be communicated with TCWG?
The items to be communicated relate to the auditor's responsibilities as part of the audit and information relevant to the audit from TCWG, as well as any issues arising from the audit. This is sometimes referred to as a report to management and includes significant findings from the audit, such as views about the chosen accounting policies, difficulties encountered during the audit and any other matters relevant to the oversight of the financial reporting purpose.
How to break down an Auditor's report?
Auditor's report= Unmodified report, Modified report with unmodified opinion, Modified audit opinions. Unmodified report: True and fair view Modified report with unmodified opinion: a. Emphasis of matters (without modifying our opinion, we draw attention to.., if multiple uncertains->Disclaimer Opinion "we do not express an opinion") b. Material uncertainty relating to going concern c. Other matters Modified audit opinions: Insufficient/Inappropriate evidence:Material but not pervasive(Qualified opinion "except for), Material and pervasive (Disclaimer of opinion "do not express an opinion) Material misstatement: Material but not pervasive (Qualified opinion "except for"), Material and pervasive (Adverse opinion "do not give a true and fair view)
If the auditor has a responsibility to report matters of audit significance under ISAs 260 and 265, why are key audit matters (KAMs) included in the auditor's report?
ISA 701 requires the auditor to determine KAMs from the matters communicated to TCWG and, having already formed an opinion on the financial statements, communicate those matters to shareholders and other users of the financial statements by describing them in the auditor's report before reporting them as KAMs to TCWG.The auditor should keep appropriate documentation of all KAMs
How do you identify Key Audit Matters?
Identifying such matters requires the auditor to use professional judgment - for example: a. Material, complex or subjective items, especially any associated misstatements b. Matters where the auditor encountered difficulty or required extra audit effort c. Areas where audit procedures were difficult to apply or where several issues converged A cone shaped starting with: Matters that were communicated with those charged with governance, Matters that required significant auditor attention, KAM(Matters of most significance)
What is there to note about ISA 260 Communication with those Charged with Governance
In addition to reporting to shareholders, the external auditor is expected to communicate matters of audit importance to those charged with governance (TCWG) - usually the directors, but this could be an audit committee as well, so the auditor should establish to whom they must report. This should be an ongoing, two-way dialogue and is initiated at the engagement stage to avoid any omissions, as well as how (in writing) and when (described in the ISA as 'timely').
How should KAM be disclosed on the F.S
KAMs should be disclosed within the 'Key audit matters' section of the auditor's report stating why they were assessed as KAMs, how they were addressed during the audit and the note from the financial statements where more detail is supplied by the audited entity. If it is felt that disclosure would compromise the need for confidentiality (eg in cases of money laundering) or if the law precludes it, the auditor can choose not to communicate specific KAMs. Going concern uncertainty is not treated as a KAM, as that would have its own section if required within a modified auditor's report
What to expect in Opinion Basis for Opinion Key audit matters Other information
Opinion: [Includes the individual statements and the reporting period under review for the company being audited. It can use either 'give a true and fair view' or 'presents fairly, in all material respects' and states the relevant GAAP adopted.] Basis for opinion: This is always presented after the opinion and explains how the audit was conducted: the role of ISAs and the IESBA Code of Ethics as well as the audit evidence being sufficient and appropriate to provide a basis for the auditor's opinion.] Key audit matters: As per ISA 701, matters of most significance from the audit; required for all listed entities.] Other information: As per ISA 720, communicates that there is nothing to report regarding other information.]
What to expect in Responsibilities of management and those charged with governance for the financial statements Auditor's responsibilities for the audit of the financial statement Report on other legal and regulatory framework Signature
Responsibilities of management and those charged with governance for the financial statements: [Preparation and fair presentation of the financial statements, including internal controls, and the assessment of the company's ability to continue as a going concern.] Auditor's responsibilities for the audit of the financial statement: A detailed summary of the auditor's objectives, starting with obtaining reasonable assurance about the financial statements being free from material misstatements due to fraud or error. Stresses the role of professional judgment and scepticism over accounting policies and estimates, judgments, internal controls, presentation, disclosure and communicating key audit matters and other issues with those charged with governance. Report on other legal and regulatory framework Signature:[Form and content of this section of the auditor's report will vary depending on the nature of the auditor's other reporting responsibilities.]
What are KAM?
They are defined as being those matters that, in the auditor's professional judgment, were of most significance in the audit of the financial statements of the current period. They are required for all listed entity auditor's reports and are part of the standard unmodified report (so they are not the same as Emphasis of Matter or Other Matter paragraphs and do not lead to a modification of the auditor's opinion).
What is there to note about ISA 265 Communicating Deficiencies in Internal Control to those Charged with Governance and Management?
This standard deals with any specific internal control issues identified to ensure they are communicated promptly for the right action to be taken. The issues communicated are only those identified during the course of the audit as necessary to the creation of the financial statements under review: they are not an assessment of the overall adequacy of the accounting and internal control systems currently operated by management. Deficiencies are classified as significant if they warrant the attention of TCWG. Findings are usually presented along with recommendations and a timescale.
The standard report as laid down by ISAs 700, 701 and 720 looks like this (in overview)?
Title Opinion Basis for Opinion Key audit matters Other information Responsibilities of management and those charged with governance Auditor's responsibilities for the audit of the financial statement Report on other legal and regulatory framework Signature Auditor's name/signature, address and date of auditor's report