Presentation_ audit report

AAA-2021-22 8/5/2021
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AAA SMART COURSE
AUDIT REPORT
TOPIC
SYLLABUS AREA E
KASHIF KAMRAN- FCCA [AAA 2021-22]
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Audit report to shareholders Communication to TCWG

AAA SMART COURSE
06/15-Q5 09/18-Q2 MarJun19-Q2b- 15 marks

12/15-Q5 12/18-Q2
EXAM
06/16-Q5 06/19-Q2
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Exam techniques for AAA Part 5 –auditor reporting

ARTICLE
Auditor reporting- an update for P7 students on key audit matters

The new auditors’ report
Audit report to those charged with governance
KASHIF KAMRAN- FCCA [AAA 2021-
22]
KASHIFKAMRAN-FCCA-
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AAA-2021-22 8/5/2021
Audit reporting
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Types of audit
reporting
Communication Audit report to

to TCWG shareholders
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Communication to TCWG
ISA 260/265
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Communication to TCWG
 The communication with those charged with governance

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should be viewed as a crucial reporting ‘output’ of the

audit.
 It allows management to be informed of significant
matters arising from the audit process, and allows
management the chance to respond to the auditor
regarding these matters, and to take action to improve
the accounting and financial reporting function of the
entity.
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Matters communicated to TCWG
1. the overall approach and scope of the audit, including any
limitations on the scope of the audit
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2. the accounting policies, and any changes to them, that could

materially affect the financial statements
3. adjustments arising as a result of audit procedures which could
materially impact the financial statements
4. material events or uncertainties which could jeopardise the going
concern status, and which require disclosure within the financial
statements
5. disagreements with management over accounting treatments or
disclosures
6. any expected modifications to the audit report
7. material weaknesses discovered in the internal systems and
controls.
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Matters communicated to TCWG
 The matters communicated to TCWG are referred to as

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‘findings from the audit’ (also often called ‘management

letter points’)

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Audit report to shareholders

ISA 570,700(R),701,705, 706 and 720
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The new auditor report
ISA-700
The format of the audit
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report
ISA-701
Communicating key audit
matters in the audit report
Four fundamental changes
ISA-720
Other information in the
document containing the FS
ISA-570
Reporting on going concern
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Structure of the new audit report
Listed company Non-listed company

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 Opinion (Un-qualified)  Opinion

 Basis of opinion  Basis of opinion
 MU relating to going concern  MU relating to going concern
 KAM  EOMP
 Other matter para  Other matter para
 Other information  Other information
 Responsibilities – Management  Responsibilities – Management
 Responsibilities – Auditor  Responsibilities- Auditor
 Other legal and regulatory  Other legal and regulatory
requirements requirements
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Modified report (ISA 705)
Nature of matters Auditor’s Judgment
giving rise to
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modification
Material but not Material and
pervasive pervasive
Financial statements Qualified opinion Adverse opinion
are materially
misstated
Inability to obtain Qualified opinion Disclaimer of
sufficient appropriate opinion
audit evidence
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Pervasive [ISA-705]
 Pervasive effects on the financial statements are
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those that, in the auditor’s judgment:

 Are not confined to specific elements, accounts or
items of the financial statements;
 If so confined, represent or could represent a
substantial proportion of the financial statements; or
 In relation to disclosures, are fundamental to users’
understanding of the financial statements.
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ISA570- Going concern

AUDIT REPORTING
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ISA 570: Going concern exam focus
 Exam questions might ask the candidate to recognize

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indicators that an entity may not be a going concern, or

require candidates to arrive at an appropriate audit
opinion depending on the circumstances presented in the
scenario.
 It may be the case that candidates are presented with a
situation where the auditor has concluded that there are
material uncertainties relating to going concern and the
directors have made appropriate disclosures in relation to
going concern and candidates must understand the new
auditor reporting requirements in this respect.
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Matters which cast doubt on going concern
status
 Financial matters
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 Adverse key ratio

 Negative cash flows
 Inability to pay supplier on time
 Operational matters
 Loss of a major customer/ supplier
 Loss of a major market/ emergence of a successful competitor
 Other matters
 Non-adherence to laws and regulations
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Procedures- on going concern
1. Analyzing and discussing forecasts with management

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2. Reviewing the terms of loan agreements and

determining whether they have been breached
3. Reading minutes of board meetings and relevant
committees for any discussion of financing difficulties
4. Reviewing events after the year end to identify factors
relevant to the going concern assumption as a basis for
the preparation of the financial statements.
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ISA 570 : Going concern and reporting implications
 Co is a GC + MU exist
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 Disclosed = Para added in report “ MuRGC”

 Not disclosed = Modified
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ISA701-KEY AUDIT MATTERS

AUDIT REPORTING
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ISA 701: KAM
 It is imperative that the candidates can identify the key

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audit matters that are required to be disclosed in the audit

report
 AAA question may require a candidate to determine
whether a transaction, event or issue arising during audit
give rise to KAM
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KAM Definition
 ‘Those matters that, in the auditor’s professional judgment,

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were of most significance in the audit of the financial

statements of the current period. Key audit matters are
selected from matters communicated with those charged
with governance.’
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Examples
 High risk areas within the financial statements (ISA-315)

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 Significant events or transactions within the year / subsequent event

 Areas of FS that involve significant management judgments
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Content of KAM in an audit report
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Why the matter was

considered as KAM ?
Audit report
How the matter was
addressed in audit?
(Brief approach)
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KAM or EOMP
 Candidates should appreciate that when the auditor communicates
matters as KAM, the intention is to provide additional information
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beyond that which would be included in an Emphasis of Matter

paragraph.
 In recognition of this ISA 706 (Revised) states:
 The auditor is prohibited from using an Emphasis of Matter
paragraph or an Other Matter paragraph when the matter has
been determined to be a KAM. To that end, the IAASB has
emphasized that the use of an Emphasis of Matter paragraph is not
a substitute for a description of individual KAM.
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ISA706- EOMP
AUDIT REPORTING
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ISA 706: EOMP
EOMP The matter is material

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“ and”
Correctly disclosed in
the notes to FS
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ISA706- Other matter para

AUDIT REPORTING
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ISA 706: Other matter para
OMP Change of auditor

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AAA SMART COURSE
ISA720- Other info para

AUDIT REPORTING
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ISA 720: Other information para
Other Statement that management is responsible for other info

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information
para Identification of other information
includes :
Statement that auditor opinion does not cover other information
Statement of auditor responsibilities relating to other information
A statement that auditor has “ nothing to report” or “ describing

the material inconsistency” if any found in the other info para.
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Reporting questions types

AUDIT REPORTING
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Reporting question requirements
Critically appraise the draft audit report
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Matters to be considered
Actions to be taken
Adjustments necessary
Further procedures
Impact on report
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Critical appraisal of draft report
Critical Who prepared it ?

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appraisal
Format / structure ?
Wording
Missing information
Right – Justify why ?
Opinion
Wrong- Justify the right opinion ?
165
Matters
Matters Materiality
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Treatment
Impact on FS and on the audit

report
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Actions
Actions Taken to resolve Example :

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Discussion with TCWG

the matter
[positive actions]
Consultation with second partner

If matter not
resolved Draft the modification
[negative actions] Issuance of modified report
Speak at AGM
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Adjustment necessary
Adjustment
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Disclosure
Proposed accounting
entry
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Further procedures
Further
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procedures
“Further” – read the
case carefully
Procedures – start with
action verbs
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Impact on report
Determining the nature of issue

Impact
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Determining the scale of issue Material

Material and pervasive
Determining the modification Opinionn
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Marking scheme
 1 mark for each relevant point explained in a reporting

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question.
 In a going concern question only, when examiner ask for
comments on going concern matters, each matter is
worth 2 marks.
KASHIFKAMRAN-FCCA-

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AAA-2021-22 8/5/2021

KASHIF KAMRAN- FCCA [AAA 2021-22]

Audit report to shareholders Communication to TCWG

06/15-Q5 09/18-Q2 MarJun19-Q2b- 15 marks

Exam techniques for AAA Part 5 –auditor reporting

Auditor reporting- an update for P7 students on key audit matters

Communication Audit report to

KASHIF KAMRAN- FCCA [AAA 2021-22]

KASHIF KAMRAN- FCCA [AAA 2021-22]

 The communication with those charged with governance

should be viewed as a crucial reporting ‘output’ of the

KASHIF KAMRAN- FCCA [AAA 2021-22]

2. the accounting policies, and any changes to them, that could

 The matters communicated to TCWG are referred to as

‘findings from the audit’ (also often called ‘management

KASHIF KAMRAN- FCCA [AAA 2021-22]

Audit report to shareholders

KASHIF KAMRAN- FCCA [AAA 2021-22]

KASHIF KAMRAN- FCCA [AAA 2021-22]

Listed company Non-listed company

 Opinion (Un-qualified)  Opinion

KASHIF KAMRAN- FCCA [AAA 2021-22]

KASHIF KAMRAN- FCCA [AAA 2021-22]

those that, in the auditor’s judgment:

KASHIF KAMRAN- FCCA [AAA 2021-22]

ISA570- Going concern

KASHIF KAMRAN- FCCA [AAA 2021-22]

 Exam questions might ask the candidate to recognize

indicators that an entity may not be a going concern, or

KASHIF KAMRAN- FCCA [AAA 2021-22]

 Adverse key ratio

KASHIF KAMRAN- FCCA [AAA 2021-22]

1. Analyzing and discussing forecasts with management

2. Reviewing the terms of loan agreements and

KASHIF KAMRAN- FCCA [AAA 2021-22]

 Disclosed = Para added in report “ MuRGC”

KASHIF KAMRAN- FCCA [AAA 2021-22]

ISA701-KEY AUDIT MATTERS

KASHIF KAMRAN- FCCA [AAA 2021-22]

 It is imperative that the candidates can identify the key

audit matters that are required to be disclosed in the audit

KASHIF KAMRAN- FCCA [AAA 2021-22]

 ‘Those matters that, in the auditor’s professional judgment,

were of most significance in the audit of the financial

KASHIF KAMRAN- FCCA [AAA 2021-22]

 High risk areas within the financial statements (ISA-315)

 Significant events or transactions within the year / subsequent event

KASHIF KAMRAN- FCCA [AAA 2021-22]

Why the matter was

KASHIF KAMRAN- FCCA [AAA 2021-22]

beyond that which would be included in an Emphasis of Matter

KASHIF KAMRAN- FCCA [AAA 2021-22]

KASHIF KAMRAN- FCCA [AAA 2021-22]

EOMP The matter is material

ISA706- Other matter para

KASHIF KAMRAN- FCCA [AAA 2021-22]

OMP Change of auditor

KASHIF KAMRAN- FCCA [AAA 2021-22]

ISA720- Other info para

KASHIF KAMRAN- FCCA [AAA 2021-22]

Other Statement that management is responsible for other info

Statement of auditor responsibilities relating to other information

A statement that auditor has “ nothing to report” or “ describing

KASHIF KAMRAN- FCCA [AAA 2021-22]