Listado de patrimonios culturales inmateriales

The September 2012 exam paper asked you to explain the impact that two outstanding audit matters would have on the audit report, whether the report would require modification and if so the type of modification required. The March 2012 exam paper asked you to briefly explain three key areas of content of the audit report as required by ISA 700. The examiner’s answer included management’s

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responsibility, the auditor’s responsibility, the description of the work performed and the opinion expressed.

Learning outcome B1(g)

The following is an unmodified audit report, which has been signed by the auditors of Kiln, a limited liability company.

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF KILN COMPANY Report on the Financial Statements

We have audited the accompanying financial statements of Kiln Company, which comprise the statement of financial position as at December 31, 20X3, and the statement of profit or loss and other

comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We

conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, (or give a true and fair view of) the financial position of Kiln Company as at December 31, 20X3, and (of) its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

[Auditor’s signature] [Date of the auditor’s report] [Auditor’s address]

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Required

Explain the purpose and meaning of the following phrases taken from the above extracts of an audit report with an unmodified audit opinion.

(a) '... which comprise the statement of financial position …, and the statement of profit or loss and other comprehensive income, … and statement of cash flows … .’

(b) '... in accordance with International Standards on Auditing.' (c) 'In our opinion ...'

Section summary

The audit report is the report used to communicate the auditors’ opinion to the shareholders. It has a prescribed layout and must include certain things.

4 Types of audit opinion

5/10, 11/10, 11/11

Introduction

In the last section we looked at the structure of an audit report which included an unmodified opinion, however, sometimes it will be necessary to issue a modified opinion. In this section, we will look at the different types of audit opinion that can be issued.

4.1 Types of audit opinion

An audit opinion will either be unmodified or modified.

4.1.1 Unmodified audit opinion

An unmodified audit opinion should be expressed when the auditor concludes that the financial statements give a true and fair view (or are presented fairly, in all material respects) in accordance with the applicable reporting framework. The example audit report above contained an unmodified opinion.

4.2 Modified opinions

5/10, 11/10, 11/11

A modified opinion is required when:

 The auditor concludes that the financial statements as a whole are not free from material misstatements or

 The auditor cannot obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement

There are three possible types of modifications:  A qualified opinion

 An adverse opinion  A disclaimer of opinion

Terminology surrounding audit reports has recently been amended. In your exam and in real-life examples you might see the following terminology used.

New terminology Equivalent terminology you may see in your exam

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Modified opinion Qualified opinion

Qualified opinion ‘Except for’ qualified opinion

4.2.1 Types of modifications

The type of modification issued depends on the following:

 The nature of the matter giving rise to the modifications (ie whether the financial statements are materially misstated or whether they may be misstated when the auditor cannot obtain sufficient appropriate audit evidence)

 The auditor’s judgement about the pervasiveness of the effects/possible effects of the matter on the financial statements

At this point we should look again at the concept of materiality which is covered in the IASB’s Framework.

A matter is MATERIAL‘if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements'.

(Framework) The concept of materiality is very important to auditors as they do not report on anything which is not material. However, they do have to decide whether something is material or not. They may use guidelines such as treating anything which exceeds 5% of profit or 1% of revenue as material.