Orientation How to study effectively this part of the Block 3 ?
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Block 3 Completion & reporting
Topics included are:
1. Communication of matters to TCWG 2. Audit report- understanding and concept building 3. Practice of past papers to clarify the concept and exam techniques around communication of matters to TCWG and audit report
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Block 3 Completion & reporting
overview This is a core block from exam perspective Completion/ reporting topic is a mandatory part of section B, and one of the question in section B is set at this stage. The question could be around, purely evidence ( which you will learn in next section), or on audit report , or can be a blend of both evidence and report. In some instance a part of qs has been on matters to be communicated to TCWG. There is no technical article recommended for this section
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Block 3 Completion & reporting
overview There are total of 5 lectures in this section of Block 3 with total lecture duration of 12 hours There are support file for each lecture in pdf which can be downloaded, and you can use them when watching lectures and then as your notes for revision. The notes are available on the portal titled presentation for completion and reporting and can be downloaded.
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The marking scheme for entire completion and reporting stage is 1
mark per valid point irrespective of the requirement. Lectures are recorded over time so at some places you may see tutor discussing different marking scheme, but you need to follow the most updated one. Practice more recent paper from 2021-2024 as your first priority before shifting to old papers.
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BLOCK 3 AUDIT REPORTING 06/15-Q5 Practice more recent paper from 2021-2024 as your first priority 12/15-Q5 before shifting to old papers. There is no change in old and new qs in terms of how this topic is tested ( so both are equally valid) 06/16-Q5 12/16-Q5 06/17-Q5 EXAM
12/17-Q5 06/18-Q5 09/18-Q2 12/18-Q2 06/19-Q2
Communication to TCWG ARTICLE
Auditor reporting- an update for P7 students on key audit matters
The new auditors’ report
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The new auditor report
ISA-700 The format of the audit 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
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 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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Types of misstatements
Factual
Types Judgmental
Projected
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Steps to be taken by auditor
Accumulate misstatements during audit unless trivial
Categorize misstatements ( Factual, projected and judgmental)
Communicate to management on timely basis
Correction of misstatement
Evaluation of uncorrected misstatements
Communication with TCWG
Impact on audit report
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Pervasive [ISA-705] Pervasive effects on the financial statements are 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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ISA 570: Going concern exam focus
Exam questions might ask the candidate to recognize
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 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
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 Disclosed = Para added in report “ MuRGC” Not disclosed = Modified
Co is a GC + Doubts exist + No MU (Close call) [ Listed Co]
Include as “KAM”
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ISA 701: KAM
It is imperative that the candidates can identify the key
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,
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)
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
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 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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ISA 706: EOMP
EOMP The matter is material
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ISA 720: Other information para
Other Statement that management is responsible for other info
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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ISA 706: Other matter para
OMP Change of auditor
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Reporting question requirements
Critically appraise the draft audit report Matters to be considered Actions to be taken Adjustments necessary Further procedures Impact on report KASHIF KAMRAN- FCCA _AAA
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Critical appraisal of draft report
Critical Who prepared it ?
appraisal Format / structure ?
Wording
Missing information
Right – Justify why ?
Opinion Wrong- Justify the right opinion ?
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Matters
Matters Materiality
Treatment
Impact on FS and on the audit
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Actions
Actions Taken to resolve Example :
Discussion with TCWG the matter [positive actions]
