Guide to Using International Standards on Auditing in - IFAC
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Guide to Using International Standards on Auditing in - IFAC

Guide to Using International Standards on Auditing in - IFAC Guide to Using International Standards on Auditing in - IFAC

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17.03.2014 Views

186 ong>Guideong> ong>toong> ong>Usingong> ong>Internationalong> ong>Standardsong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts Procedure Communicate with External Legal Counsel Obtain Management Representation Description Where litigation or claims are identified or suspected, the audiong>toong>r would request a letter of inquiry, prepared by management and sent by the audiong>toong>r, requesting external legal counsel ong>toong> communicate details of claims, etc. directly with the audiong>toong>r. If this procedure is prohibited, or where management refuses permission ong>toong> contact external counsel, alternative procedures would be performed, such as reviewing all the available documentation and making additional inquiries. If alternate procedures are insufficient, then the audiong>toong>r’s opinion would be modified. Request a written representation from management and those charged with governance that all known actual or possible litigation and claims have been disclosed and properly accounted for in the financial statements. Segment Information Paragraph # Relevant Extracts from ISAs 501.13 The audiong>toong>r shall obtain sufficient appropriate audit evidence regarding the presentation and disclosure of segment information in accordance with the applicable financial reporting framework by: (Ref: Para. A26) (a) Obtaining an understanding of the methods used by management in determining segment information, and: (Ref: Para. A27) (i) Evaluating whether such methods are likely ong>toong> result in disclosure in accordance with the applicable financial reporting framework; and (ii) Where appropriate, testing the application of such methods; and (b) Performing analytical procedures or other audit procedures appropriate in the circumstances. As segment information is often not applicable in the audit of SMEs, they have not been addressed any further in this ong>Guideong>. 15.5 ISA 510—Initial Audit Engagements—Opening Balances Paragraph # ISA Objective(s) 510.3 In conducting an initial audit engagement, the objective of the audiong>toong>r with respect ong>toong> opening balances is ong>toong> obtain sufficient appropriate audit evidence about whether: (a) Opening balances contain misstatements that materially affect the current period’s financial statements; and (b) Appropriate accounting policies reflected in the opening balances have been consistently applied in the current period’s financial statements, or changes thereong>toong> are appropriately accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework. This standard provides guidance regarding opening balances when the financial statements are audited for the first time, or when the financial statements for the prior period were audited by another audiong>toong>r.

187 ong>Guideong> ong>toong> ong>Usingong> ong>Internationalong> ong>Standardsong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts Paragraph # Relevant Extracts from ISAs 510.5 The audiong>toong>r shall read the most recent financial statements, if any, and the predecessor audiong>toong>r’s report thereon, if any, for information relevant ong>toong> opening balances, including disclosures. 510.6 The audiong>toong>r shall obtain sufficient appropriate audit evidence about whether the opening balances contain misstatements that materially affect the current period’s financial statements by: (Ref: Para. A1–A2) (a) Determining whether the prior period’s closing balances have been correctly brought forward ong>toong> the current period or, when appropriate, have been restated; (b) Determining whether the opening balances reflect the application of appropriate accounting policies; and (c) Performing one or more of the following: (Ref: Para. A3–A7) (i) Where the prior year financial statements were audited, reviewing the predecessor audiong>toong>r’s working papers ong>toong> obtain evidence regarding the opening balances; (ii) Evaluating whether audit procedures performed in the current period provide evidence relevant ong>toong> the opening balances; or (iii) Performing specific audit procedures ong>toong> obtain evidence regarding the opening balances. 510.7 If the audiong>toong>r obtains audit evidence that the opening balances contain misstatements that could materially affect the current period’s financial statements, the audiong>toong>r shall perform such additional audit procedures as are appropriate in the circumstances ong>toong> determine the effect on the current period’s financial statements. If the audiong>toong>r concludes that such misstatements exist in the current period’s financial statements, the audiong>toong>r shall communicate the misstatements with the appropriate level of management and those charged with governance in accordance with ISA 450. 510.8 The audiong>toong>r shall obtain sufficient appropriate audit evidence about whether the accounting policies reflected in the opening balances have been consistently applied in the current period’s financial statements, and whether changes in the accounting policies have been appropriately accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework. 510.9 If the prior period’s financial statements were audited by a predecessor audiong>toong>r and there was a modification ong>toong> the opinion, the audiong>toong>r shall evaluate the effect of the matter giving rise ong>toong> the modification in assessing the risks of material misstatement in the current period’s financial statements in accordance with ISA 315. 510.10 If the audiong>toong>r is unable ong>toong> obtain sufficient appropriate audit evidence regarding the opening balances, the audiong>toong>r shall express a qualified opinion or disclaim an opinion on the financial statements, as appropriate, in accordance with ISA 705. (Ref: Para. A8) 510.11 If the audiong>toong>r concludes that the opening balances contain a misstatement that materially affects the current period’s financial statements, and the effect of the misstatement is not appropriately accounted for or not adequately presented or disclosed, the audiong>toong>r shall express a qualified opinion or an adverse opinion, as appropriate, in accordance with ISA 705. 510.12 If the audiong>toong>r concludes that: (a) the current period’s accounting policies are not consistently applied in relation ong>toong> opening balances in accordance with the applicable financial reporting framework; or (b) a change in accounting policies is not appropriately accounted for or not adequately presented or disclosed in accordance with the applicable financial reporting framework, the audiong>toong>r shall express a qualified opinion or an adverse opinion as appropriate in accordance with ISA 705.

186<br />

<str<strong>on</strong>g>Guide</str<strong>on</strong>g> <str<strong>on</strong>g>to</str<strong>on</strong>g> <str<strong>on</strong>g>Us<strong>in</strong>g</str<strong>on</strong>g> <str<strong>on</strong>g>Internati<strong>on</strong>al</str<strong>on</strong>g> <str<strong>on</strong>g>Standards</str<strong>on</strong>g> <strong>on</strong> <strong>Audit<strong>in</strong>g</strong> <strong>in</strong> the Audits of Small- and Medium-Sized Entities Volume 1—Core C<strong>on</strong>cepts<br />

Procedure<br />

Communicate<br />

with External<br />

Legal Counsel<br />

Obta<strong>in</strong><br />

Management<br />

Representati<strong>on</strong><br />

Descripti<strong>on</strong><br />

Where litigati<strong>on</strong> or claims are identified or suspected, the audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r would request<br />

a letter of <strong>in</strong>quiry, prepared by management and sent by the audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r, request<strong>in</strong>g<br />

external legal counsel <str<strong>on</strong>g>to</str<strong>on</strong>g> communicate details of claims, etc. directly with the audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r.<br />

If this procedure is prohibited, or where management refuses permissi<strong>on</strong> <str<strong>on</strong>g>to</str<strong>on</strong>g> c<strong>on</strong>tact<br />

external counsel, alternative procedures would be performed, such as review<strong>in</strong>g all<br />

the available documentati<strong>on</strong> and mak<strong>in</strong>g additi<strong>on</strong>al <strong>in</strong>quiries. If alternate procedures<br />

are <strong>in</strong>sufficient, then the audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r’s op<strong>in</strong>i<strong>on</strong> would be modified.<br />

Request a written representati<strong>on</strong> from management and those charged with<br />

governance that all known actual or possible litigati<strong>on</strong> and claims have been<br />

disclosed and properly accounted for <strong>in</strong> the f<strong>in</strong>ancial statements.<br />

Segment Informati<strong>on</strong><br />

Paragraph #<br />

Relevant Extracts from ISAs<br />

501.13 The audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r shall obta<strong>in</strong> sufficient appropriate audit evidence regard<strong>in</strong>g the presentati<strong>on</strong><br />

and disclosure of segment <strong>in</strong>formati<strong>on</strong> <strong>in</strong> accordance with the applicable f<strong>in</strong>ancial report<strong>in</strong>g<br />

framework by: (Ref: Para. A26)<br />

(a) Obta<strong>in</strong><strong>in</strong>g an understand<strong>in</strong>g of the methods used by management <strong>in</strong> determ<strong>in</strong><strong>in</strong>g segment<br />

<strong>in</strong>formati<strong>on</strong>, and: (Ref: Para. A27)<br />

(i) Evaluat<strong>in</strong>g whether such methods are likely <str<strong>on</strong>g>to</str<strong>on</strong>g> result <strong>in</strong> disclosure <strong>in</strong> accordance with<br />

the applicable f<strong>in</strong>ancial report<strong>in</strong>g framework; and<br />

(ii) Where appropriate, test<strong>in</strong>g the applicati<strong>on</strong> of such methods; and<br />

(b) Perform<strong>in</strong>g analytical procedures or other audit procedures appropriate <strong>in</strong> the circumstances.<br />

As segment <strong>in</strong>formati<strong>on</strong> is often not applicable <strong>in</strong> the audit of SMEs, they have not been addressed any<br />

further <strong>in</strong> this <str<strong>on</strong>g>Guide</str<strong>on</strong>g>.<br />

15.5 ISA 510—Initial Audit Engagements—Open<strong>in</strong>g Balances<br />

Paragraph #<br />

ISA Objective(s)<br />

510.3 In c<strong>on</strong>duct<strong>in</strong>g an <strong>in</strong>itial audit engagement, the objective of the audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r with respect <str<strong>on</strong>g>to</str<strong>on</strong>g><br />

open<strong>in</strong>g balances is <str<strong>on</strong>g>to</str<strong>on</strong>g> obta<strong>in</strong> sufficient appropriate audit evidence about whether:<br />

(a) Open<strong>in</strong>g balances c<strong>on</strong>ta<strong>in</strong> misstatements that materially affect the current period’s<br />

f<strong>in</strong>ancial statements; and<br />

(b) Appropriate account<strong>in</strong>g policies reflected <strong>in</strong> the open<strong>in</strong>g balances have been c<strong>on</strong>sistently<br />

applied <strong>in</strong> the current period’s f<strong>in</strong>ancial statements, or changes there<str<strong>on</strong>g>to</str<strong>on</strong>g> are appropriately<br />

accounted for and adequately presented and disclosed <strong>in</strong> accordance with the applicable<br />

f<strong>in</strong>ancial report<strong>in</strong>g framework.<br />

This standard provides guidance regard<strong>in</strong>g open<strong>in</strong>g balances when the f<strong>in</strong>ancial statements are audited for<br />

the first time, or when the f<strong>in</strong>ancial statements for the prior period were audited by another audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r.

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