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

222 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 A decision tree for forming an opinion under the two general purpose frameworks is outlined below. Exhibit 17.2-2 General Purpose Financial Reporting Frameworks Fair presentation Compliance Are the F/S prepared in accordance with an applicable framework? Are financial statements “presented fairly”? yes no Report issues ong>toong> management and those charged with governance no Do financial statements comply with framework? yes Standard audit opinion yes Issue resolved? yes Standard audit opinion no no Modified audit opinion Make changes ong>toong> the audiong>toong>r’s report In some cases, the audiong>toong>r may be required ong>toong> conduct an audit in accordance with both frameworks. In these situations, the audiong>toong>r’s opinion would refer ong>toong> both the fair presentation framework and the applicable legal or regulaong>toong>ry requirements. National ong>Standardsong> A reference in the audiong>toong>r’s report ong>toong> both ong>Internationalong> ong>Standardsong> on Auditing and the national auditing standards is appropriate when no conflict exists between the requirements of both sets of standards. If a conflict exists, the audiong>toong>r’s report would only refer ong>toong> the auditing standards (either ong>Internationalong> ong>Standardsong> on Auditing or the national auditing standards) in accordance with which one the audiong>toong>r’s report has been prepared. For example, ISA 570 requires the audiong>toong>r ong>toong> add an Emphasis of Matter paragraph ong>toong> highlight a goingconcern problem, whereas some national auditing standards prohibit such a paragraph.

223 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 17.3 Forming the Opinion Paragraph # Relevant Extracts from ISAs 700.10 The audiong>toong>r shall form an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. 700.11 In order ong>toong> form that opinion, the audiong>toong>r shall conclude as ong>toong> whether the audiong>toong>r has obtained reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due ong>toong> fraud or error. That conclusion shall take inong>toong> account: (a) The audiong>toong>r’s conclusion, in accordance with ISA 330, whether sufficient appropriate audit evidence has been obtained; (b) The audiong>toong>r’s conclusion, in accordance with ISA 450, whether uncorrected misstatements are material, individually or in aggregate; and (c) The evaluations required by paragraphs 12-15. 700.12 The audiong>toong>r shall evaluate whether the financial statements are prepared, in all material respects, in accordance with the requirements of the applicable financial reporting framework. This evaluation shall include consideration of the qualitative aspects of the entity’s accounting practices, including indicaong>toong>rs of possible bias in management’s judgments. (Ref: Para. A1-A3) 700.13 In particular, the audiong>toong>r shall evaluate whether, in view of the requirements of the applicable financial reporting framework: (a) The financial statements adequately disclose the significant accounting policies selected and applied; (b) The accounting policies selected and applied are consistent with the applicable financial reporting framework and are appropriate; (c) The accounting estimates made by management are reasonable; (d) The information presented in the financial statements is relevant, reliable, comparable and understandable; (e) The financial statements provide adequate disclosures ong>toong> enable the intended users ong>toong> understand the effect of material transactions and events on the information conveyed in the financial statements; and (Ref: Para. A4) (f) The terminology used in the financial statements, including the title of each financial statement, is appropriate. 700.14 When the financial statements are prepared in accordance with a fair presentation framework, the evaluation required by paragraphs 12-13 shall also include whether the financial statements achieve fair presentation. The audiong>toong>r’s evaluation as ong>toong> whether the financial statements achieve fair presentation shall include consideration of: (a) The overall presentation, structure and content of the financial statements; and (b) Whether the financial statements, including the related notes, represent the underlying transactions and events in a manner that achieves fair presentation. 700.15 The audiong>toong>r shall evaluate whether the financial statements adequately refer ong>toong> or describe the applicable financial reporting framework. (Ref: Para. A5-A10) 700.16 The audiong>toong>r shall express an unmodified opinion when the audiong>toong>r concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. 700.17 If the audiong>toong>r: (a) concludes that, based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement; or (b) is unable ong>toong> obtain sufficient appropriate audit evidence ong>toong> conclude that the financial statements as a whole are free from material misstatement, (c) the audiong>toong>r shall modify the opinion in the audiong>toong>r’s report in accordance with ISA 705.

222<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 />

A decisi<strong>on</strong> tree for form<strong>in</strong>g an op<strong>in</strong>i<strong>on</strong> under the two general purpose frameworks is outl<strong>in</strong>ed below.<br />

Exhibit 17.2-2<br />

General Purpose F<strong>in</strong>ancial Report<strong>in</strong>g Frameworks<br />

Fair presentati<strong>on</strong><br />

Compliance<br />

Are the F/S prepared <strong>in</strong><br />

accordance with an<br />

applicable framework?<br />

Are<br />

f<strong>in</strong>ancial<br />

statements<br />

“presented<br />

fairly”?<br />

yes<br />

no<br />

Report issues <str<strong>on</strong>g>to</str<strong>on</strong>g><br />

management and<br />

those charged with<br />

governance<br />

no<br />

Do<br />

f<strong>in</strong>ancial<br />

statements<br />

comply with<br />

framework?<br />

yes<br />

Standard<br />

audit op<strong>in</strong>i<strong>on</strong><br />

yes<br />

Issue<br />

resolved?<br />

yes<br />

Standard<br />

audit op<strong>in</strong>i<strong>on</strong><br />

no<br />

no<br />

Modified<br />

audit op<strong>in</strong>i<strong>on</strong><br />

Make changes <str<strong>on</strong>g>to</str<strong>on</strong>g><br />

the audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r’s report<br />

In some cases, the audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r may be required <str<strong>on</strong>g>to</str<strong>on</strong>g> c<strong>on</strong>duct an audit <strong>in</strong> accordance with both frameworks. In these<br />

situati<strong>on</strong>s, the audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r’s op<strong>in</strong>i<strong>on</strong> would refer <str<strong>on</strong>g>to</str<strong>on</strong>g> both the fair presentati<strong>on</strong> framework and the applicable legal<br />

or regula<str<strong>on</strong>g>to</str<strong>on</strong>g>ry requirements.<br />

Nati<strong>on</strong>al <str<strong>on</strong>g>Standards</str<strong>on</strong>g><br />

A reference <strong>in</strong> the audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r’s report <str<strong>on</strong>g>to</str<strong>on</strong>g> both <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> and the nati<strong>on</strong>al audit<strong>in</strong>g<br />

standards is appropriate when no c<strong>on</strong>flict exists between the requirements of both sets of standards. If a<br />

c<strong>on</strong>flict exists, the audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r’s report would <strong>on</strong>ly refer <str<strong>on</strong>g>to</str<strong>on</strong>g> the audit<strong>in</strong>g standards (either <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><br />

<strong>on</strong> <strong>Audit<strong>in</strong>g</strong> or the nati<strong>on</strong>al audit<strong>in</strong>g standards) <strong>in</strong> accordance with which <strong>on</strong>e the audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r’s report has been<br />

prepared.<br />

For example, ISA 570 requires the audi<str<strong>on</strong>g>to</str<strong>on</strong>g>r <str<strong>on</strong>g>to</str<strong>on</strong>g> add an Emphasis of Matter paragraph <str<strong>on</strong>g>to</str<strong>on</strong>g> highlight a go<strong>in</strong>gc<strong>on</strong>cern<br />

problem, whereas some nati<strong>on</strong>al audit<strong>in</strong>g standards prohibit such a paragraph.

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