Guide to Using International Standards on Auditing in - IFAC

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222 <strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> 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 <strong>to</strong> 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 <strong>to</strong> the audi<strong>to</strong>r’s report In some cases, the audi<strong>to</strong>r may be required <strong>to</strong> conduct an audit in accordance with both frameworks. In these situations, the audi<strong>to</strong>r’s opinion would refer <strong>to</strong> both the fair presentation framework and the applicable legal or regula<strong>to</strong>ry requirements. National <strong>Standards</strong> A reference in the audi<strong>to</strong>r’s report <strong>to</strong> both <strong>International</strong> <strong>Standards</strong> 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 audi<strong>to</strong>r’s report would only refer <strong>to</strong> the auditing standards (either <strong>International</strong> <strong>Standards</strong> on Auditing or the national auditing standards) in accordance with which one the audi<strong>to</strong>r’s report has been prepared. For example, ISA 570 requires the audi<strong>to</strong>r <strong>to</strong> add an Emphasis of Matter paragraph <strong>to</strong> highlight a goingconcern problem, whereas some national auditing standards prohibit such a paragraph.
223 <strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> 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 audi<strong>to</strong>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 <strong>to</strong> form that opinion, the audi<strong>to</strong>r shall conclude as <strong>to</strong> whether the audi<strong>to</strong>r has obtained reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due <strong>to</strong> fraud or error. That conclusion shall take in<strong>to</strong> account: (a) The audi<strong>to</strong>r’s conclusion, in accordance with ISA 330, whether sufficient appropriate audit evidence has been obtained; (b) The audi<strong>to</strong>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 audi<strong>to</strong>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 indica<strong>to</strong>rs of possible bias in management’s judgments. (Ref: Para. A1-A3) 700.13 In particular, the audi<strong>to</strong>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 <strong>to</strong> enable the intended users <strong>to</strong> 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 audi<strong>to</strong>r’s evaluation as <strong>to</strong> 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 audi<strong>to</strong>r shall evaluate whether the financial statements adequately refer <strong>to</strong> or describe the applicable financial reporting framework. (Ref: Para. A5-A10) 700.16 The audi<strong>to</strong>r shall express an unmodified opinion when the audi<strong>to</strong>r concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. 700.17 If the audi<strong>to</strong>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 <strong>to</strong> obtain sufficient appropriate audit evidence <strong>to</strong> conclude that the financial statements as a whole are free from material misstatement, (c) the audi<strong>to</strong>r shall modify the opinion in the audi<strong>to</strong>r’s report in accordance with ISA 705.
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Guide to Using International Standards on Auditing in - IFAC

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