Guide to Using International Standards on Auditing in - IFAC

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224 <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 Paragraph # Relevant Extracts from ISAs 700.18 If financial statements prepared in accordance with the requirements of a fair presentation framework do not achieve fair presentation, the audi<strong>to</strong>r shall discuss the matter with management and, depending on the requirements of the applicable financial reporting framework and how the matter is resolved, shall determine whether it is necessary <strong>to</strong> modify the opinion in the audi<strong>to</strong>r’s report in accordance with ISA 705. (Ref: Para. A11) 700.19 When the financial statements are prepared in accordance with a compliance framework, the audi<strong>to</strong>r is not required <strong>to</strong> evaluate whether the financial statements achieve fair presentation. However, if in extremely rare circumstances the audi<strong>to</strong>r concludes that such financial statements are misleading, the audi<strong>to</strong>r shall discuss the matter with management and, depending on how it is resolved, shall determine whether, and how, <strong>to</strong> communicate it in the audi<strong>to</strong>r’s report. (Ref: Para. A12) When forming an opinion, the audi<strong>to</strong>r needs <strong>to</strong> ensure that the statements are prepared in accordance with the applicable financial reporting framework, as shown in the exhibit below. Exhibit 17.3-1 Forming an Audit Opinion Considerations Materiality Conclude whether: • Materiality remains appropriate in the context of the entity’s actual financial results. • Uncorrected misstatements (including uncorrected misstatements related <strong>to</strong> prior periods), either individually or in aggregate, could result in a material misstatement. Audit Evidence • Has sufficient appropriate audit evidence been obtained? • Are the accounting estimates made by management reasonable? • Did the analytical procedures performed at or near the end of the audit corroborate conclusions formed during the audit? Accounting Policies • Do the financial statements adequately disclose the significant accounting policies selected and applied? • Are the accounting policies consistent with the financial reporting framework, and appropriate in the circumstances?
225 <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 Forming an Audit Opinion (continued) Considerations Financial Statement Disclosures • Do the financial statements refer <strong>to</strong> or describe the applicable reporting framework? • Have all financial statement disclosures been made as required by the applicable financial reporting framework? • Is the terminology used in the financial statements, including the title of each financial statement, appropriate? • Are there adequate disclosures <strong>to</strong> enable intended users <strong>to</strong> understand the effect of material transactions and events on the information conveyed in the financial statements? • Is the information presented relevant, reliable, comparable, understandable, and sufficient? • Do 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? Fair Presentation Frameworks • Do the overall presentation, structure, and content (including the note disclosures) faithfully represent the underlying transactions and events in accordance with the applicable financial reporting framework? If not, is there a need <strong>to</strong> provide disclosures beyond those specifically required by the framework <strong>to</strong> ensure fair presentation? • Are the financial statements, after any adjustments made by management as a result of the audit process, consistent with the understanding obtained about the entity and its environment? Compliance Frameworks • Are the financial statements misleading? This is likely only in extremely rare circumstances. Based on the results of the evaluations outlined above, the audi<strong>to</strong>r would determine what form of audit report (unmodified or modified) is appropriate in the circumstances, as shown in the exhibit below. Exhibit 17.3-2 Type of Opinion Unmodified Opinion Modified Opinion (Qualified, Adverse, or Disclaimer) Audi<strong>to</strong>r’s Conclusions The financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework, and an unmodified opinion would be appropriate. • Based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement; or • Sufficient appropriate audit evidence could not be obtained <strong>to</strong> conclude that the financial statements as a whole are free from material misstatement. Volume 2, Chapter 23 of this <strong>Guide</strong> addresses the subject of modifications <strong>to</strong> the audi<strong>to</strong>r’s report.
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