AAA_DEC21_WTS_KASHIFKAMRAN (WHATSAPP+923332383442)

AAA-WEBINAR TO SUCCESS (WTS) - BY KASHIF KAMRAN

DECEMBER 2021 EXAMS
DAY 4

Objective: Audit report / completion stage of audit (Syllabus area E)

 One of the question in Section B is from Syllabus area E.

 Extremely important topic for your success.

Audit report

 You should be very good at rules

o Opinions
 Unqualified opinion
 Qualified opinion
 Adverse opinion
 Disclaimer of opinion
o Paragraphs
 Materiality uncertainty relating to going concern (MuRGC)
 Key audit matter – standard report
 Emphasis of matter paragraph
 Other matter paragraph
 Other information paragraph – standard report
 Types of audit reports
o Un-modified audit report
o Modified audit report

What is the meaning of the term modified?

 Modified means to change – from the standard audit report

Change- can be in form of:

Modifying the opinion – i.e. either qualified, adverse or disclaimer

A paragraph inserted in the audit report which is not part of the standard
report i.e.
 Materiality uncertainty relating to going concern (MuRGC)
 Emphasis of matter paragraph
 Other matter paragraph
 Remember SIX things which make a report modified
1. Qualified opinion
2. Adverse opinion
3. Disclaimer of opinion
4. Materiality uncertainty relating to going concern (MuRGC)
5. Emphasis of matter paragraph
6. Other matter paragraph
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Past paper
Requirement:
Explain the impact on the audit opinion and on the audit report?
For e.g.

 The issue above, because it’s immaterial, will result in an un-qualified opinion. This will lead to
an un-modified report
 The issue above, because it’s material but not pervasive, will lead to a qualified opinion. This
will lead to a modified audit report

Explain the impact of the matters above, on the audit opinion?

 Now such a requirement is telling you that the situations above, will only result in an impact on
opinion so you should not think of paragraphs, rather just keep in mind the 4 types of opinion.

Explain the impact of the matters above, on the audit report?

 You should think- even before reading the matters in the case, that there could be possibility
that some of the matters above could be reflected in the paragraph not opinion

Terminologies

 Impact on opinion- ( just thinking about 4 types of opinion within the context of case)
 Impact on audit report – ( thinking about whether in the case, are there any matter which can
be reflected in para as well not just opinion)
 Impact on opinion and the audit report- means you first need to inform the opinion and then
tell what type of report will the auditor issue- whether modified or un-modified

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Question on reporting

1. Explain the impact on opinion/ audit report?

2. Comment on the matters you should discuss with management in relation to each of the
uncorrected misstatement?
3. Explain the impact on financial statements?
4. Explain the matters which should be communicated to those charged with governance?
5. Critical appraisal of the draft audit report?

Comment on the matters you should discuss with management in relation to each of the uncorrected
misstatement?
Matters to be discussed with management

1. Materiality (1)
2. Correct accounting treatment (1)
3. Impact on the FS- i.e. because of the uncorrected misstatement – ___________ is understated and
_________ is overstated (1)
4. Impact of the misstatement on the audit opinion ( minimum- 1 mark)

Explain the impact on financial statements?

 Impact on FS is either under or overstatement or for e.g. a disclosure is not given, then the
impact is FS are materially misstated

Explain the matters which should be communicated to those charged with governance?

 So from the case study- pick up the matters which are important and you believe should be
communicated to TCWG.
 Please read the article- auditor report to TCWG
 One question only- Mar/Jun 19 –Q2b- ( covered in my June 21 webinar)

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Critical appraisal of the draft audit report?

 You need to pick the deficiencies in the audit report given in exam paper, and tell what should be the
correct way.
 1 mark per valid point you raise
 Please read the audit report given by the examiner for students in the exam technique article part-5, in
the exam focus paragraph.

Study approach for audit report

1. First watch all- 3 recommended webinars

2. Make notes while you watch the webinars
3. Read the 2 recommended articles
4. Also read the audit report provided by the examiner in the article
5. Now start with past papers, first focus all past papers from Sept 18 to Jun 21
6. Then if you want to practice more only focus on papers from Sept 16 onwards.

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Practice of the past papers

 Q2b- M/J 19 exams

 Q2b- March 2020
 Q5b- Dec 17

Q2b- March 2020

‘Critically appraise’ means consider each piece of information and assess whether it is correct or incorrect.

- If you find something is incorrect- you need to:

o Describing why and how to amend it as necessary. (1 mark per point)

Case study

The audit work is now complete and the Group auditor’s report is due to be issued in the next few days.
Materiality for the audit of the Group financial statements has continued to be determined to be $400,000. You
have been tasked with reviewing the draft auditor’s report and the following supplementary information which
has been prepared at the end of the audit:

– The audit partner has concluded that the fraud is immaterial and that all necessary work has been
performed by the audit team. ( no impact on opinion)

– Further audit procedures were successfully performed on the development costs, and a conclusion was
reached by the audit team that the recognition of the $600,000 as an intangible asset is appropriate.( no
impact on opinion)

– A letter was received from Hamlyn Co’s administrators on 29 July 20X5, stating that Hamlyn Co is in liquidation,
and that its creditors will receive a payment of 10% of outstanding balances. The audit team has concluded that
$50,000 can remain recognised as a trade receivable, and that $450,000 should be written off as
irrecoverable. However, the Group refuses to make any adjustment, and the full $500,000 remains
recognised as a trade receivable in the final Group financial statements. ( this is a material misstatement as
currently receivable and profit is overstated by $450,000 and expenses are understated by $450,000). This will
lead down to a qualified opinion.

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Answer
March 2020- Q2b
Critical appraisal
Basis of opinion and opinion
The opinion para should come first followed by basis of opinion. Further both the paragraphs should be
segregated as they are two discrete paragraphs in the audit report. Currently both paras are merged which is
wrong.
Overstated by $500,000.
The trade receivable aren’t overstated by $500,000 rather they are overstated by $450,000 because $ 50,000 can
still be recognized as receivable as per the conclusion of the auditor. So the misstatement value is given wrong in
the audit report
Likely to be materially misstated
Likely is an ambiguous statement which will confuse the shareholder. Audit report should contain definite
language, and in this case, the FS are materially misstatement because the group has refused to adjust the trade
receivable.
Do not fairly present the financial position
This is not the right way to present a qualified opinion. Qualified opinion starts with, in our opinion, except for,
which is not the case with how the opinion is drafted in the extract of the given report. Because FS are
materially misstated by $450,000 a qualified opinion should be issued.

Highlight the illegal activity which took place during the year.
This is wrong, because the EOMP does not highlight an illegal activity, rather emphasize on a material disclosure
given in the notes to FS. The fraud firstly is immaterial, so immaterial aspects don’t fall under EOMP and secondly,
fraud is not a disclosure. The audit partner has already concluded that the matter is settled.
Knowledge:

- Emphasis of matter para

o Emphasis – means something material
o Matter- means a disclosure given in the notes to the FS.
o EOMP= MATERIAL + DISCLOSURE GIVEN
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Dec 17 Q5B
Required:
For each of the matters described above:
(i) Explain the matters which should be discussed with management in relation to each of the
uncorrected misstatements, and
(ii) Assuming that management does not adjust the misstatements identified, evaluate the effect of each
on the audit opinion.

Matter 1
- (i) matters which should be discussed with management
o materiality
o accounting treatment
o impact on FS
- (ii) opinion
o which opinion should be issued / why – ( is it immaterial/ material/ pervasive)

Matter 2
- matters which should be discussed with management
o materiality
o accounting treatment
o impact on FS
- opinion
o which opinion should be issued / why – ( is it immaterial/ material/ pervasive)

Matter 3
- matters which should be discussed with management
o materiality
o accounting treatment
o impact on FS
- opinion
o which opinion should be issued / why – ( is it immaterial/ material/ pervasive)

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For e.g. a requirement in the exam paper comes this way !!
For each of the matters described above:
(i) Explain the matters which should be discussed with management in relation to each of the
uncorrected misstatements, and
(ii) Assuming that management does not adjust the misstatements identified, evaluate the effect on the
audit opinion. (Aggregate not individual)

Matter 1

- (i) matters to be discussed with management

o Materiality
o Accounting treatment
o Impact on the FS
o Individual opinion
Matter 2

- (i) matters to be discussed with management

o Materiality
o Accounting treatment
o Impact on the FS
o Individual opinion
Matter 3
- (i) matters to be discussed with management
o Materiality
o Accounting treatment
o Impact on the FS
o Individual opinion

Aggregate opinion

- Aggregate the misstatements (1)- total – means (NET) of debit minus credit ( looking at the PNL)
- Materiality of the total – (1)
- Conclude – what is the right aggregate opinion (1)

Suppose

1. Disclosure not given

2. Expense not recognized by $ 50,000 (Debit)
3. Provision which should be reversed by $ 10,000 (Credit)

What is the aggregate misstatement? debit minus credit = $40,000 debit (net)
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