THE PURPOSE AND SCOPE OF AUDITS AND REVIEWS WHY ARE AUDITS AND REVIEWS REQUIRED? Shareholders of FMC reperting entities! are arate from those managing and mn? Thay need 2 of nancial s the entty, and the performance of management and those moanies, such as creditors, alysts, prose ‘stakeholder: lenders, employees, shareholders, rust ‘communities. Audits and reviews enhance the credibility ofthe information contained within the financial statements? comprising the financial statements and notes tothe financial taterments, to-enable shareholders and other stakeholders tomake assessments and decisions, such a8 investing, divesting, lending or cant withthe anety,w Audits of each FMC reporting ‘Statements 10 required annually WHAT DO USERS NEED TO UNDERSTAND ‘ABOUT FINANCIAL STATEMENTS? Actors consider the informa ‘of financial statements whan di important (material to those. shat the auditor wl focus on, tis reasonable for the auditor to assume that users of the financial statements 4) Hava 2 reasonable knowledge of business, mic ettiae and accounting, 2¢ well awillngnass to study tha information in the financial statements with reasonable dl gan £) Understand thatthe financl roments are edzolovels of rateralty, ) Recognise the uncertainties inharentin the measurement of amounts based on the use of estimates, judgement and the consideration of future events; and <3) Make reasonable economic decisions fon the basis ofthe information in the financial statements WHAT DOES ASSURANCE MEAN? The term assurance refers tothe expression of a conclusion by an assuranee practitioner that isintended to nereace the confidence that deers can place in a givan subject matter An auditis a form of assurance engagement which provides an opinion giving reasonable assurance on financial stateman's An auctor i an assurance facttioner who eondicts an aud. Therefor an auditor's repert provides aconclsion that increases the confidence that users ean pce inan entity’ nancial statements, T fering lvels of assurance wh diferent types of conclusions, depending on he type of work thatthe assurance practitioner The following clagram lustratesdiferentlovels fof assurance, in some of the different activitiesWHAT |S THE IMPACT OF THE LEVEL OF ASSURANCE? ars ery Example form of conclsior Sone) Reasonable assurance | An sud of francial | Gatnerng ef rutcent _|Inour opinion the accompanying Satements spprprate sult financial statements present fay, tevidence bused on an | allmateral espects (or gve 8 tue and assessment ofriskand | irwew of, tre financal postion ef the rateralty to suppor the | entty sat yearend and oft nancial altrs opinion Performance aa ts csh oes forte Your then ended in ezordance wth New Zealand equ valents to Interaconal Finoneal Resorting tandarde (NZ IFRS) issued bythe New Zealand Accounting Standarl Board! (Ti is commonly refered to 2s postive assurance) Limited assurance |/Arevewolhallyear | Primarly enqures ana | Bared on our review, nothing har come financial statements. | anaytal reve, wi (our llention thal causes us lo believe lest detailed procedures, that these fnancal statements donot area onan assessment | present ith mall maceral expect, the cfiekcandinatenainy) | nance postion ofthe erty tty te suppertthe auditors | end, and af ts finance performance conelison tnd cath flows forthe i month then died, in accordance wth NZ IAS 34 Irvine Frayed Reporting lel the New Zerland Accounting Standards Boer This is commonly referred to as negative assurance) No eswanes + Preparing frandal__|~Preperatn ofthe |» No conchion provided statements ompiltion | fnancal statements sngagement + Agreed-upon ‘Performing an agreed | + Factalfindings from performing the procedures sat of proceduret procedures reported but no opinion {either peste or neqetiel i provided to the users onthe work that Fas been deren,WHATS AN AUDIT OF FINANCIAL STATEMENTS? ‘An auditofan FMC reporting entity's Financial statements sa rearonable assurance fengngoment where the auditor provides an ‘pinion about whether the financial statoments are presented far, in al material respec the financial position ofthe entty at year ond, and of ts nancal performance for the penod fended on that dat, and complying with New Zealand accounting standards, Ful-year nancial “satements of FMC reporting anttiee are required bylaw tobe ausitad. Many ather type: of js are also requirad to have ther financial statements ausitag, nclucing non-FMC re entities over a certain ze thresnoll and rge canes, ing While the reasonable assurance obtained in an aucitis a high level of assurance, itis not absolute ‘assurance thats, tis nota certieation thatthe financial statements are completely correct) ‘Obtaining absolute assurance i not possible infinancal statement audits fora number of reasons, ncasing + Revould be impractical forthe auditor test and audit evary sransaction or balances + Preparation ofthe financial statemants involves |ogements and estimates by management and may be contingent on future events, which ‘means that valuation of assots or Habiltios in the financial statements often cannot be determined prec'sely. WHAT IS A REVIEW OF FINANCIAL STATEMENTS? Aoviow of ahaleyoar sot of financial statements, referred to as intern financial statementsin the accounting standards is limited assurance ‘engagement where the auditor provides 9 Conclus’on to the users ofthe financial statements 28 fo whether the aucitor has become aware ‘of any matter that makes them believe thatthe interim financial statements are not presented {airy mall mataral respects, in accordance wih New Zealand Accounting Standard IAS 24 interim Financial Reporting, IC porting entities ha-yearfinancal statements are usualy suited or review by the same auditor that conducts the aud! ‘of the fnancal statements at year end RELATIONSHIPS IN FINANCIAL REPORTING The following diagram ils bess manager and the auditor Those charged with governance are those responsible for overseeing the strategic direction and accountability oblgat ons of the entity including the financial reparting process IN FMC reporting entties this includes tha board ‘of directors, whieh may include some execurive ‘members, andi members of he audit comme Ih New Zealand, the indgpendintausitor wil almost always be present atan FMC reporting entity's Annual General Meeting and they are avaiable to answer questions from incorestes partis that are entitled to participate inthe ‘meeting, such as shareholders, This is a usefl ‘opportunity for shareholders to laity speci sepects of the aucit