Audit Reports Exam Question Type 2 9, Eon MUGC Om 9 other Paras

information
-

, ,

CRITICAL APPRAISAL OF AUDIT REPORT be used

wrongly
may
.

audit be
Examiner will provide a
draft
to
, Headings may wrong
-

report G will to identify issues 11 level cannot be in

require ,
Materiality given
that audit audit
from report report
.

audit report is not examinable

of
-

Drafting
.

issues need to be issued

Only
.

9- mark Issue
per
→ 9 Explain issue
Identify
→ correct treatment .

Example -
issues

b Wrong opinion
e
2,
wrong sequence
of paragraph
3
Paragraphs are
missing
4, words used like
subjective are .

" " "

"

we think we doubt
,

5 Absolute words be used like

may
.

" "
" "

we we assure
guarantee ,

↳ Name cannot be used

Employees
of
7, Abbreviations cannot be used

8) Clear should be
reference given
.

It

like relevant
vague references Cf

standards are used is not allowed

Section B – BOTH questions are compulsory and MUST be attempted

2 (a) You are the manager responsible for the audit of Kilmister Co, a listed company specialising in the manufacture

F
-

and installation of sound-proof partitions for domestic and industrial buildings. You are currently reviewing the
draft auditor’s report on the company’s financial statements for the year ended 31 March 20X9. Extracts from the
a- -

draft auditor’s report are shown below:

←

Independent auditor’s report to the shareholders and directors of Kilmister Co

-I②-
Basis for opinion gessiaatcoaeats
-
We conducted our audit of Kilmister Co (the Company) in accordance with International Standards on Auditing
(ISAs). Our responsibilities under those standards are further described in the auditor’s responsibilities for the

IFFaal
audit of the financial statements section of our report. We are independent of the Company in accordance with
the ethical requirements which are relevant to our audit of the financial statements in the jurisdiction in which the
Company operates, and we have fulfilled our other ethical responsibilities in accordance with these requirements. -

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
-

Opinion
-
•
We have audited the financial statements of Kilmister Co (the Company), which comprise the statement of financial
2-
=
-

position as at 31 March 20X9, and the statement of comprehensive

-
income, statement of changes in equity and
statement of cash flows for the year then ended, and notes to the financial statements, including a summary of
-
-

significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material
.

respects, the financial position of the Company as at 31 March 20X9, and of its financial performance and its cash

Fsabbrevial.io
- .

flows for the year then ended in accordance with IFRS® Standards.

• Material uncertainty regarding going concern

The Company is financed by a long-term loan from its bankers which is due for redemption in August 20X9. At
the date of this auditor’s report, the Company is in the process=I of renegotiating the loan but has not yet reached
-
- -

a final agreement with its bankers. It is our view that the loan finance is essential to the continued survival of the
Company and that at the time of reporting, therefore,= the
-

-
= absence of a finalised agreement represents a material .

uncertainty regarding going concern. The financial statements have been prepared on a going concern basis but do
not make any reference to the loan redemption or at the ongoing negotiations with the bank. As the external auditor
#
-

therefore, we are fulfilling our duty by bringing the matter to the attention of users of the financial statements.
• Other information
F-
The Company’s principal activity is the manufacture and installation of sound-proof partitions for domestic and

--#
-

industrial buildings. The Company therefore engages in long-term contracts which are incomplete at the reporting
date and which are material to its revenue figure. The installation process is complex and significant judgement
is applied in assessing the percentage of completeness which is applied to calculate the revenue for the year. The
significance of this judgement requires us to disclose the issue as other information which is relevant to the users
of the financial statements.
→
kotmpargg
Required:
Critically appraise the extract from the draft auditor’s report for the year ended 31 March 20X9.
G -
#

Note: You are NOT required to re-draft the extracts from the auditor’s report. (10 marks)
-

(b) Your firm, Eddie & Co, has asked you to perform an independent review of the working papers of Taylor Co which
is a listed entity and has been an audit client of your firm for the last ten years. The audit fieldwork is almost
complete and as part of your review, you have been asked to advise the audit team on the drafting of their report
to those charged with governance. Taylor Co is a discount food retailer which operates 85 stores nationally. The
financial statements for the year ended 30 April 20X9 recognise revenue of $247 million (20X8 – $242 million),
profit before tax of $14·6 million (20X8 – $14·1 million) and total assets of $535 million (20X8 – $321 million).
After a period of rapid expansion, 20X9 has been a year in which Taylor Co has strengthened its existing position
within the market and has not acquired any additional stores or businesses. The company’s draft statement of
financial position for 20X9 includes a property portfolio of $315 million all of which are legally owned by the
entity. In the current year, the company has chosen to adopt a policy of revaluing its property portfolio for the

8
 Kilminister Ca ) lomarks MUGC para is used in audit of opinion
wrongly draft
.
-
.

because has not Other is used

report management given information paragraph
addressed to both disclosure that
Draft
Audit
report is
of uncertainty in FS
,
and in
for judgements
in revenue
recognition ,

shareholders G directors It it misstatement MUGC para is which is other

is as case is a
wrong
as
information
.

wrong
.

audit should be addressed to disclosed should be used

report given
when
uncertainty
is
appropriately paragraph for
Shareholders As 8 auditor G explain that issues which other than Fs
only . in
refers
are

Basis is but are part annual

report
of opinion para before uncertainty of
.

given
.

opinion para which is structure that management

has not Audit matter should be
a
wrong Considering key given
.

Basis should come disclosed he status in FS used in revenue

of opinion para uncertainty judgements
on , on

audit should be Audit contracts

after opinion para opinion qualified recognition of incomplete
.
.

In audit audit KAM discuss amounts heads

draft report vague reference opinion expressed in
draft report is
para will ,

that auditor has 9 involved

B
given fulfilled unmodified
which is
wrong
.

affected
risk in
judgements
relevant ethical As Audit should be ot
requirements It is
opinion qualified of
revenue
recognition
.

wrong
.

as
specific reference to heading para should be
"
a
of opinion Qualified
International Code C- this 9 basis
of for Professional opinion heading of of opinion
4

Accountants should be Should be basis

given para of qualified opinion
.

Abbreviation used audit Current audit

draft headings
is in
given draft
in
para .

IFRS This
report by stating word . will
report are
wrong
.

report Complete further sub inbasis

of
users a
confuse paragph of
.

International Financial Reporting para also when

of opinion is
wording qualified missing
.

Standards should be used sub needs

opinion gets qualified a
paragraph
.

to added
of qualified opinion
be in Basis para

to explain issue which resulted in

qualification
 489 June 2014
Pg
=

II ⇐
=
-

I
Td

provision
recorded

s:II
-

during year
Bad debt -

not .

o -

during
-

year
material ① - y - -

¢ - e-
a-

=-↳
$Emoo=⇒Fs
Provision -

not recorded .

--⇐n÷:÷
#
C

-1
an

- -

= * -
adze →
Opinion
-

-
←→oPBT
-
misstatement in tom
>
given
IT Abbreviation

7sDrsdaimergiuenformisst#
,
Audit senior
by
prepared report 14
, Auditing std not
given
in Basis

⇒ No separate para of opinion of opinion

.

3 Disclaimer is
regarded
as
opinion
15
Accounting Framework HE g
audit report
, ,

4, Materiality level
given
in
fs not referred
.

5
,
Absolute words are used .
components of
employee
6 ,
Reference of

basisgopim
B word think is also used

9, Adverse opinion
also
given
not
given
in
Detail misstatement
10
,
of

Trial matter in tom

lb
given
Misstatement in C- om
12
, given Page 191
Page 167 of 416
13 Abbreviation
, Use
of
¥ 12 marks
engagement
.
Corrected words would be that Basis
of modified opinion para is

Audit made Audit senior auditor 's opinion misstatement done incomplete detail misstatement
Report by
is in is
Draft as
of
.

lack Audit contains not discussed As

which shows
of
care .
Audit report is
report name
of Finance is .

per auditing
critical document 9 it should be prepared Director Rita Gilmour specifically It is standard amount heads
affected
a .

, , ,

level audit to Correct treatment G auditor treatment

by reasonable such as
manager .

wrong refer any employee

name .

management
to
Opinion Para is not
given separately q it approach would be
refer Management as should be
given along
with detail

is within Basis A a whole of transaction

merged of opinion
.
.
.

Disclaimer Claim $59000 In

for In audit report
is
separate para should be
given opinion Draft
is
of given Eon .

which placed before

basis
expressed due to material misstatement It is this matter is
just
of opinion para
is as
wrong
.

In Debtors It it

canned
basis in material PBT do be
regarded
draft report
is 0.45T
heading of of wrong
as on
of
. .

significant
,

"

Misstatement is
"

should matter SHS Eon

for
States be as
opinion para Disclaimer
of opinion modified opinion
.

rather than
i. E Disclaimer
regarded opinion given Disclaimer
given for issues which
significant
is as an .
. are

"

Basis
"
words Disclaimer should Word think Audit for SHS
Only of is used in
report
.

be written i¥ no
reference of
word which is a
subjective word .
It is Lastly it can also be
argued
that

Disclaimer
inability to it will Provision not reported
of report
$50.000
opinion
as as users is
wrong confuse of
means .

Corrected words would be that in in FS 4 is a misstatement as

give opinion .
,

level 415M auditor 'sopinion misstatement done provision not booked despite of
Materiality
is
of
is
given
in
draft is .

Audit report It to materiality I stated in

draft audit report that
probable chances This
of outflow
is is
wrong give
.
.

level audit it FS do not matter Eom

in
report as will
confuse present fair view iz .
Adverse opinion is
referred in which

audit EOM
report It is
for
users is as is issues
also expressed misstatement
of
is
wrong given
.

as
wrong
.

" "

Absolute word is used material not to As Trade disclosed in Fs

conclusively in was but pervasive . which are
correctly .

It $25 which
draft audit report recieuables misstated
by
m
is as
wrong
. are

PBT oi material but not pervasive

audit is a reasonable assurance is 22.71
of
.
.
 491 June 2012=95
Pg
=
Cb )

E- I

9th
⇒e
"÷gaEs

oats
-

" " " " " " " t

-2K€
^

Mat

Edge → Basis
g adverse

opini③±
#⇐
e-

Adverse
b wrong opinion
-

consistent 7 Absolute word

Efsa
I 'M Pert
not
3 Heading is " ,

rs only 2 were
referred standard
of B Auditing
-

Components
↳
3
.

5 components should be
referred .

% Heads affected
.

Heading of
is
↳ Basis
of opinion wrong

5 Accusation is made
,

Practice
6, Accepted Accounting

Page 481
 ¥ Adverse
opinion is
given
on be Basis
of
Adverse
opinion .

misstatement in Pension Plan It In audit report accusation is

draft
is an
wrong
.

as misstatement $105 made that misstatement done

of
m
represents is
deliberately .

6 't assets which is material but It is auditor has to

report
of wrong as

not pervasive to Fs Correct audit Fs rather than intentions

.
on
Management .

opinion
should be
modified opinion .

Word deliberate should be removed .

Heading of opinion para is not consistent It is stated in

draft audit report that

with opinion expressed .

It should be
Management treatment contravenes accepted
"
"
Adverse
opinion as
opinion expressed accounting practice It is as it will
wrong
.

is Adverse It headed who lack

reporting
wrongly
as users
is
confuse financial
.

Auditor 's Auditor should discuss correct

opinion Knowledge .
.

Draft Audit report refers that treatment specifically .

Financial

Draft
E Cash flows that Fs not
Performance are Audit report stated is

properly
It It
wrongly reported is
wrong approach prepared shows use
of
absolute
.
.

as
auditing standards that word Audit is reasonable
require .
a assurance

auditor should all components ooo rather than word

properly
refer engagement
FS II Income statement Statement auditor Should words true
of prepared use G
.

,
,

Position Statement flow

of
financial ,
of
Cash ,
fair view .

Statement in Equity 3 Notes

of changes
to rs .

Basis is headed
of opinion wrongly
Explanation Adverse It
of opinion
as .

is correct should
wrong
as heading