In Part 1 of this article we dealt with the common financial reporting issues within the Directors Report which have become subject to particular scrutiny by both the accounting institutes and representative/regulatory bodies. In this article we will discuss the common financial reporting disclosure issues which are prevalent in the Auditor’s Reports.
Auditor’s Report
From an Institute’s Review perspective one of the key Reports to “get right” is the Auditor’s Report. The primary guidance document is APB ISA 700 “The Auditor’s Report on Financial Statements” and APB Bulletin 2006/01 (for Irish registered companies) and more recently APB Bulletin 2009/02 (for UK registered companies).
Title
Introduction
Respective Responsibilities of Director’s & Auditors
Basis of Audit Opinion
Opinion
Emphasis of Matter Opinion (if applicable)
Title
Each auditor’s report should be titled “Independent Auditors Report to the Members of Sample Co. Limited for the year ended????
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Introduction
The introduction section consists of two paragraphs
Paragraph 1
We have audited the financial statements of Company Name for the year ended???? which comprises of the Profit and Loss Account, the Balance Sheet, and the related notes. These financial statements have been prepared under the historical cost convention and the accounting policies set out therein.
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Paragraph 2 “The Bannerman Paragraph”
This report is made solely to the company’s members as a body in accordance with Section 193 of the Companies Acts, 1990. Our audit work has been undertaken so that we might state to the company’s members those matters that we are required to state to them in the audit report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company or the company’s members as a body for our audit work, for this report, or for the opinions we have formed.
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Respective responsibilities of directors and auditors
The next section of the Auditor’s Report deals with the respective responsibilities of Directors and Auditors and should read as follows:
“As described in the Statement of Directors’ Responsibilities the company’s directors are responsible for the preparation of the financial statements in accordance with applicable law and Generally Accepted Accounting Practice in Ireland including the accounting standards issued by the Accounting Standards Board and published by the Institute of Chartered Accountants in Ireland/Certified Public Accountants/Institute of Chartered Certified Accountants.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland) promulgated by the Auditing Practices Board (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view in accordance with Generally Accepted Accounting Practice and are properly prepared in accordance with the Companies Acts, 1963 to 2006. We also report to you whether in our opinion: proper books of account have been kept by the company; whether, at the balance sheet date, there exists a financial situation requiring the convening of an extraordinary general meeting of the company; and whether the information given in the Directors’ Report is consistent with the financial statements. In addition, we state whether we have obtained all the information and explanations necessary for the purposes of our audit and whether the Balance Sheet and Profit and Loss are in agreement with the books of account.
We also report to you, in our opinion, any information specified by law regarding directors’ remuneration and directors’ transactions are not given, and where practicable, include such information in our report.
We read the Directors’ Report and consider the implications for our report if we become aware of any apparent misstatement within it.”
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Basis of audit opinion
The Basis of Audit Opinion section typically consists of two paragraphs as set out below
Paragraph 1
“We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed.”
Paragraph 2
“We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.”
NOTE
Variations to Paragraph 2 may be required in cases where the auditor was unable to plan or/and perform the audit so as to obtain all the information and explanations leading to a limitation of scope except for or disclaimer opinion. We will look at this in more detail when we look at Modified Audit Opinions in a future edition of this Newsletter.
The following paragraph is also added in cases where the Auditor is availing of the APB Ethical Standards-Provisions Available to Small entities
“We have undertaken the audit in accordance with the requirements of the APB Ethical Standards – Provisions Available to Small entities under the circumstances set out in note 20 to the financial statements. MAY NOT BE APPLICABLE”
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The final section of the auditors report is the Opinion Section
In the majority of cases the Auditor is required to give their opinion on the following items
“That the financial statements give a true and fair view, in accordance with Generally Accepted Accounting Practice in Ireland, of the state of the company’s affairs as at date and of its profit for the year then ended and have been properly prepared in accordance with the Companies Acts 1963 to 2006.
That the auditor has obtained all the information and explanations they considered necessary for the purpose of the audit.
That in their opinion, the company has kept proper books of account and that the company’s financial statements are in agreement with the books of account.
That in their opinion, the information given in the Directors’ Report is consistent with the financial statements.
That the net assets of the company, as stated in the balance sheet are more than half of the amount of its called up share capital and, in their opinion, on that basis there did not exist at date a financial situation which, under section 40(1) of the Companies (Amendment) Act 1983, would require the convening of an extraordinary general meeting of the company.”
NOTE
The statement regarding net assets above is not required for Companies Limited by Guarantee.
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We will look at Modified Audit Opinions in a future edition of this Newsletter.
Emphasis of Matter
In accordance with ISA 700 an emphasis of matter opinion should be included in the Auditor’s Report if there is a:
Material matter regarding a going concern problem
Significant uncertainty (other than a going concern problem), the resolution of which is dependent upon future events and which may affect the financial statements
Common Mistakes made
The sign off of the Auditor’s Report should include the terms Registered Auditor in the accountants name and should be dated appropriately.
The paragraph and the notes to the accounts are not specific enough to the company and its particular issues
Including the Emphasis of Matter paragraph in the body of the Auditor’s Report as opposed to being the last paragraph of the Report
Including the incorrect Companies Acts references
Including the Net asset paragraph in the Financial Statements of Company Limited by Guarantee
References made to Auditing Standards as opposed to International Standards on Auditing (UK and Ireland)
Mis-use of the APB Ethical Standards – Provisions Available to Small entities paragraph, either not including it when it should have been or vice versa
Not amending Paragraph 2 in cases where limitation of scope exists
References made to Auditing Standards as opposed to International Standards on Auditing (UK and Ireland)
Including a paragraph regarding the review of Operating and Financial Reviews-this is only required in the case of a plc company
Including the incorrect Companies Acts references
Including the incorrect Companies Acts references
Including the paragraph in the body of the Auditors Report instead of as the second paragraph of the Auditor’s Report
Stating that the Financial Statement comprise the Cashflow Statement and STRGL when these Reports are not included in the Financial statements-You should only include the relevant Reports to the particular company
Including the incorrect year end
Not including the word Independent
Addressing the Auditor’s Report to the Directors instead of the members (they are not always the same persons!)
Including the incorrect year end
This discussion will be continued in Part C will deal with disclosure issues which arise in the Notes to the financial statements. Three further articles will be issued with regarding Accountants Reports, Statement of Directors Responsibilities and Modified Audit Opinions.
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