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a. Explain the meaning of the following phrases:- • Qualified audit report • Fundamental uncertainty b. State the matters that the Companies Act requires to be...

      

a. Explain the meaning of the following phrases:-

• Qualified audit report
• Fundamental uncertainty

b. State the matters that the Companies Act requires to be contained in an audit report
c. What types of audit opinion would normally follow from a limitation in the scope of the audit?

  

Answers


Peter
a) Qualified audit report; A qualified report is one where the auditor does not state the auditor’s opinion that the accounts have been properly prepared in accordance with the Act. A qualified report has legal consequences and may lead to accounts being seen as less reliable by contact groups.


b) Fundamental uncertainty; Inherent uncertainties are inevitable in accounting. Suppose that the company is engaged in litigation and the case will not be heard for many months and the verdict cannot be predicted. The only way to determine the uncertainty is to wait on the outcome of the trial but the financial statements must be produced to accord with companies Act time limits and because shareholders need the accounts.
These are uncertainty where the degree of uncertainty and its potential impact on the view given by the financial statements may be very great. In determining whether an inherent uncertainty is fundamental, the auditors consider:-

• The risk that the estimate included in the financial statement may be subject to change.
• The range of possible outcomes
• The consequences of those outcomes on the view given by the financial statement.

Inherent uncertainties are regarded as fundamental when they involve a significant level of concern about the validity of the going concern basis or other matters whose potential effect on the financial statements is unusually great.

b. The Companies Act requirements:
Whether in the auditor’s opinion the financial statements:

• Have been properly prepared in accordance with the Act.
• Give a true and fair view
• The auditor must state these matters in his report
• If in the auditor’s opinion proper accounting records have not been kept.
• If in the auditor’s opinion returns adequate for their audit have not been received from branches not visited by them.
• If in the auditor’s opinion the company individual accounts are not in agreement with the accounting records and returns .
• If in the auditor’s opinion they have failed to obtain all the information and explanation which to the best of their knowledge and belief are necessary for the purpose of their audit.
• If in the auditor’s opinion the information given in the directors’ report is not consistent with the annual accounts.

c. Limitations of scope means a limitation of scope of the auditor’s work that prevents them from obtaining sufficient evidence to express an unqualified opinion.
The qualification if the limitation is:

• Very material and pervasive – the qualification is a Disclaimer
• Less material and not pervasive – qualification is possible adjustments in the accounts.


Musyoxx answered the question on March 14, 2018 at 16:14


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