An extract from the draft audit report produced by an audit junior is given below:

      

An extract from the draft audit report produced by an audit junior is given below:

Basis of Opinion
‘We conducted our audit in accordance with Auditing Standards. 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 all the estimates and judgments 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.
‘We planned and performed our audit so as to obtain as much information and explanation as
possible given the time available for the audit. We confirm that the financial statements are free
from material misstatement, whether caused by fraud or other irregularity or error. The directors
however are wholly responsible for the accuracy of the financial statements and no liability for
errors can be accepted by the auditor. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the company’s annual report.’

Required:
Identify and explain the errors in the above extract.

  

Answers


Wilfred
The basis of opinion paragraph may not meet the requirements of ISA 700 for the following
reasons:
•• The use of the term Auditing Standards is not clear, because the report does not state
which auditing standards have been used. This provides uncertainty regarding the
actual standard of work performed.
•• The assessment of estimates and judgments made by the directors normally relates to
significant amounts only, rather than all of those estimates and judgments. The use of
the word all implies that the audit was more thorough than it probably was. Replacing
the word all with the word significant will show that there was some limit to the audit
testing and that this was probably focused on material amounts only.
•• Stating that time was a factor in obtaining information and explanations for the audit
is not correct as this implies some factor which could have been avoided and that the
audit may therefore be incomplete. The auditor has to plan the audit carefully and
ensure that all the information and explanations considered necessary are obtained to
form an opinion, not simply stop work when time runs out.
Wilfykil answered the question on April 13, 2019 at 07:08


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