The auditor’s objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes the auditor’s opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing (UK) (ISAs (UK)) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Show
As part of an audit in accordance with ISAs (UK), the auditor exercises professional judgment and maintains professional scepticism throughout the audit. The auditor also:
The auditor communicates with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that the auditor identifies during the audit. For listed entities and public interest entities, the auditor also provides those charged with governance with a statement that the auditor has complied with relevant ethical requirements regarding independence, including the FRC’s Ethical Standard, and communicates with them all relationships and other matters that may reasonably be thought to bear on the auditor’s independence, and where applicable, related safeguards. Where the auditor is required to report on key audit matters, from the matters communicated with those charged with governance, the auditor determines those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. The auditor describes these matters in the auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, the auditor determines that a matter should not be communicated in the auditor’s report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. For public interest entities, other listed entities, entities that are required, and those that choose voluntarily, to report on how they have applied the UK Corporate Governance Code, and other entities subject to the governance requirements of The Companies (Miscellaneous Reporting) Regulations 2018, the auditor is required to include in the auditor’s report an explanation of how the auditor evaluated management's assessment of the entity's ability to continue as a going concern and, where relevant, key observations arising with respect to that evaluation. Reporting on the financial statementsThe auditor’s report is required to contain a clear expression of opinion on the financial statements taken as a whole. To form an opinion on the financial statements the auditor concludes as to whether:
When the financial statements are prepared in accordance with a fair presentation framework, the auditor also evaluates whether the financial statements achieve fair presentation (i.e gives true and fair view) including consideration of:
Unmodified opinionsAn unmodified opinion is expressed when the auditor is able to conclude that the financial statements give a true and fair view 1 and comply in all material respects with the applicable financial reporting framework.Modified opinionsThe auditor modifies the opinion when either:
The auditor disclaims an opinion when either:
Emphasising certain matters without modifying the opinionIn certain circumstances an auditor’s report includes an emphasis of matter paragraph to draw attention to a matter presented or disclosed in the financial statements that, in the auditor’s judgment, is of such importance that it is fundamental to users’ understanding of the financial statements. An emphasis of matter paragraph does not modify the auditor’s opinion.Communicating "other matters"If the auditor considers it necessary to communicate a matter other than those that are presented or disclosed in the financial statements that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report, the auditor does so in a separate section in the auditor’s report with the heading “Other Matter” or other appropriate heading.Other information included in the annual reportThe auditor is required to read all financial and non-financial information (other information) included in the annual report and to identify whether the other information is materially inconsistent with the financial statements or the auditor’s knowledge obtained in the audit or otherwise appears to be materially misstated. If the auditor identifies material inconsistencies or apparent material misstatements, the auditor determines whether there is a material misstatement in the financial statements or a material misstatement of the other information. Where the auditor concludes that there is an uncorrected material misstatement of the other information, the auditor is required to report this in the auditor’s report. What is management's responsibility in a financial statement audit?Management is responsible for the integrity and objectivity of the information in these financial statements. Some of the information in the financial statements is based on management's best estimates and judgment and gives due consideration to materiality.
Which of the following management's responsibilities should be described in the auditor's report?The auditor's report shall describe management's responsibility for the preparation of the financial statements in the manner in which that responsibility is described in the terms of the audit engagement.
What is management responsibility?Responsibilities of management include, planning, organizing, directing and controlling. Controlling, including monitoring, is a process to ensure what is supposed to be done is being done.
What are management's and auditors respective responsibilities regarding internal control?They are responsible for evaluating existing internal control and assessing the control risk in them. For public companies, auditors must give an opinion on the effectiveness of internal control over financial reporting based on an audit of internal control that is integrated with the financial statement audit.
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