Completion, review
and reporting
9 November 2017
www.pwc.com/cz
Ondrej Sehnal
Petr Blažek
PricewaterhouseCoopers Audit, s.r.o.
Agenda
2
November 2017Introduction to Audit
Completion
Reporting
Review
Questions
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Completion and review
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Subsequent events
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Subsequent events (SE)
SE are those events, favourable and unfavourable, that occur between
the Statement of Financial Position date and the date when the
financial statements are authorised for issue.
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Types of SE
Adjusting
Events providing additional evidence relating to conditions
existing at the end of the reporting period require adjustments
in the financial statements.
Non-adjusting
Concerning conditions which arose after the reporting period, but
which may be of such materiality that their disclosure is required
to ensure that the financial statements are not misleading.
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Going concern
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Going concern
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Financial statements should be prepared on the basis that the company
is a going concern unless it is inappropriate to do so.
The going concern concept is defined as the assumption that the
enterprise will continue in operational existence for the
foreseeable future.
 Management (and auditors) should generally (not exclusively) look
ahead at least 12 months from the year end, with 12 months
from the date the financial statements are published being
preferred.
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Responsibilities (GC)
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Directors
Assess the company’s ability
to continue as a going concern.
Auditors
Satisfy themselves that the going
concern assumption is reasonable
and disclosures made by directors
are adequate.
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Going concern
Typical Indicators
• borrowing facilities not agreed or close to expiry of current
agreement;
• behind with tax payments or with with paying staff;
• legal claims against the company;
• loss of key management or staff;
• over-reliance on a small number of products or staff.
Procedures
• assess state of industry in which the client operates;
• compare results with loan covenants;
• review correspondence with major customers, suppliers, banks;
• review post year-end management accounts to analyse trend
in performance;
• obtain written representations.
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Written management representations
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Written management representations
Management representations are a particular type of enquiry,
whereby the auditor asks management to confirm, in writing, a number
of issues covered by or surrounding the financial statements.
Purpose
 to obtain representations that management, and those
charged with governance, have fulfilled their responsibility for the
preparation of the financial statements
 to support other audit evidence relevant to the financial
statements
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Why do auditors need management
representations?
Because it is management’s responsibility to produce financial
statements that show a true and fair view, the most obvious first source
of audit evidence is to ask them whether or not they have done so.
There may be circumstances where no other sufficient,
appropriate audit evidence may reasonably be expected
to exist.
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Overall review of evidence and
quality
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Overall review of evidence and quality
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• Review is significant for a firm's appraisal system and development
of staff
• Review is an important element of any monitoring system,
implemented to identify and rectify deficiencies in a firm's practices that
could lead to poor quality work.
Appropriate review procedures are an integral part of an audit and are
a requirement of ISA 220 Quality Control for an Audit of Financial
Statements.
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Included considerations
 Has work been performed in accordance with professional
standards?
 Have the significant risks identified during planning been
addressed?
 Are there any critical areas of judgement relating to difficult or
contentious matters?
 Does the work documented support the conclusions made?
 Is there a need to revise the nature, timing and extent of procedures?
 Is the evidence sufficient to support an opinion?
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Evaluation of misstatements
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Evaluation of misstatements (1/2)
 All misstatements should be communicated to management
on a timely basis, unless they are clearly trivial.
 Management should be asked to correct all misstatements identified
during the audit.
 Prior to evaluating the significance of uncorrected misstatements the
auditor should reassess materiality to confirm whether it remains
appropriate to the financial statements.
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Evaluation of misstatements (2/2)
 The auditor must assess whether uncorrected misstatements are
material:
• individually or
• in aggregate.
 The auditor should obtain a written representation from
management and those charged with governance that they believe
the effect of the uncorrected misstatements is immaterial,
individually and in aggregate
 Auditor should then consider the impact of uncorrected
misstatements on Audit report.
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Reporting
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Reporting – audit report
The objectives of an auditor are:
 to form an opinion on the financial statements based upon an
evaluation of their conclusions drawn from audit evidence
 to express clearly that opinion through a written report
A company’s auditor must report their opinions to
shareholders on two primary matters:
 Whether the financial statements give a true (not factually
incorrect) and fair (impartial, unbiased) view (or present fairly
in all material respects).
 Whether the financial statements have been properly prepared in
accordance with relevant financial reporting Framework.
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Contents of an audit report (1/2)
 Title - e.g. Independent Auditor’s Report.
 Addressee - The report should be addressed to the intended user
of the report which is usually the shareholders or board of
directors.
 Auditor’s opinion - Provides the auditor’s conclusion as to
whether the financial statements give true and fair view.
 Basis for opinion - Provides a description of the professional
standards applied during the audit
 Key audit matters - for listed companies only! To draw attention
to any other significant matters of which the users should be aware.
 Other information – e.g. To clarify that management is
responsible for the other information
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Contents of an audit report (2/2)
 Management’s responsibilities - Preparation of the financial
statements which show a true and fair view or present fairly in all
material respects and in accordance with the applicable financial
Framework.
 Auditor’s responsibilities - Obtain reasonable assurance about
whether the financial statements as a whole are free of material
misstatement. Express an opinion and issue an audit report.
 Name of the engagement partner
 Signature
 Date of report - The audit report should be dated no earlier that
the date on which the auditor has obtained sufficient
appropriate evidence upon which to base their opinion.
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Unmodified vs. Modified opinion
Unmodified opinion
When the auditor concludes that the financial statements are prepared,
in all material respects, in accordance with the applicable financial
reporting framework they issue an unmodified opinion in the audit
report.
If there is no other matter necessary to draw to the attention of the
users, the auditor will issue an unmodified report.
Modified opinion
When the auditor concludes that either:
• the financial statements as a whole are not free from material
misstatement; or
• he has been unable to obtain sufficient appropriate evidence.
Then he has to issue a modified opinion.
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Modified report with unmodified opinion
Auditors are required to make additional communications in the
audit report event though the financial statements show a true
and fair view.
 Emphasis of Matter paragraph - 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 statement
 Other Matter paragraph - 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
 Material uncertainties related to going concern
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Modified report with modified opinion
The auditor may decide they need to modify the opinion if
they conclude that:
 Financial statements as a whole are not free from material
misstatements – the client is not compliant with applicable
financial reporting Framework.
 Auditor has not been able to gather sufficient &
appropriate audit evidence - missing evidence that would
support the figures in the financial statements.
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Nature of modification
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The nature of modification depends upon whether the matter
is considered to be material and, if so, whether is pervasive
to the financial statements.
The matter is considered pervasive if it affects the view given
by FS as a whole - pervasive matter must be fundamental
to the financial statements, therefore rendering them unreliable
as a whole.
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Qualified opinions
 A misstatement or lack of sufficient and appropriate audit evidence
is material but not pervasive.
 The matter is material to the area of the financial statements, but
doesn’t affect the rest of the financial statements
 “Except for…” this matter, the financial statements give true and
fair view
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Basis for modified opinion
„Basis for Opinion“ heading has to amended to:
 Basis for Qualified Opinion or
 Basis for Adverse Opinion or
 Basis for Disclaimer of Opinion,
as appropriate.
 The section explains the reason for opinion modification.
 If possible, a quantification of the financial effect of the modification
will be included.
 If the material misstatement relates to disclosures, an explanation of
how the disclosures are misstated should be included, or in the case
of omitted disclosures, the disclosure should be included if the
information is readily available
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Adverse opinion
A misstatement is considered material and pervasive -> financial
statements don’t give true and fair view.
E.g.:
• misstatement is so material that represents a substantial part of the
assets or profit
• non-consolidation of a subsidiary
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Disclaimer opinion
Auditor doesn’t obtain sufficient and appropriate audit evidence and
the effects of any possible misstatements could be pervasive >
auditor doesn’t express audit opinion
E.g.:
• Client doesn’t keep adequate accounting records
• Management doesn’t provide a written representation letter
• Client doesn’t provide an evidence over multiple balances in the
financial statements
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Review of components of Statutory Financial
statements
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Components of Financial Statements
 Annual report
 Report on relations
 Financial statements
 Notes to financial statements
 Auditor’s report
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Questions
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Thank you for your attention.
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