75

Completion and reporting

1 Subsequent events
Subsequent events are “events occurring between the period end and the date of the auditor’s report
and those discovered after the date of the auditor’s report”.
Auditors must take steps to ensure that any such events are properly reflected in the financial
statements.
STEP ONE: Perform procedures to identify if there are any such relevant events
STEP TWO: Read the financial statements to ensure they reflect such events appropriately
STEP THREE: Discuss with management if the financial statements do not so reflect them

Time

Reporting Auditor’s F.S

Date Adjusting Non-adjusting report issued
issued
1 2 3

1 – Events occurring up to the date of the auditor’s report

The auditor has an active duty to search for any material subsequent events.
Audit procedures at this point in time would include:
 Review management procedures to try and ensure that subsequent events are identified.
 Read minutes of the post year-end company meetings and Board meetings and enquiring into
unusual items.
 Obtain the company’s latest interim accounts as well as any budgets and cash flow forecasts.
76 Co u rs e N o te s ACCA AAA

 Enquire of the company’s solicitors as to any new developments re: litigation.

 Include subsequent events on the letter of representation.
When the auditor becomes aware of events that materially affect the financial statements, the auditor
must consider whether they have been properly accounted for and adequately disclosed in the
financial statements. If they haven’t, a modified auditor’s report should be issued.

2 – Facts discovered after the date of the auditor’s report but before the date the
financial statements are issued
Note: After the date of the auditor’s report, it is management’s responsibility to inform the auditor of
facts which may affect the financial statements.
The auditor does not have any responsibility to perform audit procedures or make any inquiry
regarding the financial statements after the date of the auditor’s report. They only have a duty to act
if they are made aware of something.
If the auditor becomes aware of such facts which may materially affect the financial statements, they
should encourage the directors to amend the financial statements and then the auditor should issue a
new auditor’s report.
If management does not amend the financial statements (where the auditor believes they need to be
amended), the auditor should express a modified opinion due to material misstatement.

3 – Facts discovered after the financial statements have been issued

After the financial statements have been issued, the auditor has no obligation to make any inquiry
regarding such financial statements.
However, if the auditor becomes aware of a fact which existed at the date of the auditor’s report and
which, if known at that date, may have caused the auditor’s report to be modified, the auditor should:
 Consider whether the financial statements need revision;
 If needed, issue a new report on the revised financial statements. This report should include an
emphasis of matter paragraph referring to the reason for the revision.
If management do not revise the financial statements, the auditor should take legal advice with the
objective of trying to prevent further reliance on the report.

2 Going concern
2.1 Indicators that the going concern basis may be in doubt
Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the
“foreseeable future” with neither the intention nor the necessity of liquidation. This “foreseeable
future” should be at least 12 months after the period end.
Management should assess the entity’s ability to continue as a going concern and ensure that the
correct basis of preparation is made. Where the directors intend to cease trading, or have no realistic
alternative but to do so, the financial statements should be prepared on a ‘break up’ basis. This
change in accounting basis would also need to be disclosed.
The auditor’s responsibility is to consider the appropriateness of the management’s use of the going
concern assumption in the preparation of the financial statements and to consider whether there are
material uncertainties about the entity’s ability to continue as a going concern that need to be
disclosed in a note.
ACCA AAA Co u rs e N o te s 77

The auditor will therefore need to come to an opinion as to the going concern status of an entity but
the focus of the auditor’s evaluation of going concern is to see whether they agree with the
assessment made by the management.
Auditors should perform this assessment at the planning stage of the audit and at the final review stage.
Examples of events or conditions, which may give rise to business risks, that individually or collectively
may cast significant doubt about the going concern assumption are set out below.

Financial
 Net liability or net current liability position.
 Fixed-term borrowings approaching maturity without realistic prospects of renewal or
repayment; or excessive reliance on short-term borrowings to finance long-term assets.
 Adverse key financial ratios.
 Substantial operating losses or significant deterioration in the value of assets used to generate
cash flows.
 Inability to pay creditors on due dates.
 Change from credit to cash-on-delivery transactions with suppliers.

Operating
 Loss of key management without replacement.
 Loss of a major market, franchise, license, or principal supplier.

2.2 Procedures
In order to establish whether a company is a going concern or not, the key evidence the auditor will
review is management’s assessment of going concern. They should evaluate whether:
 It is reasonable (which may involve testing of any cash forecasts included and any assumptions
made, for example, in relation to sales trends in the coming year)
 It takes into account all the issues that the auditor is aware of relating to going concern.
Where the client has prepared forecasts suggesting that there is no problem with going concern, the
auditor should
 Compare previous years’ forecasts with actual results to determine the historical accuracy of
the client’s forecasts as this will give a degree of assurance about whether the current forecast
is likely to be accurate.
If the auditor has identified events or conditions that raise doubt concerning going concern, the
auditor should perform additional audit procedures:
 Obtain a copy of the cash flow forecast and discuss the results of this with the directors.
 Make enquiries of the directors and examine appropriate documentation supporting the
company’s going concern status such as budgets and cash flow forecasts.
 Consider the appropriateness of assumptions which directors have made, the sensitivity of
assumptions to external and internal changes, the existence and adequacy of borrowing
facilities and the directors’ plans to deal with any going concern problems.
 Document the extent of any concerns, taking account of matters that have come to their
attention during the course of the audit and in particular, financial, operational, or other
indicators of going concern problems that are present.
78 Co u rs e N o te s ACCA AAA

 Obtain the entity’s latest available interim financial statements to ascertain whether there is
sufficient audit evidence to confirm or dispel whether or not a material uncertainty regarding
going concern exists.
 Make enquiries of the entity’s lawyer regarding the existence of litigation and claims and the
reasonableness of management’s assessments of their outcome and the estimate of their
financial implications.
 Seek written representations from management regarding its plans for future action.
 Review correspondence from company bankers regarding continuance of loan facilities.
 Review receivables ageing analysis to determine whether there is an increase in days – which
may also indicate cash flow problems.

2.3 Going concern and the auditor’s report

Refer back to this diagram after you have looked at auditor’s reports.

Is the company a
going concern?
Yes Yes, but a material No
uncertainty exists

Unmodified Is this fact adequately Is this fact adequately reflected in

auditor’s report disclosed? the accounting basis and disclosed?

No No
Yes
Yes

Qualified audit Adverse audit

Unmodified audit opinion
opinion – material opinion – pervasive
with a material uncertainty
misstatement misstatement
relating to going concern
paragraph

Unmodified audit opinion

with an emphasis of matter
paragraph
ACCA AAA Co u rs e N o te s 79

3 Evaluation of misstatements
3.1 Accumulate and consider
During the course of the audit, the auditor should accumulate the total of discovered misstatements
(other than those which are clearly trivial).
The auditor must consider whether to revise the audit strategy and plan if:
 The nature of identified misstatements and circumstances of their occurrence suggest that
other misstatements could exist and be material in aggregate
 The accumulated misstatements approach the materiality level.
If management corrects identified misstatements, the auditor should perform additional procedures
to identify whether misstatements remain.

3.2 Communicate and correct

Auditors should discuss identified misstatements with management on a timely basis and ask them to
correct them.
If management refuse to correct identified misstatements, auditors should
 Understand why management refuses to correct
 Take account of this refusal when considering whether the financial statements are free from
material misstatement

3.3 Evaluate the impact of uncorrected misstatements

The auditors should
 Reassess materiality to ensure it is still appropriate.
 Evaluate whether uncorrected misstatements are material individually or in aggregate.
 Obtain written representation from management that they believe uncorrected misstatements
to be immaterial

3.4 Types of misstatement

The evaluation of misstatements will be influenced by the type of misstatement which has occurred.

KEY TERMS
Factual misstatements are misstatements about which there is no doubt.
Judgemental misstatements are differences arising through judgements (i.e. where
management and auditor judgements differ in relation to a particular item or policy)
Projected misstatements are the auditor’s best estimate of misstatements in populations
based on audit testing.
80 Co u rs e N o te s ACCA AAA

As general rules:
 Factual misstatements should ideally be corrected.
 In relation to judgemental misstatements, the auditors must be confident that a material
misstatement does not exist as a result of a management judgement. Judgemental
misstatements should be discussed with management. If the auditor feels that a material
misstatement will occur as a result of management’s judgement, they should modify their
opinion if management do not correct the misstatement.
 Projected misstatements should not be adjusted for – further audit testing should be carried
out and only actual misstatements should be corrected.

4 Reporting
4.1 The unmodified auditor’s report
The primary purpose of the external audit is to prepare an independent opinion on a set of financial
statements.
An unmodified auditor’s report states that the financial statements present fairly, in all material
respects (UK: give a “true and fair” view of) the financial position of the company as at 31 December
20X6 and its performance and cash flows for the year then ended.
A standard auditor’s report will contain the following:
Content Explanation
Header This will state it is an independent auditor’s report
Addressee The SHAREHOLDERS of the company
Opinion paragraph The opinion given on the financial statements is given at
the top of the report. This will be modified or unmodified.
Basis for opinion This follows the opinion and explains how the audit was
conducted e.g. ISA’s, ethical responsibilities*
Key audit matters (listed companies or This sets out the matters that were of key audit significance
voluntary only)
Other information A paragraph here explains that the auditor’s report only on
the financial statements and they do not give an opinion on
related other information (e.g. annual report)
Responsibilities of management and those This sets out the responsibility of these parties (to attempt
charged with governance of the entity to reduce the expectation gap associated with the auditor’s
report).
Auditor’s responsibility for the audit of This contains standard language setting out the
financial statements responsibilities of the auditors.
Report on other legal and regulatory matters Only if required by local law
Signature This identifies who the auditor is and the auditor signs.
Address of auditor
Date
ACCA AAA Co u rs e N o te s 81

4.2 Recognise and evaluate the factors to be taken into account when
forming an audit opinion
Forming an audit opinion involves considering whether, in the context of the applicable financial
reporting framework:
(a) The accounting policies selected and applied are consistent with the financial reporting
framework and are appropriate in the circumstances;
(b) The accounting estimates made by management are reasonable in the circumstances;
(c) The information presented in the financial statements, including accounting policies, is relevant,
reliable, comparable and understandable; and
(d) The financial statements provide sufficient disclosures to enable users to understand the effect
of material transactions and events on the information conveyed in the financial statements.
If IFRSs are not the financial reporting framework being used, there should be full disclosure made of
the framework that is.

4.3 Key Audit Matters

Auditors of listed entities are required to determine key audit matters (KAM) and to communicate
those matters in the auditor’s report.
Auditors of non-listed entities may do so voluntarily or at the request of those charged with
governance. KAM are those that in the auditor’s opinion were of most significance during the audit
and might include:
 Areas of high risk of material misstatement
 Significant auditor judgements
 The audit of significant events or transactions such as goodwill, fair values, financial instruments
or provisions.

4.4 Auditor’s responsibilities for ‘other information’

The auditor should respond appropriately when the annual report containing audited financial
statements includes “other information” that could undermine the credibility of those financial
statements and the auditor’s report.
Other information might include a Directors’ report, employment data, an environmental report or
aspects of an integrated report.
Auditors need to discuss this with management and arrange to have access to this other information
as early in the audit process as possible, as it could be substantial and the auditor is required to read it
prior to signing the auditor’s report.

Audit procedures
The auditor must read the information to identify whether there are any inconsistencies with:
 The financial statements
 The auditor’s knowledge of the business gained during the audit
82 Co u rs e N o te s ACCA AAA

Inconsistencies
A material “inconsistency” is information in the “other information” which contradicts information
contained in the audited financial statements.
For example, the environmental report in an annual report might state that profits are £1m whereas
the statement of profit or loss might state that profits are £1.5m. Clearly this undermines the
credibility of the financial statements, as it could be inferred that the financial statements are wrong.
If a material inconsistency is identified, the auditor should determine whether it is the audited
financial statements or the other information which needs amending.
Given that the auditor has audited the financial statements it is unlikely that the financial statements
will need amending. However, if an amendment to the audited financial statements is required but not
made, there will be material misstatement, resulting in the expression of a qualified or adverse
opinion (rare).
If an amendment to “other information” is necessary this means there is a misstatement in the other
information. The auditors might also note such misstatements that do not relate to the financial
statements at all. The auditors would request that misstatements in the other information are
amended by management. If management refuse, the auditor should communicate this matter to
those charged with governance. They will also need to include a description of the misstatement in the
‘Other Information’ paragraph in the auditor’s report. The audit opinion is still unmodified.

4.5 The modified auditor’s report with an unmodified opinion

Material uncertainty relating to going concern
The auditor may conclude that a material uncertainty related to going concern exists, but that this has
been adequately disclosed in the financial statements, so they give a true and fair view. In this case,
the auditor will give an unmodified opinion.
However, as the uncertainty is material, the auditor will emphasise the material uncertainty by
highlighting it in a paragraph after the basis of opinion paragraph under the heading “Material
uncertainty relating to going concern”. This will draw attention to the disclosures made by the
directors in the FS concerning the uncertainty, and will confirm that the audit opinion is not modified
in relation to this matter.
If the client is listed, the material uncertainty should also be included as a KAM, and a reference made
to this paragraph. Going concern may be a KAM even if no material uncertainty exists.

Emphasis of matter
Again, despite the financial statements giving a true and fair view and an unmodified opinion being
appropriate, it may be necessary to draw users’ attention to matters presented within the financial
statements that are of such importance they are fundamental to users’ understanding of the financial
statements.
The auditor’s report may be modified adding an emphasis of matter paragraph to re-highlight a
significant matter such as significant uncertainty relating to ongoing litigation. This matter will be
already appropriately disclosed elsewhere within the financial statements so the audit opinion is
unmodified
This additional paragraph should be placed after the basis for opinion section. The paragraph will have
the heading ‘Emphasis of Matter’ and include full details of the matter and the location within the
financial statements which explains the issue further.
Examples of when an emphasis of matter paragraph may be appropriate include:
 An uncertainty relating to the future outcome of litigation
 A major catastrophe that has had a significant effect on the company’s financial position
ACCA AAA Co u rs e N o te s 83

Other Matter Paragraphs

The Other Matter paragraph is included in an auditor’s report to refer to a matter other than those
presented in the financial statements that, in the auditor’s judgement, is relevant to users’
understanding of the audit, the auditor’s responsibility or the auditor’s report.
Examples of such matters include:
 An elaboration on matters that provide further explanation of the auditor’s responsibility or
auditor’s report
 Any restrictions on the distribution of the auditor’s report
 The auditor may be reporting on more than one set of financial statements using different
frameworks (e.g. one according to UK GAAP and one according to international standards)
The paragraph is therefore used to communicate a matter to the users of the financial statements.
This matter is not required to be presented or disclosed in the financial statements.

4.6 The modified auditor’s report with a modified opinion

In these cases, the matters arising will have an impact on the opinion itself, and the overall
presentation of the report.
There are four situations which will result in modified audit opinions, and the opinion will depend on
the reason for modification and the degree of severity.
Material but not pervasive Material and pervasive
Inability to obtain sufficient and Qualified opinion Disclaimer of opinion
appropriate evidence
Misstatement Qualified opinion Adverse opinion

There is no strict definition of “pervasive” but, in the context of an auditor’s report, it normally
suggests that a substantial proportion of the financial statements are misleading or the missing or
inadequate disclosure is fundamental to users understanding of the financial statements.
It is important that you can identify the most appropriate form of audit opinion given a particular set
of circumstances. The examiner wants students to describe exactly what opinion will be relevant and
why, and to exercise audit judgement about whether a matter is material or pervasive or could be
either. Use the mark allocation as a guide to how many points you should make (assuming one mark
per relevant point made).

EXAM SMART
You will usually have enough information in an auditor’s report question to make a
judgement about whether something is material or pervasive.
Do not just say ‘if’ this is a material/pervasive misstatement, a qualified/adverse audit
opinion is required. This would gain you credit for the opinion, but not for the materiality
assessment.
Rather say, as this is 6% of total assets, it is material and a qualified audit opinion is required.
This will gain you credit for the qualified opinion AND the materiality assessment related to it.
If the misstatement relates to a large number of different balances or the basis of
accounting, or there are a number of material misstatements in the scenario, identify and
explain that the misstatement is pervasive and therefore will result in an adverse opinion.
84 Co u rs e N o te s ACCA AAA

The following diagram helps to explain how auditor’s reports may be modified:

Has the auditor received

all of the information and
explanations required to
form an opinion?
Yes No

This would lead to a modified

Does he agree with all
audit opinion due to an
of the numbers,
inability to obtain sufficient
disclosures?
appropriate audit evidence

Yes No

Material Material and Pervasive

Unmodified audit Modified audit
Qualified opinion Disclaimer
opinion opinion due to a
of opinion
material
“FS give a true and
misstatement
fair view”

Material Material and Pervasive

Qualified opinion Adverse opinion

4.6.1 Inability to obtain sufficient appropriate audit evidence

This type of qualification arises when an auditor does not receive all of the information and
explanations that he needs to form his audit opinion.
This may be because:
(a) He is in some way obstructed by the client in the performance of his audit procedures (which
would require him to consider whether to resign).
(b) He is unable to perform necessary audit procedures due to circumstances beyond his control
(e.g. he was appointed too late to attend a year-end inventory count or the records needed
were lost in a fire).
(c) The entity’s records are inadequate.

How the auditor’s report is modified

The “Opinion” becomes “Qualified opinion/Disclaimer of opinion” (as appropriate). The following
wording is appropriate:
 For a qualified opinion (material but not pervasive): “except for any adjustments that might be
needed to the financial statements as a result of X, the financial statements present fairly/give a
true and fair view and have been prepared in all material respects in line with the applicable
reporting framework.”
 For disclaimers of opinion (pervasive): “We do not express an opinion…”
ACCA AAA Co u rs e N o te s 85

The “Basis for opinion” becomes “Basis for qualified opinion” or “Basis for disclaimer of
opinion” (as appropriate).
This section should explain the reason why the opinion is modified. It will describe the restriction on
the auditors, and is likely to include a phrase such as “consequently, we were unable to determine
whether any adjustments to these amounts were necessary”. In such cases it is unlikely to be possible
to include a quantification of the financial effect of the modification, as it is unknown.

EXAM SMART
Note that this is a lack of audit evidence the auditor expected to be available. It is different
from when events are inherently uncertain. When events are uncertain, there is no evidence
about what the final outcome will be, but there is evidence about the uncertainty itself.
Thus, uncertainties can give rise to unmodified opinions with additional disclosure about the
uncertainty. Try and ensure you understand the distinction between these two situations.

4.6.2 Material misstatements

These may arise because:
(a) The auditor disagrees with the client about judgements made in applying accounting standards
(b) The auditor perceives the client has made mistakes in the application of accounting standards
(c) The auditor does not think the client has given sufficient disclosure of an issue to comply with
accounting standards.
If the misstatement is “material and pervasive”, then the auditor’s report states that the auditor is of
the opinion that the financial statements do not present fairly/are not true and fair – an adverse
opinion. A good example of this is if the auditor disagrees with the directors’ conclusion on the going
concern assumption (as this affects the whole basis of the financial statements) but it could also be the
case if there are multiple material misstatements affecting multiple areas of the financial statements.

How the auditor’s report is modified

The “Opinion” becomes “Qualified opinion/Adverse opinion” (as appropriate). The following wording
is appropriate:
 For a qualified opinion (material but not pervasive): “except for the matter leading to the
modification, the financial statements present fairly/give a true and fair view and have been
prepared in all material respects in line with the applicable reporting framework.”
 For adverse opinions: “the financial statements do not present fairly/give a true and fair view”
The “Basis for opinion” becomes “Basis for qualified opinion” or “Basis for adverse opinion” (as
appropriate).
This section should explain the reason why the opinion is modified and, if possible, include a
quantification of the financial effect of the modification.
86 Co u rs e N o te s ACCA AAA

ILLUSTRATION

During the audit of Carter, a construction company, the auditors notice that a customer has sued the
company for poor quality workmanship which led to the injury of an employee. The Directors of Carter
and their lawyers don’t believe that the case against them will succeed and therefore have disclosed
the matter as a contingent liability in the financial statements.
Even if the case against Carter were to succeed, there would be no impact on Carter’s going concern.
The audit senior agrees with this conclusion but, since the matter is material, believes that an
emphasis of matter paragraph should be included after the unmodified audit opinion to highlight the
situation.
Required:
Comment on the audit senior’s conclusions about how the auditor’s report should be affected by this
matter.
SOLUTION
If the matter has been adequately disclosed in the financial statements, then the audit senior is right
not to modify the audit opinion as there is no material misstatement in respect of accounting
treatment and no inability to obtain sufficient appropriate audit evidence. The audit senior should
review the disclosures made by the directors to confirm that the disclosure is adequate and there is no
need to qualify the audit opinion on the grounds of inadequate disclosure.
An emphasis of matter paragraph is used when an unmodified opinion is being given in respect of a
particular issue but, in the auditor's judgment, the matter is of such importance that it is fundamental
to users' understanding of the financial statements.
In this case, the matter is material, but it is not fundamental to users’ understanding of the financial
statements, as it would not significantly change the prospects of the company even if the liability did
arise. As a result, an emphasis of matter is unnecessary. The material matter has been adequately
disclosed in the financial statements and an unmodified audit opinion can be issued. There is no need
for the auditors to draw further attention to this matter in the auditor’s report.
This approach could be summarised in a series of steps (which it may be helpful for you to apply and
explain when answering auditor’s report questions):
STEP 1: Identify that this is a misstatement issue (NOT a lack of evidence)
 The key issue is the disclosures relating to the contingent liability and their adequacy)
STEP 2: Consider (describe in your answer) whether an unmodified or modified opinion is necessary
 The key consideration is whether the disclosure is adequate. The question information
does not state this so you must explain both options.
 Explain that adequate disclosure is necessary, and the two options for the audit opinion
that exist (in the event of adequacy/inadequacy)
STEP 3: Consider (describe in your answer) whether the matter is material/pervasive/fundamental to
users’ understanding and how this affects your overall report
 This step may in practice be merged with your thinking in step 2, as it influences the
opinion given
 In this case, it will mean that no EOM is required if disclosure is adequate, but that a
qualified opinion (except for) would be given if the disclosure is inadequate.
ACCA AAA Co u rs e N o te s 87

5 Reports to those charged with governance and management

Auditors must communicate any matters of governance interest arising from the audit with those
charged with governance of an entity.
“Those charged with governance” means “the person(s) with responsibility for overseeing the strategic
direction of the entity”. This implies that the communication should be with the highest level of
management, including the executive and non-executive directors, and the audit committee, where
relevant.
Such communications should include:
 The auditor’s responsibilities
 The planned scope and timing of the audit
 Significant findings from the audit
 Matters relating to auditor independence
A letter will be written promptly after the completion of the audit, addressed to the audit committee
(or board of directors if there is no audit committee). One of the main features of this letter is a list of
the significant control deficiencies identified during the audit, together with recommendations made
to address them. This letter (also known as a “management letter”) is a very common way in which
audit firms “add value” to their client’s audit.
Deficiencies in internal control will be discussed with management as well as the most significant ones
being reported to those charged with governance in this letter.

6 ISA for Less Complex Entities (ISA for LCE)

A new stand-alone auditing standard for Small and Medium-sized Entities (SMEs) has been introduced
by the IAASB, effective from December 2025 (pending endorsement by specific jurisdictions), to help
auditors focus on the parts of the audit that are most important for simpler entities. Just as not all
business are the same, neither are all audits. The audit of a small owner-managed shop will be very
different to that of a multinational company!
Audits performed using the ISA for LCE will provide the same level of reasonable assurance as other
audits performed under ISAs, and the ISA for LCE is intended to maintain confidence in financial
reporting of LCEs.
A ‘Less Complex Entity’ isn’t defined, instead the nature of the business determines whether the
standard can be used. The standard cannot be used when auditing listed/public-interest entities. It is
intended to be used when the following characteristics of a client are less complex:
 Business activities
 Organisation and ownership structures
 Finance function and use of IT
 Accounting, financial reporting and accounting estimates
88 Co u rs e N o te s ACCA AAA

Examples of some of the typical issues arising in of the audit of LCEs

 PBT for a LCE may be consistently low if the owner-manager takes most of the profit as
remuneration;
 A benchmark such as profit before remuneration and tax may be more relevant when
determining materiality, rather than PBT.
 Fraud risk factors:
– Less segregation of duties and more direct involvement of management create
opportunities for management override of controls and fraud
– LCEs may have different incentives/pressures to commit fraud than more complex
entities
– Systems of internal control may be weak
– Owner-managers may not distinguish between personal and business transactions.
 Related party transactions between owner-managers and close family may be common;
 Transactions may be conducted with no consideration or consideration significantly different
from fair value.
 Management may not prepare a detailed going concern assessment;
 Auditors’ evaluation of going concern may involve discussion, inquiry and inspection of
supporting documentation.
 Entities may be dependent on continued support by owner-managers to continue as a going
concern;
 Auditors may evaluate the owner-manager’s ability to meet their obligations under the support
arrangement and request written confirmation of the terms/conditions attached to the support.
https://www.iaasb.org/publications/international-standard-auditing-audits-financial-statements-less-
complex-entities

7 UK Reporting (additional notes for UK stream students)

As mentioned earlier in this chapter, there are some differences in the UK standard proforma auditor’s
report and the International version.
The UK Standard acknowledges that some companies may be using international accounting standards
and some may be using UK accounting standards and so the exact wording of the report varies
according to this.
The auditor’s responsibilities section of the report may contain a reference to the description on the
FRC website or an appendix to the auditor’s report, rather than a full description. The reason for this is
to make the auditor’s report is more concise and therefore more user-friendly.
UK auditors are required to make a specific statement concerning the scope of the audit, the
application of materiality and also the accounting treatment of going concern in the auditor’s report if
there is no material uncertainty.
ACCA AAA Co u rs e N o te s 89

Also, under the UK Companies Act 2006, the auditor must:

 State in the auditor’s report whether the director’s report and strategic report are consistent
with the financial statements and have been prepared in accordance with legal requirements.
 Report by exception where any of the following points apply:
– Returns have not been received from branches not visited
– The accounts do not agree with the underlying accounting records
– Proper accounting records have not been kept
– All information and explanations have not been received
– Directors’ emoluments have not been correctly disclosed

Knowledge diagnostic
Before you move on to the next chapter, complete the following knowledge diagnostic and confirm
you possess the following essential learning from this chapter. If not, you are advised to revisit the
relevant learning from this chapter.

Confirm your learning Yes/No

Can you describe procedures that an auditor might carry out as part of a subsequent
events review, and why?
Can you describe auditors’ and management’s responsibilities in relation to going
concern?
Can you describe audit procedures if there is uncertainty relating to going concern?
Can you justify when each of the five auditor’s report implications relating to going
concern would be used?
Can you evaluate misstatements?
Do you know the contents of a standard auditor’s report?
Can you identify what should be reported as a KAM and which companies this relates
to?
Do you know the auditor’s responsibilities for other information?
Can you identify two instances when the auditor’s report might be modified although
the audit opinion is not?
Do you understand the four general situations in which an audit opinion will be
modified, and what those modifications are?
Can you justify an audit opinion in a given situation?
Do you know what auditors report to those charged with governance and
management?
Do you know why the ISA for Less Complex Entities has been issued and which entities
it is applicable to?