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Objective of an Audit
2. The objective of an audit of financial statements is to enable the auditor to express
an opinion whether the financial statements are prepared, in all material respects, in
accordance with an identified financial reporting framework. The phrases used to
express the auditor’s opinion are 'give a true and fair view' or 'present fairly, in all material
respects,' which are equivalent terms.
3. Although the auditor’s opinion enhances the credibility of the financial statements, the
user cannot assume that the opinion is an assurance as to the future viability of the entity
nor the efficiency or effectiveness with which management has conducted the affairs of
the entity.
(a) independence;
(b) integrity;
(c) objectivity;
(d) professional competence and due care;
(e) confidentiality;
(f) professional behavior; and
(g) technical standards.
5. The auditor should conduct an audit in accordance with ISAs. These contain basic
principles and essential procedures together with related guidance in the form of
explanatory and other material.
6. The auditor should plan and perform the audit with an attitude of professional
skepticism recognizing that circumstances may exist which cause the financial
statements to be materially misstated. For example, the auditor would ordinarily
expect to find evidence to support management representations and not assume they
are necessarily correct.
Scope of an Audit
7. The term 'scope of an audit' refers to the audit procedures deemed necessary in the
circumstances to achieve the objective of the audit. The procedures required to
conduct an audit in accordance with ISAs should be determined by the auditor
having regard to the requirements of ISAs, relevant professional bodies, legislation,
regulations and, where appropriate, the terms of the audit engagement and
reporting requirements.
Reasonable Assurance
8. An audit in accordance with ISAs is designed to provide reasonable assurance that the
financial statements taken as a whole are free from material misstatement. Reasonable
assurance is a concept relating to the accumulation of the audit evidence necessary for the
auditor to conclude that there are no material misstatements in the financial statements
taken as a whole. Reasonable assurance relates to the whole audit process.
9. However, there are inherent limitations in an audit that affect the auditor’s ability to detect
material misstatements. These limitations result from factors such as:
10. Also, the work undertaken by the auditor to form an opinion is permeated by judgment, in
particular regarding:
(a) the gathering of audit evidence, for example, in deciding the nature, timing and extent
of audit procedures; and
(b) the drawing of conclusions based on the audit evidence gathered, for example,
assessing the reasonableness of the estimates made by management in preparing the
financial statements.
11. Further, other limitations may affect the persuasiveness of evidence available to draw
conclusions on particular financial statement assertions (for example, transactions
between related parties). In these cases certain ISAs identify specified procedures which
will, because of the nature of the particular assertions, provide sufficient appropriate audit
evidence in the absence of:
(a) unusual circumstances which increase the risk of material misstatement beyond that
which would ordinarily be expected; or
(b) any indication that a material misstatement has occurred.
2. When carrying out audits of public sector entities, the auditor will need to take into
account the specific requirements of any other relevant regulations, ordinances or
ministerial directives which affect the audit mandate and any special auditing
requirements, including the need to have regard to issues of national security. Audit
mandates may be more specific than those in the private sector, and often encompass
a wider range of objectives and a broader scope than is ordinarily applicable for the
audit of private sector financial statements. The mandates and requirements may also
effect, for example, the extent of the auditor’s discretion in establishing materiality, in
reporting fraud and error, and in the form of the audit report. Differences in audit
approach and style may also exist. However, these differences would not constitute a
difference in the basic principles and essential procedures.
CAS 210
Introduction
1. The purpose of this Cambodian Standard on Auditing (CSA) is to establish standards and
provide guidance on:
(a) agreeing the terms of the engagement with the client; and
(b) the auditor’s response to a request by a client to change the terms of an engagement to
one that provides a lower level of assurance.
2. The auditor and the client should agree on the terms of the engagement. The agreed
terms would need to be recorded in an audit engagement letter or other suitable form of
contract.
3. This CSA is intended to assist the auditor in the preparation of engagement letters relating
to audits of financial statements. The guidance is also applicable to related services.
When other services such as tax, accounting, or management advisory services are to be
provided, separate engagement letters are usually appropriate.
4. Even though the objective and scope of an audit and the auditor’s obligations are
generally established by law and Cambodian Standards on Auditing, the auditor and client
will still find audit engagement letters to be useful to clearly state the terms of the audit
engagement.
Principal Contents
6. The form and content of audit engagement letters may vary for each client, but they would
generally include reference to:
Audits of Components
9. When the auditor of a parent entity is also the auditor of its subsidiary, branch or division
(component), the factors that influence the decision whether to send a separate
engagement letter to the component include:
Recurring Audits
10. On recurring audits, the auditor should consider whether circumstances require the
terms of the engagement to be revised and whether there is a need to remind the
client of the existing terms of the engagement.
11. The auditor may decide not to send a new engagement letter each period. However, the
following factors may make it appropriate to send a new letter:
• • Any indication that the client misunderstands the objective and scope of the
audit.
• • Any revised or special terms of the engagement.
• • A recent change of senior management, board of directors or ownership.
• • A significant change in nature or size of the client’s business.
• • Legal requirements.
13. A request from the client for the auditor to change the engagement may result from a
change in circumstances affecting the need for the service, a misunderstanding as to the
nature of an audit or related service originally requested or a restriction on the scope of the
engagement, whether imposed by management or caused by circumstances. The auditor
would consider carefully the reason given for the request, particularly the implications of
a restriction on the scope of the engagement.
15. Before agreeing to change an audit engagement to a related service, an auditor who was
engaged to perform an audit in accordance with CSAs would consider, in addition to the
above matters, any legal or contractual implications of the change.
16. If the auditor concludes, that there is reasonable justification to change the engagement
and if the audit work performed complies with the CSAs applicable to the changed
engagement, the report issued would be that appropriate for the revised terms of
engagement. In order to avoid confusing the reader, the report would not include
reference to:
(b) any procedures that may have been performed in the original engagement, except
where the engagement is changed to an engagement to undertake agreed - upon
procedures and thus reference to the procedures performed is a normal part of the
report.
17. Where the terms of the engagement are changed, the auditor and the client should
agree on the new terms.
18. The auditor should not agree to a change of engagement where there is no
reasonable justification for doing so. An example might be an audit engagement where
the auditor is unable to obtain sufficient appropriate audit evidence regarding receivables
and the client asks for the engagement to be changed to a review engagement (which gives
less assurance than an audit) to avoid a qualified audit opinion or a disclaimer of opinion.
19. If the auditor is unable to agree to a change of the engagement and is not permitted
to continue the original engagement, the auditor should withdraw and consider
whether there is any obligation, either contractual or otherwise, to report to other
parties, such as the board of directors or shareholders, the circumstances
necessitating the withdrawal.
2. Paragraphs 12 to 19 of this CSA deal with the action a private sector auditor may take
when there are attempts to change an audit engagement to one which provides a lower
level of assurance. In the public sector specific requirements may exist within the
legislation governing the audit mandate; for example, the auditor may be required to
report directly to a minister, the legislature or the public if management (including the
department head) attempts to limit the scope of the audit.
You have requested that we audit the balance sheet of ..................... as of ..............., and the
related statements of income and cash flows for the year then ending. We are pleased to
confirm our acceptance and our understanding of this engagement by means of this letter. Our
audit will be made with the objective of our expressing an opinion on the financial statements.
We will conduct our audit in accordance with Cambodian Standards on Auditing. Those
Standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation.
Because of the test nature and other inherent limitations of an audit, together with the inherent
limitations of any accounting and internal control system, there is an unavoidable risk that
even some material misstatements may remain undiscovered.
In addition to our report on the financial statements, we expect to provide you with a separate
letter concerning any material weaknesses in accounting and internal control systems which
come to our notice.
We remind you that the responsibility for the preparation of financial statements including
adequate disclosure is that of the management of the company. This includes the maintenance
of adequate accounting records and internal controls, the selection and application of
accounting policies, and the safeguarding of the assets of the company. As part of our audit
process, we will request from management written confirmation concerning representations
made to us in connection with the audit.
We look forward to full cooperation with your staff and we trust that they will make available
to us whatever records, documentation and other information are requested in connection with
our audit. Our fees, which will be billed as work progresses, are based on the time required
by the individuals assigned to the engagement plus out - of - pocket expenses. Individual
hourly rates vary according to the degree of responsibility involved and the experience and
skill required.
This letter will be effective for future years unless it is terminated, amended or superseded.
Please sign and return the attached copy of this letter to indicate that it is in accordance with
your understanding of the arrangements for our audit of the financial statements.
2. The auditor should document matters which are important in providing evidence to
support the audit opinion and evidence that the audit was carried out in accordance
with CSAs.
3. 'Documentation' means the material (working papers) prepared by and for, or obtained and
retained by the auditor in connection with the performance of the audit. Working papers
may be in the form of data stored on paper, film, electronic media or other media.
4. Working papers:
6. The auditor should record in the working papers information on planning the audit
work, the nature, timing and extent of the audit procedures performed, the results
thereof, and the conclusions drawn from the audit evidence obtained. Working
papers would include the auditor’s reasoning on all significant matters which require the
exercise of judgment, together with the auditor’s conclusion thereon. In areas involving
difficult questions of principle or judgment, working papers will record the relevant facts
that were known by the auditor at the time the conclusions were reached.
10. To improve audit efficiency, the auditor may utilise schedules, analyses and other
documentation prepared by the entity. In such circumstances, the auditor would need to be
satisfied that those materials have been properly prepared.
14. Working papers are the property of the auditor. Although portions of or extracts from
the working papers may be made available to the entity at the discretion of the auditor,
they are not a substitute for the entity’s accounting records.
CSA 240
Introduction
1. The purpose of this Cambodian Standard on Auditing (CSA) is to establish standards and
provide guidance on the auditor’s responsibility to consider fraud and error in an audit of
financial statements.
2. When planning and performing audit procedures and in evaluating and reporting
the results thereof, the auditor should consider the risk of material misstatements in
the financial statements resulting from fraud or error.
3. The term 'fraud' refers to an intentional act by one or more individuals among
management, employees, or third parties, which results in a misrepresentation of financial
statements. Fraud may involve:
4. The term 'error' refers to unintentional mistakes in financial statements, such as:
Responsibility of Management
5. The responsibility for the prevention and detection of fraud and error rests with
management through the implementation and continued operation of adequate accounting
and internal control systems. Such systems reduce but do not eliminate the possibility of
fraud and error.
Risk Assessment
7. In planning the audit, the auditor should assess the risk that fraud and error may
cause the financial statements to contain material misstatements and should inquire
of management as to any fraud or significant error which has been discovered.
8. In addition to weaknesses in the design of the accounting and internal control systems and
noncompliance with identified internal controls, conditions or events which increase the
risk of fraud and error include:
Examples of these conditions or events are set out in the Appendix to this CSA.
Detection
9. Based on the risk assessment, the auditor should design audit procedures to obtain
reasonable assurance that misstatements arising from fraud and error that are
material to the financial statements taken as a whole are detected.
10. Consequently, the auditor seeks sufficient appropriate audit evidence that fraud and error
which may be material to the financial statements have not occurred or that, if they have
occurred, the effect of fraud is properly reflected in the financial statements or the error is
corrected. The likelihood of detecting errors ordinarily is higher than that of detecting
fraud, since fraud is ordinarily accompanied by acts specifically designed to conceal its
existence.
11. Due to the inherent limitations of an audit (see paragraphs 12 - 14) there is an unavoidable
risk that material misstatements in the financial statements resulting from fraud and, to a
lesser extent, error may not be detected. The subsequent discovery of material
misstatement of the financial statements resulting from fraud or error existing during the
period covered by the auditor’s report does not, in itself, indicate that the auditor has
failed to adhere to the basic principles and essential procedures of an audit. Whether the
auditor has adhered to these principles and procedures is determined by the adequacy of
the audit procedures undertaken in the circumstances and the suitability of the auditor’s
report based on the results of those audit procedures.
13. The risk of not detecting a material misstatement resulting from fraud is higher than the
risk of not detecting a material misstatement resulting from error, because fraud ordinarily
involves acts designed to conceal it, such as collusion, forgery, deliberate failure to record
transactions, or intentional misrepresentations being made to the auditor. Unless the audit
reveals evidence to the contrary, the auditor is entitled to accept representations as truthful
and records and documents as genuine. However, in accordance with CSA 200
'Objective and General Principles Governing an Audit of Financial Statements,' the
auditor should plan and perform the audit with an attitude of professional
scepticism, recognising that conditions or events may be found that indicate that
fraud or error may exist.
14. While the existence of effective accounting and internal control systems reduces the
probability of misstatement of financial statements resulting from fraud and error, there
will always be some risk of internal controls failing to operate as designed. Furthermore,
any accounting and internal control system may be ineffective against fraud involving
collusion among employees or fraud committed by management. Certain levels of
management may be in a position to override controls that would prevent similar frauds
by other employees; for example, by directing subordinates to record transactions
incorrectly or to conceal them, or by suppressing information relating to transactions.
16. The extent of such modified or additional procedures depends on the auditor’s judgment
as to:
Unless circumstances clearly indicate otherwise, the auditor cannot assume that an
instance of fraud or error is an isolated occurrence. If necessary, the auditor adjusts the
nature, timing and extent of substantive procedures.
17. Performing modified or additional procedures would ordinarily enable the auditor to
confirm or dispel a suspicion of fraud or error. Where suspicion of fraud or error is not
dispelled by the results of modified or additional procedures, the auditor should
discuss the matter with management and consider whether the matter has been
properly reflected or corrected in the financial statements. The auditor should
consider the possible impact on the auditor’s report.
18. The auditor should consider the implications of fraud and significant error in
relation to other aspects of the audit, particularly the reliability of management
representations. In this regard, the auditor reconsiders the risk assessment and the
validity of management representations, in case of fraud and error not detected by internal
controls or not included in management representations. The implications of particular
instances of fraud or error discovered by the auditor will depend on the relationship of the
perpetration and concealment, if any, of the fraud or error to specific control procedures
and the level of management or employees involved.
Reporting of Fraud and Error
To Management
19. The auditor should communicate factual findings to management as soon as
practicable if:
(a) the auditor suspects fraud may exist, even if the potential effect on the financial
statements would be immaterial; or
(b) fraud or significant error is actually found to exist.
22. If the auditor is precluded by the entity from obtaining sufficient appropriate audit
evidence to evaluate whether fraud or error that may be material to the financial
statements, has, or is likely to have, occurred, the auditor should express a qualified
opinion or a disclaimer of opinion on the financial statements on the basis of a
limitation on the scope of the audit.
23. If the auditor is unable to determine whether fraud or error has occurred because of
limitations imposed by the circumstances rather than by the entity, the auditor
should consider the effect on the auditor’s report.
Unusual transactions
• • Unusual transactions, especially near the year - end, that have a significant
effect on earnings.
• • Complex transactions or accounting treatments.
• • Transactions with related parties.
• • Payments for services (for example, to lawyers, consultants or agents) that
appear excessive in relation to the services provided.
Some factors unique to a computer information systems environment which relate to the
conditions and events in described above include:
2. The auditor should plan the audit work so that the audit will be performed in an
effective manner.
3. 'Planning' means developing a general strategy and a detailed approach for the
expected nature, timing and extent of the audit. The auditor plans to perform the audit
in an efficient and timely manner.
5. The extent of planning will vary according to the size of the entity, the complexity of
the audit and the auditor’s experience with the entity and knowledge of the business.
6. Obtaining knowledge of the business is an important part of planning the work. The
auditor’s knowledge of the business assists in the identification of events, transactions
and practices which may have a material effect on the financial statements.
7. The auditor may wish to discuss elements of the overall audit plan and certain audit
procedures with the entity’s audit committee, management and staff to improve the
effectiveness and efficiency of the audit and to coordinate audit procedures with work
of the entity’s personnel. The overall audit plan and the audit program, however,
remain the auditor’s responsibility.
9. Matters to be considered by the auditor in developing the overall audit plan include:
The auditor’s cumulative knowledge of the accounting and internal control systems
and the relative emphasis expected to be placed on tests of control and substantive
procedures.
The work of internal auditing and its expected effect on external audit procedures.
Staffing requirements.
Other Matters
The possibility that the going concern assumption may be subject to question.
12. In preparing the audit program, the auditor would consider the specific assessments of
inherent and control risks and the required level of assurance to be provided by
substantive procedures. The auditor would also consider the timing of tests of controls
and substantive procedures, the coordination of any assistance expected from the entity,
the availability of assistants and the involvement of other auditors or experts. The other
matters noted in paragraph 9 may also need to be considered in more detail during the
development of the audit program.
CSA 320
Introduction
1. The purpose of this Cambodian Standard on Auditing (CSA) is to establish standards
and provide guidance on the concept of materiality and its relationship with audit risk.
2. The auditor should consider materiality and its relationship with audit risk when
conducting an audit.
Materiality
4. The objective of an audit of financial statements is to enable the auditor to
express an opinion whether the financial statements are prepared, in all material
respects, in accordance with Cambodian Accounting Standards. The assessment
of what is material is a matter of professional judgment.
5. In designing the audit plan, the auditor establishes an acceptable materiality level so as
to detect quantitatively material misstatements. However, both the amount (quantity)
and nature (quality) of misstatements need to be considered. Examples of qualitative
misstatements would be the inadequate or improper description of an accounting
policy when it is likely that a user of the financial statements would be misled by the
description, and failure to disclose the breach of regulatory requirements when it is
likely that the consequent imposition of regulatory restrictions will significantly
impair operating capability.
7. The auditor considers materiality at both the overall financial statement level and in
relation to individual account balances, classes of transactions and disclosures.
Materiality may be influenced by considerations such as legal and regulatory
requirements and considerations relating to individual financial statement account
balances and relationships. This process may result in different materiality levels
depending on the aspect of the financial statements being considered.
10. There is an inverse relationship between materiality and the level of audit risk, that is,
the higher the materiality level, the lower the audit risk and vice versa. The auditor
takes the inverse relationship between materiality and audit risk into account when
determining the nature, timing and extent of audit procedures. For example, if, after
planning for specific audit procedures, the auditor determines that the acceptable
materiality level is lower, audit risk is increased. The auditor would compensate for
this by either:
(a) reducing the assessed level of control risk, where this is possible, and supporting the
reduced level by carrying out extended or additional tests of control; or
(b) reducing detection risk by modifying the nature, timing and extent of planned
substantive procedures.
(a) specific misstatements identified by the auditor including the net effect of
uncorrected misstatements identified during the audit of previous periods; and
(b) the auditor’s best estimate of other misstatements which cannot be specifically
identified (i.e., projected errors).
14. The auditor needs to consider whether the aggregate of uncorrected misstatements is
material. If the auditor concludes that the misstatements may be material, the auditor
needs to consider reducing audit risk by extending audit procedures or requesting
management to adjust the financial statements. In any event, management may want
to adjust the financial statements for the misstatements identified.
15. If management refuses to adjust the financial statements and the results of
extended audit procedures do not enable the auditor to conclude that the
aggregate of uncorrected misstatements is not material, the auditor should
consider the appropriate modification to the auditor’s report in accordance with
CSA 700 'The Auditor’s Report on Financial Statements.'
16. If the aggregate of the uncorrected misstatements that the auditor has identified
approaches the materiality level, the auditor would consider whether it is likely that
undetected misstatements, when taken with aggregate uncorrected misstatements
could exceed materiality level. Thus, as aggregate uncorrected misstatements
approach the materiality level the auditor would consider reducing the risk by
performing additional audit procedures or by requesting management to adjust the
financial statements for identified misstatements.
3. Audit evidence is obtained from an appropriate mix of tests of control and substantive
procedures. In some circumstances, evidence may be obtained entirely from
substantive procedures.
4. 'Audit evidence' means the information obtained by the auditor in arriving at the
conclusions on which the audit opinion is based. Audit evidence will comprise source
documents and accounting records underlying the financial statements and
corroborating information from other sources.
5. 'Tests of control' means tests performed to obtain audit evidence about the suitability
of design and effective operation of the accounting and internal control systems.
8. In forming the audit opinion, the auditor does not ordinarily examine all of the
information available because conclusions can be reached about an account balance,
class of transactions or control by way of using judgmental or statistical sampling
procedures.
• • Results of audit procedures, including fraud or error which may have been
found.
10. When obtaining audit evidence from tests of control, the auditor should consider
the sufficiency and appropriateness of the audit evidence to support the assessed
level of control risk.
11. The aspects of the accounting and internal control systems about which the auditor
would obtain audit evidence are:
(a) design: the accounting and internal control systems are suitably designed to
prevent and/or detect and correct material misstatements; and
(b) operation: the systems exist and have operated effectively throughout the relevant
period.
12. When obtaining audit evidence from substantive procedures, the auditor should
consider the sufficiency and appropriateness of audit evidence from such
procedures together with any evidence from tests of control to support financial
statement assertions.
(b) rights and obligations: an asset or a liability pertains to the entity at a given date;
(c) occurrence: a transaction or event took place which pertains to the entity during
the period;
(f) measurement: a transaction or event is recorded at the proper amount and revenue
or expense is allocated to the proper period; and
15. The reliability of audit evidence is influenced by its source: internal or external, and
by its nature: visual, documentary or oral. While the reliability of audit evidence is
dependent on individual circumstance, the following generalisations will help in assessing
the reliability of audit evidence:
• • Audit evidence from external sources (for example, confirmation received
from a third party) is more reliable than that generated internally.
• • Audit evidence obtained directly by the auditor is more reliable than that
obtained from the entity.
16. Audit evidence is more persuasive when items of evidence from different sources or of
a different nature are consistent. In these circumstances, the auditor may obtain a
cumulative degree of confidence higher than would be obtained from items of audit
evidence when considered individually. Conversely, when audit evidence obtained
from one source is inconsistent with that obtained from another, the auditor determines
what additional procedures are necessary to resolve the inconsistency.
17. The auditor needs to consider the relationship between the cost of obtaining audit
evidence and the usefulness of the information obtained. However, the matter of
difficulty and expense involved is not in itself a valid basis for omitting a necessary
procedure.
18. When in substantial doubt as to a material financial statement assertion, the auditor
would attempt to obtain sufficient appropriate audit evidence to remove such doubt. If
unable to obtain sufficient appropriate audit evidence, however, the auditor
should express a qualified opinion or a disclaimer of opinion.
(b) documentary audit evidence created by third parties and held by the entity; and
Inspection of tangible assets provides reliable audit evidence with respect to their
existence but not necessarily as to their ownership or value.
Observation
21. Observation consists of looking at a process or procedure being performed by others,
for example, the observation by the auditor of the counting of inventories by the
entity’s personnel or the performance of control procedures that leave no audit trail.
Computation
24. Computation consists of checking the arithmetical accuracy of source documents and
accounting records or of performing independent calculations.
Analytical Procedures
25. Analytical procedures consist of the analysis of significant ratios and trends including
the resulting investigation of fluctuations and relationships that are inconsistent with
other relevant information or deviate from predicted amounts.
(a) those that provide further evidence of conditions that existed at period end; and
(b) those that are indicative of conditions that arose subsequent to period end.
5. The procedures to identify events that may require adjustment of, or disclosure in, the
financial statements would be performed as near as practicable to the date of the
auditor’s report and ordinarily include the following:
– – The current status of items that were accounted for on the basis of
preliminary or inconclusive data.
– – Whether there have been any developments regarding risk areas and
contingencies.
– – Whether any events have occurred or are likely to occur which will bring
into question the appropriateness of accounting policies used in the financial
statements as would be the case, for example, if such events call into question
the validity of the going concern assumption.
7. When the auditor becomes aware of events which materially affect the financial
statements, the auditor should consider whether such events are properly
accounted for and adequately disclosed in the financial statements.
Facts Discovered After the Date of the Auditor’s Report but Before
the Financial Statements are Issued
8. The auditor does not have any responsibility to perform procedures or make any
inquiry regarding the financial statements after the date of the auditor’s report. During
the period from the date of the auditor’s report to the date the financial statements are
issued, the responsibility to inform the auditor of facts which may affect the financial
statements rests with management.
9. When, after the date of the auditor’s report but before the financial statements
are issued, the auditor becomes aware of a fact which may materially affect the
financial statements, the auditor should consider whether the financial
statements need amendment, should discuss the matter with management, and
should take the action appropriate in the circumstances.
10. When management amends the financial statements, the auditor would carry out the
procedures necessary in the circumstances and would provide management with a new
report on the amended financial statements. The new auditor’s report would be dated
not earlier than the date the amended financial statements are signed or approved and,
accordingly, the procedures referred to in paragraphs 4 and 5 would be extended to the
date of the new auditor’s report.
11. When management does not amend the financial statements in circumstances
where the auditor believes they need to be amended and the auditor’s report has
not been released to the entity, the auditor should express a qualified opinion or
an adverse opinion.
12. When the auditor’s report has been released to the entity, the auditor would notify
those persons ultimately responsible for the overall direction of the entity not to issue
financial statements and the auditor’s report thereon to third parties. If the financial
statements are subsequently released, the auditor needs to take action to prevent
reliance on the auditor’s report. The action taken will depend on the auditor’s legal
rights and obligations and the recommendations of the auditor’s lawyer.
14. When, after the financial statements have been issued, 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 to modify the auditor’s report,
the auditor should consider whether the financial statements need revision,
should discuss the matter with management, and should take the action
appropriate in the circumstances.
15. When management revises the financial statements, the auditor would carry out the
audit procedures necessary in the circumstances, would review the steps taken by
management to ensure that anyone in receipt of the previously issued financial
statements together with the auditor’s report thereon is informed of the situation, and
would issue a new report on the revised financial statements.
16. The new auditor’s report should include an emphasis of a matter paragraph
referring to a note to the financial statements that more extensively discusses the
reason for the revision of the previously issued financial statements and to the
earlier report issued by the auditor. The new auditor’s report would be dated not
earlier than the date the revised financial statements are approved and, accordingly,
the procedures referred to in paragraphs 4 and 5 would ordinarily be extended to the
date of the new auditor’s report.
17. When management does not take the necessary steps to ensure that anyone in receipt
of the previously issued financial statements together with the auditor’s report thereon
is informed of the situation and does not revise the financial statements in
circumstances where the auditor believes they need to be revised, the auditor would
notify those persons ultimately responsible for the overall direction of the entity that
action will be taken by the auditor to prevent future reliance on the auditor’s report.
The action taken will depend on the auditor’s legal rights and obligations and the
recommendations of the auditor’s lawyers.
18. It may not be necessary to revise the financial statements and issue a new auditor’s
report when issue of the financial statements for the following period is imminent,
provided appropriate disclosures are to be made in such statements.
CSA 570
Introduction
1. The purpose of this Cambodian Standard on Auditing (CSA) is to establish standards
and provide guidance on the auditor's responsibility in the audit of financial statements
with respect to the going concern assumption used in the preparation of the financial
statements, including considering management's assessment of the entity's ability to
continue as a going concern.
2. When planning and performing audit procedures and in evaluating the results
thereof, the auditor should consider the appropriateness of management's use of
the going concern assumption in the preparation of the financial statements.
Management'
s Responsibility
3. The going concern assumption is a fundamental principle in the preparation of
financial statements. 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, ceasing trading or seeking protection from creditors
pursuant to laws or regulations. Accordingly, assets and liabilities are recorded on the
basis that the entity will be able to realise its assets and discharge its liabilities in the
normal course of business.
• • Any judgment about the future is based on information available at the time at
which the judgment is made. Subsequent events can contradict a judgment which
was reasonable at the time it was made.
• • The size and complexity of the entity, the nature and condition of its business
and the degree to which it is affected by external factors all affect the judgment
regarding the outcome of events or conditions.
7. Examples of events or conditions, which individually or collectively, may cast
significant doubt about the going concern assumption are set out below. This listing is
not all-inclusive nor does the existence of one or more of the items always signify that
a material uncertainty exists.
Management'
s Responsibility Financial
• • Net liability or net current liability position.
Management'
s Responsibility Operating
• • Loss of key management without replacement.
Management'
s Responsibility Other
• • Non-compliance with capital or other statutory requirements.
The significance of such events or conditions often can be mitigated by other factors.
For example, the effect of an entity being unable to make its normal debt repayments
may be counter-balanced by management's plans to maintain adequate cash flows by
alternative means, such as by disposal of assets, rescheduling of loan repayments, or
obtaining additional capital. Similarly, the loss of a principal supplier may be
mitigated by the availability of a suitable alternative source of supply.
Auditor'
s Responsibility
8. The auditor's responsibility is to consider the appropriateness of management's use of
the going concern assumption in the preparation of the financial statements, and
consider whether there are material uncertainties about the entity's ability to continue
as a going concern that need to be disclosed in the financial statements.
9. The auditor cannot predict future events or conditions that may cause an entity to
cease to continue as a going concern. Accordingly, the absence of any reference to
going concern uncertainty in an auditor's report cannot be viewed as a guarantee as to
the entity's ability to continue as a going concern.
Planning Considerations
10. In planning the audit, the auditor should consider whether there are events or
conditions which may cast significant doubt on the entity's ability to continue as a
going concern.
11. The auditor should remain alert for evidence of events or conditions which may
cast significant doubt on the entity's ability to continue as a going concern
throughout the audit. If such events or conditions are identified, the auditor
should, in addition to performing the procedures in paragraph 25, consider
whether they affect the auditor's assessments of the components of audit risk.
12. The auditor considers events and conditions relating to the going concern assumption
during the planning process, because this consideration allows for more timely
discussions with management, review of management's plans and resolution of any
identified going concern issues.
13. In some cases, management may have already made a preliminary assessment at the
early stages of the audit. If so, the auditor reviews that assessment to determine
whether management has identified events or conditions, such as those discussed in
paragraph 7, and management's plans to address them.
14. If management has not yet made a preliminary assessment, the auditor discusses with
management the basis for their intended use of the going concern assumption, and
inquires of management whether events or conditions, such as those discussed in
paragraph 7, exist. The auditor may request management to begin making its
assessment, particularly when the auditor has already identified events or conditions
relating to the going concern assumption.
15. The auditor considers the effect of identified events or conditions when making
preliminary assessments of the components of audit risk and, therefore, their existence
may affect the nature, timing and extent of the auditor's procedures.
Evaluating Management'
s Assessment
16. The auditor should evaluate management's assessment of the entity's ability to
continue as a going concern.
17. The auditor should consider the same period as that used by management in making its
assessment as required by Accounting Standards. If management's assessment of the
entity's ability to continue as a going concern covers less than twelve months from the
balance sheet date, the auditor should ask management to extend its assessment period
to twelve months from the balance sheet date.
18. Management's assessment of the entity's ability to continue as a going concern is a key
part of the auditor's consideration of the going concern assumption. As noted in
paragraph 6, Accounting Standards specify that management is required to take into
account all available information for at least twelve months from the balance sheet
date.
19. In evaluating management's assessment, the auditor considers the process management
followed to make its assessment, the assumptions on which the assessment is based
and management's plans for future action. The auditor considers whether the
assessment has taken into account all relevant information of which the auditor is
aware as a result of the audit procedures.
20. As noted in paragraph 5, when there is a history of profitable operations and a ready
access to financial resources, management may make its assessment without detailed
analysis. In such circumstances, the auditor's conclusion about the appropriateness of
this assessment normally is also made without the need for performing detailed
procedures. When events or conditions have been identified which may cast
significant doubt about the entity's ability to continue as a going concern, however, the
auditor performs additional audit procedures, as described in paragraph 25.
22. The auditor is alert to the possibility that there may be known events, scheduled or
otherwise, or conditions that will occur beyond the period of assessment used by
management that may bring into question the appropriateness of management's use of
the going concern assumption in preparing the financial statements. The auditor may
become aware of such known events or conditions during the planning and conduct of
the audit, including subsequent events procedures.
23. Since the degree of uncertainty associated with the outcome of an event or condition
increases as the event or condition is further into the future, in considering such events
or conditions, the indications of going concern issues will need to be significant before
the auditor considers taking further action. The auditor may need to ask management
to determine the potential significance of the event or condition on their going concern
assessment.
24. The auditor does not have a responsibility to design procedures other than inquiry of
management to test for indications of events or conditions which cast significant doubt
on the entity's ability to continue as a going concern beyond the period assessed by
management which, as discussed in paragraph 17, would be at least twelve months
from the balance sheet date.
(a) review management's plans for future actions based on its going concern
assessment;
(c) seek written representations from management regarding its plans for future
action.
26. Events or conditions which may cast significant doubt on the entity's ability to
continue as a going concern may be identified during the planning of the engagement
or in the course of performing audit procedures. The process of considering events or
conditions continues as the audit progresses. When the auditor believes such events or
conditions may cast significant doubt on the entity's ability to continue as a going
concern, certain procedures may take on added significance. The auditor inquires of
management as to its plans for future action, including its plans to liquidate assets,
borrow money or restructure debt, reduce or delay expenditures, or increase capital.
The auditor also considers whether any additional facts or information are available
since the date on which management made its assessment. The auditor obtains
sufficient appropriate audit evidence that management's plans are feasible and that the
outcome of these plans will improve the situation.
• • Analyzing and discussing cash flow, profit and other relevant forecasts with
management.
• • Analyzing and discussing the entity's latest available interim financial
statements.
• • Reviewing the terms of debentures and loan agreements and determining
whether any have been breached.
• • Reading minutes of the meetings of shareholders, the board of directors and
important committees for reference to financing difficulties.
• • Inquiring 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.
• • Confirming the existence, legality and enforceability of arrangements to
provide or maintain financial support with related and third parties and assessing
the financial ability of such parties to provide additional funds.
• • Considering the entity's plans to deal with unfilled customer orders.
• • Reviewing events after period end to identify those that either mitigate or
otherwise affect the entity's ability to continue as a going concern.
28. When analysis of cash flow is a significant factor in considering the future outcome of
events or conditions the auditor considers:
• • the reliability of the entity's system for generating such information, and
• • whether there is adequate support for the assumptions underlying the forecast.
(a) the prospective financial information for recent prior periods with historical
results, and
(b) the prospective financial information for the current period with results achieved to
date.
30. A material uncertainty exists when the magnitude of its potential impact is such that,
in the auditor's judgment, clear disclosure of the nature and implications of the
uncertainty is necessary for the presentation of the financial statements not to be
misleading.
(a) adequately describe the principal events or conditions that give rise to the significant
doubt on the entity's ability to continue in operation and management's plans to deal with
these events or conditions.
(b) state clearly that there is a material uncertainty related to events or conditions
which may cast significant doubt on the entity's ability to continue as a going concern and,
therefore, that it may be unable to realize its assets and discharge its liabilities in the normal
course of business.
32. If adequate disclosure is made in the financial statements, the auditor should
express an unqualified opinion but modify the auditor's report by adding an
emphasis of matter paragraph that highlights the existence of a material
uncertainty relating to the event or condition that may cast significant doubt on
the entity's ability to continue as a going concern and draws attention to the note
in the financial statements that discloses the matters set out in paragraph 31. In
assessing the adequacy of the financial statement disclosure, the auditor considers
whether the information explicitly draws the reader's attention to the possibility that
the entity may be unable to continue realising its assets and discharging its liabilities
in the normal course of business. The following is an example of such a paragraph
when the auditor is satisfied as to the adequacy of the note disclosure:
In extreme cases, such as situations involving multiple material uncertainties that are
significant to the financial statements, the auditor may consider it appropriate to
express a disclaimer of opinion instead of adding an emphasis of matter paragraph.
33. If adequate disclosure is not made in the financial statements, the auditor should
express a qualified or adverse opinion, as appropriate (see CSA 700, 'The
Auditor's Report on Financial Statements'). The report should include specific
reference to the fact that there is a material uncertainty that may cast significant
doubt about the entity's ability to continue as a going concern. The following is an
example of the relevant paragraphs when a qualified opinion is to be expressed:
"The Company's financing arrangements expire and amounts outstanding are payable
on March 19, 20X1. The Company has been unable to re-negotiate or obtain
replacement financing. This situation indicates the existence of a material uncertainty
which may cast significant doubt on the Company's ability to continue as a going
concern and therefore it may be unable to realise its assets and discharge its liabilities
in the normal course of business. The financial statements (and notes thereto) do not
disclose this fact.
In our opinion, except for the omission of the information included in the preceding paragraph,
the financial statements give a true and fair view of (present fairly, in all material respects,)
the financial position of the Company at December 31, 20X0 and the results of its operations
and its cash flows for the year then ended in accordance with Cambodian Accounting
Standards."
In our opinion, because of the omission of the information mentioned in the preceding
paragraph, the financial statements do not give a true and fair view of (or do not
present fairly) the financial position of the Company as at December 31, 20X0, and of
its results of operations and its cash flows for the year then ended in accordance with
Cambodian Accounting Standards."
35. When the entity's management has concluded that the going concern assumption used
in the preparation of the financial statements is not appropriate, the financial
statements need to be prepared on an alternative authoritative basis. If on the basis of
the additional procedures carried out and the information obtained the auditor
determines the alternative basis is appropriate, the auditor can issue an unqualified
opinion if there is adequate disclosure but may require an emphasis of matter in the
auditor's report to draw the user's attention to that basis.
Audit Conclusions and Reporting
Management Unwilling to Make or Extend its Assessment
36. If management is unwilling to make or extend its assessment when requested to
do so by the auditor, the auditor should consider the need to modify the auditor's
report as a result of the limitation on the scope of the auditor's work. In certain
circumstances, such as those described in paragraphs 14, 17 and 23, the auditor may
believe that it is necessary to ask management to make or extend its assessment. If
management is unwilling to do so, it is not the auditor's responsibility to rectify the
lack of analysis by management, and a modified report may be appropriate because it
may not be possible for the auditor to obtain sufficient appropriate evidence regarding
the use of the going concern assumption in the preparation of the financial statements.
37. In some circumstances, the lack of analysis by management may not preclude the
auditor from being satisfied about the entity's ability to continue as a going concern.
For example, the auditor's other procedures may be sufficient to assess the
appropriateness of management's use of the going concern assumption in the
preparation of the financial statements because the entity has a history of profitable
operations and a ready access to financial resources. In other circumstances, however,
the auditor may not be able to confirm or dispel, in the absence of management's
assessment, whether or not events or conditions exist which indicate there may be a
significant doubt on the entity's ability to continue as a going concern, or the existence
of plans management has put in place to address them or other mitigating factors. In
these circumstances, the auditor modifies the auditor's report as discussed in CSA 700
"The Auditor's Report on Financial Statements".
3. This review and assessment involves considering whether the financial statements
have been prepared in accordance with Cambodian Accounting Standards (CASs).
(a) title;
(b) addressee;
(ii) a statement of the responsibility of the entity’s management and the responsibility of
the auditor;
(d) scope paragraph (describing the nature of an audit)
Title
6. The auditor’s report should have an appropriate title. It is appropriate to use the
term 'Independent Auditor' in the title to distinguish the auditor’s report from reports
that might be issued by others, such as by officers of the entity, the board of directors,
or from the reports of other auditors who may not have to abide by the same ethical
requirements as the independent auditor.
Addressee
7. The auditor’s report should be appropriately addressed as required by the
circumstances of the engagement and relevant regulations. The report is ordinarily
addressed either to the shareholders or the board of directors of the entity whose
financial statements are being audited.
10. Financial statements are the representations of management. The preparation of such
statements requires management to make significant accounting estimates and
judgments, as well as to determine the appropriate accounting principles and methods
used in the preparation of the financial statements. In contrast, the auditor’s
responsibility is to audit these financial statements in order to express an opinion
thereon.
'We have audited the accompanying balance sheet of the ABC Company as of
December 31, 20X1, and the related statements of income and cash flows for the year
then ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements
based on our audit.'
Scope Paragraph
12. The auditor’s report should describe the scope of the audit by stating that the
audit was conducted in accordance with CSAs. 'Scope' refers to the auditor’s
ability to perform audit procedures deemed necessary in the circumstances. The
reader needs this as an assurance that the audit has been carried out in accordance with
established standards or practices.
13. The report should include a statement that the audit was planned and performed
to obtain reasonable assurance about whether the financial statements are free of
material misstatement.
(a) examining, on a test basis, evidence to support the financial statement amounts and
disclosures;
(b) assessing the accounting principles used in the preparation of the financial
statements;
15. The report should include a statement by the auditor that the audit provides a
reasonable basis for the opinion.
Opinion Paragraph
17. The auditor’s report should clearly state the auditor’s opinion as to whether the
financial statements give a true and fair view (or are presented fairly, in all
material respects,) in accordance with Cambodian Accounting Standards.
18. The terms used to express the auditor’s opinion are 'give a true and fair view' or
'present fairly, in all material respects,' and are equivalent. Both terms indicate,
amongst other things, that the auditor considers only those matters that are material to
the financial statements.
'In our opinion, the financial statements give a true and fair view of (or ‘present fairly,
in all material respects,’) the financial position of the Company as of December 31,
20X1, and of the results of its operations and its cash flows for the year then ended in
accordance with Cambodian Accounting Standards.'
Date of Report
20. The auditor should date the report as of the completion date of the audit. This
informs the reader that the auditor has considered the effect on the financial statements
and on the report of events and transactions of which the auditor became aware and
that occurred up to that date.
Auditor’s Address
22. The report should name a specific location, which is ordinarily the city where the
auditor maintains the office that has responsibility for the audit.
Auditor’s Signature
23. The report should be signed in the name of the audit firm, the personal name of
the auditor or both, as appropriate. The auditor’s report is ordinarily signed in the
name of the firm because the firm assumes responsibility for the audit.
25. The following is an illustration of the entire auditor’s report incorporating the basic
elements set forth and illustrated above. This report illustrates the expression of an
unqualified opinion.
'AUDITOR’S REPORT
(APPROPRIATE ADDRESSEE)
In our opinion, the financial statements give a true and fair view of (or ‘present fairly,
in all material respects,’) the financial position of the Company as of December 31,
20X1, and of the results of its operations and its cash flows for the year then ended in
accordance with Cambodian Accounting Standards.
AUDITOR
Date
Address'
Modified Reports
26. An auditor’s report is considered to be modified in the following situations:
Uniformity in the form and content of each type of modified report will further the
user’s understanding of such reports. Accordingly, this CSA includes suggested
wording to express an unqualified opinion as well as examples of modifying phrases
for use when issuing modified reports.
28. The auditor should modify the auditor’s report by adding a paragraph to
highlight a material matter regarding a going concern problem.
29. The auditor should consider modifying the auditor’s report by adding a
paragraph if there is a significant uncertainty (other than a going concern
problem), the resolution of which is dependent upon future events and which
may affect the financial statements. An uncertainty is a matter whose outcome
depends on future actions or events not under the direct control of the entity but that
may affect the financial statements.
30. An illustration of an emphasis of matter paragraph for a significant uncertainty in an
auditor’s report follows:
'In our opinion ... (remaining words are the same as illustrated in the opinion
paragraph—paragraph 25 above).
(An illustration of an emphasis of matter paragraph relating to going concern is set out
in CSA 570 'Going Concern.')
32. In addition to the use of an emphasis of matter paragraph for matters that affect the
financial statements, the auditor may also modify the auditor’s report by using an
emphasis of matter paragraph, preferably after the opinion paragraph, to report on
matters other than those affecting the financial statements. For example, if an
amendment to other information in a document containing audited financial statements
is necessary and the entity refuses to make the amendment, the auditor would consider
including in the auditor’s report an emphasis of matter paragraph describing the
material inconsistency. An emphasis of matter paragraph may also be used when
there are additional statutory reporting responsibilities.
(b) there is a disagreement with management regarding the acceptability of the accounting
policies selected, the method of their application or the adequacy of financial
statement disclosures.
34. A qualified opinion should be expressed when the auditor concludes that an
unqualified opinion cannot be expressed but that the effect of any disagreement
with management, or limitation on scope is not so material and pervasive as to
require an adverse opinion or a disclaimer of opinion. A qualified opinion should
be expressed as being ‘except for’ the effects of the matter to which the
qualification relates.
37. Whenever the auditor expresses an opinion that is other than unqualified, a clear
description of all the substantive reasons should be included in the report and,
unless impracticable, a quantification of the possible effect(s) on the financial
statements. Ordinarily, this information would be set out in a separate paragraph
preceding the opinion or disclaimer of opinion and may include a reference to a more
extensive discussion, if any, in a note to the financial statements.
39. A scope limitation may be imposed by circumstances (for example, when the timing
of the auditor’s appointment is such that the auditor is unable to observe the counting
of physical inventories). It may also arise when, in the opinion of the auditor, the
entity’s accounting records are inadequate or when the auditor is unable to carry out
an audit procedure believed to be desirable. In these circumstances, the auditor would
attempt to carry out reasonable alternative procedures to obtain sufficient appropriate
audit evidence to support an unqualified opinion.
40. When there is a limitation on the scope of the auditor’s work that requires
expression of a qualified opinion or a disclaimer of opinion, the auditor’s report
should describe the limitation and indicate the possible adjustments to the
financial statements that might have been determined to be necessary had the
limitation not existed.
We did not observe the counting of the physical inventories as of December 31, 20X1,
since that date was prior to the time we were initially engaged as auditors for the
Company. Owing to the nature of the Company’s records, we were unable to satisfy
ourselves as to inventory quantities by other audit procedures.
In our opinion, except for the effects of such adjustments, if any, as might have been
determined to be necessary had we been able to satisfy ourselves as to physical
inventory quantities, the financial statements give a true and ... (remaining words are
the same as illustrated in the opinion paragraph - paragraph 25 above).'
(The paragraph discussing the scope of the audit would either be omitted or amended
according to the circumstances.)
We were not able to observe all physical inventories and confirm accounts receivable
due to limitations placed on the scope of our work by the Company.
We conducted our audit in accordance with ... (remaining words are the same as
illustrated in the scope paragraph - paragraph 25 above).
As discussed in Note X to the financial statements, no depreciation has been provided
in the financial statements which practice, in our opinion, is not in accordance with
Cambodian Accounting Standards. The provision for the year ended December 31,
20X1, should be xxx based on the straight-line method of depreciation using annual
rates of 5% for the building and 20% for the equipment. Accordingly, the fixed assets
should be reduced by accumulated depreciation of xxx and the loss for the year and
accumulated deficit should be increased by xxx and xxx, respectively.
In our opinion, except for the effect on the financial statements of the matter referred
to in the preceding paragraph, the financial statements give a true and ... (remaining
words are the same as illustrated in the opinion paragraph - paragraph 25 above).'
We conducted our audit in accordance with ... (remaining words are the same as
illustrated in the scope paragraph - paragraph 25 above).
On January 15, 20X2, the Company issued debentures in the amount of xxx for the
purpose of financing plant expansion. The debenture agreement restricts the payment
of future cash dividends to earnings after December 31, 20X1. In our opinion,
disclosure of this information is required by (…….the relevant Accounting Standard)
In our opinion, except for the omission of the information included in the preceding
paragraph, the financial statements give a true and ... (remaining words are the same as
illustrated in the opinion paragraph - paragraph 25 above).'
We conducted our audit in accordance with ... (remaining words are the same as
illustrated in the scope paragraph - paragraph 25 above).