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1. REGULATORY FRAMEWORK Business and Audit profession is highly regulated.

It can be imposed by the government or self-imposed by itself In the UK the financial reporting council issues regulation not from law. It receives funding from the government, business and the professional bodies such as the ACCA. International standards on auditing are issued by the IAASB However if ISA are to be applicably in a country they must be adopted by that country. IAASB also issues international standards on review engagements which apply to the review of historical information Assignments that are not audits of historical engagements such as reviews of prospective financial information are covered in International standards on assurance engagements International standards on related services cover assignments including agreed upon procedures and compilation agreements In 2005 the Public interest oversight board PIOB was launched to exercise oversight of all IFAC public interest activities including its standard setting bodies such as the IAASB The PIOBs work involves: Monitoring the standard setting board Overseeing the nomination process for membership of these boards Cooperation with national oversight authorities such as the Public interest oversight board in the UK

Corporate governance is the system by which businesses are directed and controlled OECD Corporate governance frameworks should: promote efficient and transparent markets protect and facilitate the exercise of shareholders rights ensure the equitable treatment of all shareholders recognise the rights of all stakeholders ensure the timely and accurate disclosures are made on all material matters regarding the corporation ensure the strategic guidance of the company, the effective monitoring of management by the board and the board's accountability to the shareholders

UK corporate governance code (Only mandatory to companies that have share with premium listing in UK but is considered to be a code of best practice) Should appoint a CEO and Chairman Mix of executive and non executive on board Have an audit committee in place with 3 NEDs If do not have an internal audit department must consider need for one annually Establish Remuneration committee with at least 3 NEDs Establish Nomination committee with mostly NEDs Procedures and policies in place for establishing risk management and internal controls

UK Corporate Governance code


Principles applicable to Directors 1. Should be a division of duties at the head of the company. The role of Chairman and CEO should be separated 2. At least half the board should be NEDs who are independent of management and free of any other relationship that could interfere with the exercise of their independent judgment 3. The Chairman should ensure all directors are properly briefed on issues arising at the board meetings 4. Directors should be reappointed every 3 years and they should receive appropriate training when first appointed. Consideration should also be given to the length of service of the NEDs they must remain independent and rigorous reviews must be conducted if NEDs have served for more than 6 years 5. Levels of remuneration should be appropriate to attract and retain directors and should be linked to corporate performance 6. A remuneration committee should set up comprised of NEDs. Details of remuneration policies and remuneration paid should be included in the financial statements. Principles applicable to relations with shareholders 1. Companies should be ready to enter into dialogue with institutional shareholders at any time 2. The AGM should be used to communicate with private investors and encourage their participation 3. Institutional shareholders have a responsibility to make considered use of their votes Principles applicable to the accounts and audit 1. The board should present a balanced and understandable assessment of the companys position and prospects

2. The board should maintain a sound system of internal control in order to safeguard the shareholders investments and the companys assets. The companys internal controls should be reviewed at least annually to ensure they are operating properly 3. The board should establish an audit committee. The auditor is required to consider whether certain aspects of the code have been complied with. If any of the areas not been complied with the directors must disclose this in the accounts. If no disclosure is made the auditor must report on this by exception. The Audit committee The audit committee should monitor the integrity of the financial statements and review the effectiveness of the internal control and risk management systems including the internal audit function The audit committee should also be involved with the external auditors. They should make recommendations to the board regarding the appointment and removal of the auditors. They should also review and monitor the externals auditors independence and objectivity One key aspect of this is they should develop and implement policy on the engagement of the external auditor to provide non-audit services Regulation ISA 250 Consideration of Law and Regulations states that it is managements responsibility to ensure the company operates within its regulation and to prevent and detect any non-compliance The auditor should understand the regulatory framework in which the company operates and this understanding should be sufficient to assess the likelihood of any non-compliance and to determine whether this might pose a material risk to the financial statements The auditor should inspect correspondence between the entity and relevant authority and he should ask management f there have been any compliance problems throughout the year. The auditor should then consider the implications for his report Money Laundering As accountants and auditors have greater access to a companys books and transactions this gives them a greater opportunity to discover unusual transactions which may indicate instances of money laundering. Money Laundering offences include: 1. Possessing, dealing with or concealing criminal property 2. Failure to undertake customer due diligence or report money laundering suspicions to the relevant authority 3. Tipping off clients about a report

4. Tax evasion (considered money laundering as company retains the benefits of its crime) OECD and ACCA requirements on Money Laundering 1. Have internal controls and policies to insure relevant training in regards to money laundering is received by employees and the need to report suspicions of Money laundering 2. Client identification procedures and customer due diligence before work is undertaken 3. Keeping records for a minimum of 5 years 4. Recognizing suspicious transactions or situations and reporting to the relevant authority often known as the financial intelligence unit 5. Not tipping off clients that a report is made Under the OECD recommendations financial institutions should have procedures to identify and authorize relationships with politically exposed persons (persons that have or have had prominent public functions abroad and with their close family and associates. Procedures should also be undertaken to establish the source of wealth and funds Relevant businesses where money laundering is a specific threat should take certain precautions such as: 1. 2. 3. 4. To appoint a money laundering officer To train employees in ways to deal with potential money laundering To vouch for the identity of new clients To have internal procedures to prevent money laundering

2. Threats to independence Self interest - personal, audit firm or family has direct financial or indirect material interest in client Mitigate threat Dispose of interest or remove from audit Or using an independent partner to review the audit work - Auditors should also have quality control processes that require staff to declare any financial interests held by themselves or their immediate family No acceptance of gifts unless trivial. If client is a public entity and for two consecutive years companies fees account for 15% of audits total fees must disclose to board, arrange for independent accountant/regulator to do a pre or post issuance review. Pre issuance is better If not public entity must discuss with audit committee, take steps to reduce dependence on client, obtain internal/external quality reviews

Self review - Provision of other services in addition to audit to client and reviewing your own work Would occur if a member of the audit team was previously a director or officer of the client and was able to exert significant unfluence over the subject matter of the engagement Mitigate threat safeguards use separate team - if public interest company an auditor must not prepare financial reports and audit the reports. Can provide tax services although cant provide calculations of current or deferred tax for the financial accounts that will be then audited by the same firm except in exceptional circumstances. Must not assume management responsibilities when providing tax info or when providing an internal audit function. Cannot be advocate in tax dispute if amounts are material. When providing internal audit function for public interest firms cannot provide: Services that relate to a significant part of internal controls Financial Accounting Systems that generate significant financial information of financial statements being audited Material amounts or disclosures Can provide IT legal or litigation support services Advocacy - Auditor promotes a position or opinion to the point that subsequent objectivity is compromised Commenting publicly on future events or acting as an advocate on behalf of a client during a dispute with third party Familiarity - Member become too sympathetic to the interests of others which can result in a significant loss of professional scepticism can occur because of family links or long association with client Mitigate threat Rotation of key audit partners after no more than 7 years Intimidation - Close business relationship or family relationship or threats of legal action by the client against the auditor the threat of loss of business and bad publicity may make the auditors feel pressured into producing a favourable audit report Mitigate threat Disclose to audit committee Get additional audit work done Resign from audit ACCA code of Ethics (principles Based) Integrity - should be straightforward and honest in all business and personal dealings

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Objectivity - should not allow bias, conflicts of interest or undue influence of others to override professional judgement Risks to objectivity/independence Financial interests in shares or other investments a financial interest in a client may create a self-interest threat. Audit partners and those connected with them are prohibited from holding a financial interest in client companies. Audit staff may hold a beneficial interest in a client but they cant take part in the audit of that client Loans and guarantees to or from clients The audit firm may give into pressure form the client if they believe a loan will go unpaid. Loans should not be entered into unless with a bank or other financial institution and under normal lending procedures, terms and requirements. Similarly overdue fees are in effect a loan to a client and generally their payment should be required before a report is issued otherwise safeguards will be appropriate such as discussing the outstanding fees with the audit committee and a review by another additional professional accountant who did not take part in the original audit. Family and personal relationships - Family and personal relationships between a member of the audit team and a director, officer or certain employees of a client may create self-interest, familiarity or intimidation threats. The person should not be included in the audit team Recent service with an assurance client If a former officer, director or employee of an assurance client was a member of the assurance team this may create a self-interest, self-review or familiarity threat these staff may not be assigned to audit if they have been a former officer, director or employee in a position to exert direct and significant influence on the financial statements during the period audited or during the previous 2 years. Long association of senior personnel with assurance clients may create a familiarity threat. Senior staff should be rotated. For listed and other public interest clients senior staff should be rotated every 5 years and not return to the audit for another 5 years. Other key partners should be rotated every 7 years and not return for 2 years. The provision of non-assurance and valuation services to audit clients risk of self-interest and self-review. Should not: authorize or execute transactions, determining which of the firms recommendations should be implemented or reporting in a management role to those charged with governance. Accounting or bookkeeping work cannot be performed for a listed or other public interest entity except in relation to routine or mechanical assistance to divisions or subsidiaries or in emergency situations provided safeguards are in place. Safeguards would include not assuming any managerial role, responsibility for the work being accepted by the client and deploying different team members for assurance and non-assurance work. Valuation service should not be provided to clients for matters material to the financial statements. Gifts and hospitality acceptance of gifts and hospitality could be a self-interest threat and familiarity threat. If excessive it could be considered a bribe. Should not accept unless the amount is clearly insignificant. Relative size of fees Fear of losing the largest client is a self-interest threat. Also public perception of auditor objectivity may be jeopardized when the level of recurring fees is quite large. Independence may be threatened when the fees exceed 15% of the audit firms total

recurring fees come from one company or a group of connected companies. This is reduced to 10% for public interest entities. An audit firm should review the fees received from all clients and safeguards should be put in place where the level is likely to threaten objectivity such as file reviews by an independent partner prior to issuing an audit opinion. A firm can temporarily exceed these 15% and 10% limits assuming safeguards are in place. 9. Actual or threatened litigation being sued by a client will incur a self-interest or intimidation threat. An auditor should consider whether to continue or remove itself form the audit unless threat is insignificant or appropriate safeguards are put in place such as having an independent review or removing the person from the audit team involved with the litigation.

Professional competence and due care- duty to maintain professional knowledge and skill at a level to ensure a client or employer receives a competent professional service. Members should act diligently and in accordance with applicable technical and professional standards when providing providing professional services Confidentiality - Should respect information acquired by as a result of business or professional relationships and shall not disclose this to third parties without authority or unless required by law or professional duty. confidential information should not be used for personal advantage of members or third parties
Voluntary disclosure may be applicable in the following situations: An obligation to report to banking or financial services regulators where a client acts recklessly or is not a fit and proper person to run a company necessary to protect the member's interests, for example to enable him to sue for fees or defend an action for, say, negligence. compelled by process of law, for example where in an action a member is required to give evidence of discovery of documents. public duty to disclose, say where an offence has been committed which is contrary to the public interest such as money laundering or if the auditor believes the client is involved with terrorists

authorized by statute such as disclosing breaches of regulations by a bank to a regulator


Disclosure is to non-governmental bodies which have statutory powers to compel disclosure

the profession Professional behaviour - Should comply with relevant laws and regulations and should avoid any action that would discredit

Conflicts of interest An audit firm should always put a clients interests before its own Therefore it should not accept or continue engagements where there are conflicts of interests between the firm and its clients An audit firm can have 2 separate clients that are in conflict with each other provided that the work is managed properly and the work is not likely to cause dispute between clients. Appropriate safeguards include using different partners and staff for each engagement, procedures to prevent access of information, guidelines to staff on issues of security and confidentiality, confidentiality agreements signed by employees and partners of the firm , a regular review of the situation by a partner that is not involved with either client and full disclosure of the conflict is made to both clients. In some situations it may be appropriate to advise either or both clients to seek additional independent advice

Changes in professional appointments An auditor must obtain permission from client to contact previous auditor. If permission is not obtained should reject audit. The clients books and records belong to the client and the auditors working papers belong to the auditor and the client has no right to access these. However if the auditor undertakes tax or legal work for the client this information is the clients property Corporate finance advice If an auditor is asked to provide corporate advice there may be a self-review threat or conflict of interest threat

3. Professional considerations and practice management A key issue of the expectations gap is the what the key responsibilities are for the auditor particularly in relation to fraud and the circumstances where the auditor can be held liable for inadequate work. ISA 240 fraud states the auditors responsibilities in relation to fraud. Fraud involves the use of deception to obtain an unjust or illegal advantage. It is an intentional act. Error on the other hand is unintentional The auditor must gain reasonable assurance that the financial statements are free of material misstatement whether this is caused by fraud or error. The responsibility for the prevention and detection is with management. Management will fulfill this responsibility by implementing internal control procedures. If the auditor becomes aware of a possible misstatement due to fraud or error He should

1. First determine whether the effect on the financial statements is material or not. 2. Next he must determine whether he believes the misstatement is due to fraud or error All frauds should be communicated with management and those charged with governance and auditors must consider whether they must report the fraud to a regulatory or enforcement authority Whenever disclosing information relating to a client (for reasons of public interest or otherwise) an auditor should seek legal advice When reporting the fraud to management and those charged with governance the auditor should to the highest level of management possible provided that they are not implicated in the fraud As with all material misstatements the auditor should consider the implication on the report of the fraud. If the fraud has caused doubt on managements integrity the auditor will have a wider issue to deal with as this may call into question the reliance that can be placed on managements assertions. Professional liability The ACCA code of ethics requires auditors to exercise professional due care and competence in the performance of the audit work. Under contract law the auditor owes a duty of care to the client. The auditor may also owe a duty of care to a third party (those that reply on the accounts) In order to succeed in a negligence claim against an auditor 3 things must be proven: 1. That duty of care exists. This is automatic for a client but in the case of a third party sufficient proximity must be demonstrated. Directors, shareholder or creditors might be considered to have the relevant proximity 2. There must be a breach of this duty of care ie the auditor has failed in his responsibility to the third party for example by not identifying a material error 3. The third party must suffer financial loss due to the auditors negligence Historically all auditors had unlimited liability and auditors are required to have professional indemnity insurance before they may practice. 3 solutions have been put forward as methods of reducing liability 1. Incorporation would protect partners from personal bankruptcy however firm could be liquidated and could result in adverse tax implications. Firms would also be required to publish accounts and be subject to audit 2. Limited liability partnership Partners avoid personal liability but required to publish accounts and be subject to audit 3. Liability cap Auditors limit the amount of liability for an audit. Cap in Germany is 1,250Million

Practice management Auditors need to manage the risk of legal action for negligence and for loss of clients due to poor quality work. The main areas to focus on are quality control and tendering for work Quality control The Quality control is to ensure audits are conducted to as high a standard as possible thus reducing the risk of being negligent and the risk of losing clients. Quality control has 2 aspects to it the audit firm and the individual audit perspective. ISQC! States that Quality control procedures must be performed at the firm level and these should cover 6 areas: 1. Leadership responsibilities the audit firm should establish policies and procedures to promote an internal culture which recognizes the importance of internal control. One partner should assume overall responsibility for the firms quality control procedures 2. Ethical requirements The firm should have procedures in place to ensure staff comply with the code of ethics and conduct 3. Acceptance and continuance of client relationships the firm should have criteria in place to decide they use to decide whether they accept a potential client. There should also be criteria to decide whether they continue to work with clients including assessing the clients integrity, the firms competence to act and the consideration of any ethical issues surrounding the engagement. 4. Human resources The firm should ensure audit work is delegated to staff that are competent and who have the relevant experience 5. Engagement performance This ensures engagements are performed in accordance with professional standards. Staff should be appropriately supervised and their work reviewed. Work performed should also be subject to a quality control review and polices should exist to enable consultation on difficult or contentious issues for example on a high risk client a second partner may review the files to give added confidence that the audit opinion is appropriate 6. Monitoring The firm should keep the quality control procedures and policies under review. Where they are inadequate corrective action should be taken. As far as the individual audit is concerned ISA220 states that the task of ensuring that each individual audit is performed to a high standard is the responsibility of the engagement partner. Work must be properly directed, supervised and reviewed. Good planning will ensure the audit staff have sufficient direction as it will make them aware of the objectives they are to perform. Staff need to also be fully aware of the nature of the clients business and the risks faced by the business. The audit engagement partner has ultimate responsibility for ensuring that the audit is properly planned.

Supervision means monitoring the progress of the audit dealing with issues arising and resolving difference of professional judgment. All work should be reviewed to ensure it has been done to an appropriate standard. The work of junior staff will be reviewed by more senior staff and this review will be evidenced in the audit file. Where matters of a contentious matter arise the engagement partner should engage with other partners. An engagement quality control review is compulsory for listed companies and should be conducted before the auditors report is issued. Tendering Tendering has led to a reduction in audit fees Prior to submitting a tender an audit firm should consider the following: 1. Does the firm wish to act for the client? 2. Is the proposed fee reasonable in relation to the level of risk attached to the audit? 3. Are there any ethical considerations the audit firm should make? for example they may not want to take on an audit of a client whose management lacks integrity One the firm is satisfied that they want to prepare a tender they should submit a tender document incorporating the following: 1. 2. 3. 4. 5. 6. Background on the firm and its personnel The proposed fee and how it has been calculated Details about the nature and purpose of an audit An assessment of the requirements of the client An outline of how the audit firm proposes to meet those clients Any assumptions made regarding the availability of information, deadlines and work done by the client 7. The proposed approach to the audit 8. Details of proposed key audit staff and their CVs The client will then evaluate each tender document before making a decision. They will typically assess whether the audit firm can meet their requirements, the fee and whether they are confortable that the firm has sufficient experience staffing resource and geographic coverage.

4. Planning and risk management

Objectives of audit planning To devote appropriate attention to different audit areas To identify and resolve potential problems on a timely basis To assist the selection of audit team members and assign the appropriate work to them

To facilitate the direction supervision and review of work To assist in the coordination of work done by auditors of components and experts In order for the auditor to make an assessment of audit risk and where he has to focus his audit work he must obtain an understanding of the entity and its environment To do this he will enquire with management, use Analytical procedures and observation and inspection Analytical procedures can be ratios and deviations from previous years figures A matter is material if its omission or misstatement would result in a change of decision by a reader of the financial statements Materiality is matter for professional judgment but can be calculated using a figure of 0.5% - 1% of revenue or 1% to 2% of total assets or 5% to 10% of profit before tax The exact level of risk will depend on the assessment inherent risk and control risk. The level set will influence 3 areas of the audit: 1. The amount of work to be done on a particular area of the audit and the approach adopted. For example if receivables are considered to be material the auditor may decide to perform tests of control and substantive procedures on them. If however petty cash is judged to be immaterial the auditor may decide not to perform a test on it. 2. The decision on whether to seek adjustment. During the audit a schedule of all errors found will be kept. If the total is material the auditor will ask the management to adjust the financial statements. If such an adjustment is not forthcoming the auditors report will be modified. 3. The type of auditors report modification needed. The auditors opinion will be modified due to an unresolved material issue and the issue could be material or pervasive depending on its magnitude. Risk assessments Audit risk is the risk the auditor gives an inappropriate opinion on the financial statements The 2 elements of audit risk are that (Control risk) the financial statements contain a material error and (Detection risk) that the auditors procedures may fail to detect any material errors Inherent risk is the risk that the financial statements contain an error irrespective of the companies system of internal control. For example in a cash based business there is an inherent risk that revenue may be understated as it is possible that not all sales have been recorded. Or it could be that staff turnover is high Control risk is the risk that the companys internal control fails to detect or prevent material error. Control risk would be high if the company didnt prepare bank reconciliations Detection risk is that the auditors substantive procedures may fail to detect any material errors. This arises as auditors only audit a sample of items. Their conclusion may be incorrect if the sample

is too small. The risk also arises due to poor quality work. Good quality control procedures help reduce this area of risk. Detection risk is the only risk controllable by the auditor If inherent and control risk are high the auditor must make detection risk is as low as possible which means a lot of testing and audit work At the planning stage the auditor will use his knowledge of the business to assess the level of inherent risk and control risk attached to the client. He will then use this assessment to determine the level of testing required and in doing so will aim to reduce detection risk to an acceptable level. Audit risk is to do with things that could cause the auditors opinion to be incorrect but business is to do with losses or interruptions that the business might suffer For example if a company installs a new computer system there could be a control risk. The audit risk is the financial information produced by the new system may be incomplete or materially inaccurate leading to a potential limitation on scope in the audit however the associated business risk is that id the companies systems contain inaccurate data management may make bad decisions based on this information. For example if inventory is system is inaccurate the company could over/under stock because its inventory records will not correct. This in turn may lead to poor capital funding management and customer dissatisfaction. Financial statement risks are the risk the financial statements may be incorrectly stated or misrepresented. This could be: 1. 2. 3. 4. The risk that assets are misstated The risk liabilities are misstated Risk that income statement figures are incorrect Risk that necessary disclosures are not made

An auditor must identify risks and link their procedures to those risks Audit strategies The auditor will use his professional judgment to select the most appropriate method for each area of the financial statement. 6 common methodologies used 1. Risk based auditing developing audit procedures in response to the risk factors identified in audit planning. This should ensure that the greatest audit effort is directed at the areas where the financial statements are most likely to be misstated 2. The business risk approach (the top down approach) this identifies the key risks to which the business is subject under the headings financial risk, operational risk and compliance risk. The auditor will then consider the implication of each business risk on the financial

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statements and therefore the audit. This approach focuses audit attention on key areas so is commonly used in practice Systems audit This focuses on the strength or otherwise of the internal control procedures and the control environment within the company. The idea is to perform extensive tests of control and reduce the level of substantive procedures. This approach is never really appropriate for small companies but is effective for large companies. The balance sheet approach This involves testing each item in the balance sheet so that once the auditor is happy with them retained earnings is a balancing figure. The auditor then has sufficient appropriate evidence over the balance sheet and will perform analytical review on components of the income statement to gain comfort on the way the profit for the year figure is made up. It is commonly used for small audits and in situations where controls are considered to be weak. A major problem is that this approach can lead to over auditing. A transaction cycle approach This is linked to systems testing as it would use the same systems but rather than testing the controls this approach would use substantive procedures. It could be used if the controls were assessed as being ineffective and a sample of transactions would be selected and traced through the cycle. For example a sales order could be agreed to a dispatch note then the dispatch details be agreed to the sales invoice and the related accounting entries Directional testing This approach is based around the principles of double entry bookkeeping. If the trial balance is in balance then there must be a debit entry for every credit entry. If a debit entry has been overstated there must be a corresponding credit entry that has been overstated or another debit entry that has been understated so testing receivables for overstatement will give the auditor some comfort on the overstatement of revenue

5. Evidence, evaluation and review The ISA states that for initial audit engagements the auditors objective is to obtain sufficient (good quantity) and appropriate (reliable evidence) audit evidence in relation the financial statements assertions.

Reliability of evidence is influenced by its source whether its internal or external and by its nature whether its visual, documentation or oral More reliable evidence comes from external sources from documents and written representations from original records and from entities records where there are strong controls and obtained from the auditor Related party transactions ISA 550 states that the auditor should gain sufficient appropriate audit evidence regarding the identification and disclosure of related party transactions.

Related parties can be difficult to identify and because these transactions require disclosure in the financial statements this could be a risk area of the audit. Consequently certain procedures are commonly adopted to ensure that all related party transactions are identified. They are as follows: 1. Review prior year working papers for known related parties and inquire with management if these are still relevant 2. Ascertain whether the company has established any formal procedures for the identification of related party or transactions 3. Carry out a review of the list of the shareholders to identify key shareholders who may be related parties 4. Review the board minutes for discussions of transactions with directors and other related parties. This would usually be supplemented via discussion with the directors and management representations regarding the correct disclosure of all related party transactions 5. Carry out a review of details of other directorships held by the members of the board to identify possible other related parties 6. Review the correspondence supplied to legislative or other regulatory authorities The auditor would generally request a specific management representation to confirm that disclosure has been made of all related party transactions but as this is an internal source of audit evidence it may not be the most reliable. If inadequate disclosure is made the details of the transactions would be disclosed in the auditors report and a modified opinion would be issued. Audit of opening balances ISA 510 states the auditor must have sufficient appropriate audit evidence that the opining balances are free from material misstatement and that they agree with the prior periods closing balances. The auditor should also check that any changes in accounting policy have been appropriately adjusted and disclosed. Generally if the engagement is a recurring audit this will be a relatively simple task but if it is a new audit the auditor will need to inquire with management and potentially review prior year working papers to determine whether he is comfortable with the opening balances If under any circumstances the auditor has not been able to gain sufficient appropriate audit evidence over the opening balances then the auditors report would be modified due to a limitation on scope Alternatively should the auditor believe there to be unresolved material misstatements in the opening balances then the accounts would be modified to reflect a disagreement. After completion of audit After completing their detailed testing the auditor should carry out an overall review of the financial statements before deciding on the suit opinion. The auditor should consider whether the financial statements have been prepared using acceptable accounting policies This means that the policies

are properly disclosed, consistently applied and appropriate to the entity. Additionally the financial statements should comply with any relevant local legislations. In reviewing accounts for consistency and reasonableness the auditor should consider whether the financial statements as a whole and the assertions made about them are consistent with knowledge obtained about the entities business and with the results of other audit procedures. He should also check that the manner of disclosure is fair.

Analytical procedures ISA 520 states that when completing the audit the auditor should perform analytical procedures I forming an overall conclusion as to there the financial statements as a whole are consistent with his knowledge of the business. These conclusions may highlight other areas of the audit which may need further audit work. There is no standardized approach to analytical procedures but its helpful to check the following: 1. Ratios specific to the particular business 2. Related accounts such as receivables and revenue 3. Going concern matters such as gearing ratios The auditor will already have used analytical procedures at the planning stage and may have used relevant analytical techniques as substantive procedures during the evidence gathering stage. The comparatives should also be checked at the final review stage. The current year financial statements will include this years figures and last years which are known as the corresponding figures. These should be checked to ensure the amounts are the same as in the signed prior year accounts. If however last years accounts were modified then the auditor must consider the impact this would have on the current years financial statements and this depends on whether the matter has been resolved or not. If the matter which gave rise to the modification last year is material to this years accounts and remains unresolved then the current years financial statements will also be modified. If however the matter has been resolved the accounts will include an emphasis of matter paragraph referring to this issue. The financial statements contain the primary statements and the disclosure notes and these are audited. However the annual report contains the audited financial statements and a lot of other information such as the directors report, the chairmans report, 5 year summaries and perhaps a management commentary also known as operating and financial review. This other information is not audited but the auditor has a responsibility to read this information and to consider whether it contains any material inconsistencies with the financial statements or any factual misstatements. Should any material issues arise with the other information it will be raised with management and they will be requested to amend this other information. If the directors refuse to amend the other information the auditors report will not be modified but it will contain an emphasis of matter paragraph detailing the issue. Once all this is done the auditor should also consider whether any subsequent events need to be taken into consideration before issuing the auditors report .

Going concern is another important part of the final review stage It is important to know that the auditor would have considered any potential risk of going concern at the planning stage but he always consider if the entity is a going concern throughout the audit. ISA 570 states that the auditor should consider the entities ability to continue as a going concern and any relevant disclosures in the financial statements. It is however the responsibility of the management to determine whether the company is a going concern the auditor merely audits managements assumptions. Management should look at least 12 months in advance of the balance sheet date in order to determine whether the company is a going concern or not. In Ireland its 12 months from the date of approval of the financial statements. Audit procedures you can use to assess if a company is a going concern This would often involve obtaining and reviewing cash flow and profit forecasts and testing them in order to see whether the assumptions upon which they are based are reasonable in view of the information available. Discuss the companies general situation with management and review any available documentation (for example if the company is being sued and it could risk going concern the auditor should read the information from the companies legal advisors to determine their assessment of the case) Sensitivity analysis in order to perform margin of safety calculations If the company is having financial difficulties the auditor should review correspondence with the bank. They should check to see if any loan covenants have been breached or if the overdraft limit has been exceeded and discuss with management how they might inject capital into the business and look to see evidence if this has happened. Once the auditor is finished his going concern review he must decide whether his finding will have any impact on the audit report. There are 4 scenarios to consider: 1. If there is a significant uncertainty regarding the going concern status but the financial statements gives adequate disclosure of the going concern - for example the company could be close to its overdraft limit and the facility is up for renewal. If the company need the renewal in order to continue trading but the bank will only consider renewing the facility when it sees final year end accounts - Here there is a going concern because without the overdraft the company will not be able to continue but it wont find out if the renewal will happen until after the accounts are signed. Provided the accounts disclose this and there is nothing wrong with the accounts the company will receive an unqualified auditor's report but the auditors report will contain an emphasis of matter paragraph to highlight this issue 2. If there is a significant uncertainty regarding the going concern status but the financial statements does not give adequate disclosure of the going concern - Here the auditor does not believe there is adequate disclosure in the accounts so will issue a modified

report. the extent of the disagreement may be modified or adverse depending on the auditors judgement 3. The companies management may have produced the accounts on a going concern basis but the auditor does not believe this basis is appropriate - Again the auditors report would be modified due to the disagreement. This on the other hand would lead to an adverse opinion as the accounts look completely different from the way they should 4. Management has not made any going concern assessment or they have considered a period of less than 1 year from the balance sheet date. As management has not made an appropriate assessment the auditor will not be able to carry out audit testing so will suffer a limitation on scope resulting in the auditors report being modified due to the limitation.

6. Evidence, evaluation and review Specific accounting decisions


When assessing something for an audit 1. Assess whether it is material 2. If material need to decide whether it could cause misstatement in the financial statements Need to use financial reporting knowledge to assess any actual or potential problems and then advise examiner what kind of audit work that should be conducted Construction contracts The auditor needs to decide whether the auditor really has a construction contract Obtain and inspect the contract for evidence of the companies name and the details of what they have been contracted to do in order to get an understanding of what is going on Ensure the contract is signed and check the dates in order to determine which accounting periods the contract affects

The auditor will need to consider whether the contract can be measured reliably

Discuss with those responsible for the contract and consider whether the level of completion they have stated is reasonable Conduct a site visit if necessary and ask the project manager to talk youthrough what has been completed to date Also bear in mind the companies track record with these types of contracts how good has their judgment been in the past? Finally decide if the contract is profit making or not. This will involve vouching the contract price to the contract then looking at the level of expenditure to date and the levels of future expenditure to occur. Obtain these budgets from management and compare them with the

costs to date. Review them again for completeness in case any significant costs have been omitted. In the companies past experience was their previous budgets accurate? Review correspondence or board minutes for evidence of any delays or problems with the contract Check to see if there are any penalty clauses in the contract

Also need to ensure the construction contracts are appropriately disclosed in the financial statements Deferred tax The auditor needs to confirm that the accounting treatment and disclosure are appropriate. Audit work will focus on timing or temporary differences This will be done by reviewing the tax computations and using knowledge of the business as companies will often have similar differences year on year The auditor will then recalculate these differences and check the correct tax rates are being used They will then reconcile the tax charge to the figure reported in the income statement Check that the disclosure is what is accordance with the accounting standard

Leases

Firstly the auditor will consider whether the directors have classified the lease correctly as a finance lease or an operating lease. This will require him to check the original lease agreement to ascertain who bears all the risks and rewards of ownership of the leased asset. Once he is happy with classification of the lease he will need to check the finance charge has been properly calculated and allocated accordingly. Management will have created these schedules previously so the auditor will recalculate the interest and ensure he is happy with its calculation. If the asset is held under a finance lease then it should be depreciated and the auditor will carry out the same audit work here as he would on any other item of PPE Finally all the disclosure notes should be checked to ensure the leases have been properly disclosed in accordance with the accounting standard

7. Group audits and Trans-national audits When auditing group accounts as the principal auditor you will be responsible for planning the group audit, issuing the opinion on the consolidated accounts and the parent company account and

reviewing the work performed by the other auditors on subsidiary which you have not audited yourself. When deciding whether to accept the group audit or not and auditor must consider all the usual considerations and will also need to consider the risk attached to the group audit, the nature of the subsidiaries businesses and the number of subsidiaries particularly those subsidiaries audited by other auditors. Although as the principal auditor you will be responsible for the audit of the group accounts the other auditors of the subsidiaries are required to give you all the necessary information in order for you to form an opinion on the group accounts. Auditing consolidated accounts involves ensuring all accounts have been correctly brought in to the consolidation schedule and that the accounting treatment of all subsidiaries, associates and joint ventures is appropriate. As the group is essentially one entity all the entities should draw up their accounts using the same accounting policies. The other auditor will be responsible for auditing the alignment of the subsidiaries accounts but the principal auditor will need to check this has been done. Also the auditor will need to check that year end consolidation have been done such as purps and intra group transactions. Generally the client will prepare the actual consolidation but the principal auditor will need to check these adjustments have been done. If the group contains a foreign subsidiary the auditor will need to check that the accounts have been properly translated. Accounting policies will almost certainly be different. The existence of foreign subsidiaries may also cause difficulties in the audit with cultural and language barriers and difficulties in the collection of audit evidence and there could be issues with certain countries such as hyperinflation accounts produced in this country would need to be adjusted for inflation prior to consolidation If one of the subsidiaries audit reports is modified the principal auditor must assess the impact the modification will have on the group financial statements before deciding whether this will have any effect on their report. The IAASB have set up the transnational committee known as the TAC. This body has established a definition of transnational audit a transnational audit is an audit that is or may be reliable outside the entities home jurisdiction for purposes of significant lending, investment or regulatory decisions. This will include audits financial statements of all companies with listed equity or debt and other public interest companies which attract particular public attention because of their size product or services provided.

The TAC is responsible for: 1. 2. 3. 4. Identifying any changes that may be required in the auditing or assurance standards Providing a forum to discuss best practice Identifying qualified candidates to sit on IFACs standard setting board Acting as a formal channel of interaction among transnational firms and international regulators and institutions regarding audit quality, systems of quality control and transparency of international networks

8. Audit related services and other assurance services Audit related services include: Reviews Agreed upon procedures Compilations

An audit is a legal requirement that results in the auditor giving a legal opinion on whether the accounts give a true and fair view. This opinion is published in the annual report and is addressed to the shareholders A Non-audit assignment is voluntary. Management will request that the assignment be undertaken. They will agree the scope of work to be done and this will determine the nature of the report which is issued. The report will be addressed to the management. During an audit when designing the audit procedures and assessing the level of testing required the auditor will consider the companys internal controls, the likelihood of fraud being present and any going concern indicators These will not be considered in a non-audit assignment unless specifically requested in the scope of the engagement. Agreed upon procedures

In an Agreed upon procedures engagement the auditor is engaged to carry out procedures of an audit nature and to report on factual findings for example the auditor may be asked to undertake specific procedures to confirm the validity of the receivables figure in the financial statements no assurance is given as the auditor is merely reporting factual findings. The report should only be shown to those that have agreed to the procedures. It is important that the terms of the engagement are agreed in an engagement letter in order to prevent any subsequent misunderstandings. The report would also state that the engagement is not an audit or a review and that no assurance is expressed.

Compilations

The most common compilation assignment is the preparation of financial statements from a clients records. These assignments are often prepared for sole traders, partnerships and small companies. As an audit is not being performed the auditor does not express an opinion on the information so no assurance is given. The compilation report will state the information compiled and the fact that this information is managements responsibility. It also confirms that the engagement is not an audit or a review and that no assurance is therefore given. Assurance services Assurance is all about giving someone confidence about something. An assurance engagement is one where a responsible party engages a practioneer to evaluate or measure a subject matter against criteria and then express their conclusion to an intended user. An audit is a type of assurance engagement because the directors who are responsible for the preparation of the financial statements engage an auditor to determine whether the accounts they have prepared are true and fair and to report that opinion to the shareholders
Elements of an assurance engagement Criteria (standards or benchmarks used to evaluate the subject matter these can be laws or regulations or specifically developed for the audit engagement) Report Evidence (must be sufficient and appropriate) Subject Matter Three party relationship (an professional accountant, a responsible party and intended users) Reasonable level of assurance is given when the practitioner has obtained sufficient and appropriate evidence to conclude that the subject matter conforms in all material respects with the identified suitable criteria Limited level of assurance is given when the practitioner has obtained sufficient and appropriate evidence to be satisfied that the subject matter is plausible in the circumstances. There are 2 different types of engagement which can be undertaken: An Assertion based engagement this is where the practioneer concludes on an assertion made by a responsible party for example a review of internal controls if the directors stated that they believe the companys internal controls would protect it from the risk of fraud because the assurance provider would conclude in relation to this assertion made A Direct reporting engagement where the conclusion is purely based on the suitable criteria for example a review of internal controls for example if the directors simply ask for a review of internal controls and no assertion has been made

According to the international standard on audit engagement ISA 3000 suggests that 5 key steps take place when carrying out assurance work: To agree the terms of engagement Plan the work Consider the suitability of the criteria Gather evidence Document matters to support the assurance report

An assurance report is very similar to an auditors report. There is no set format for an assurance report because each one is different The report should state its purposes and identify the addressee, the subject matter and the criteria against which it is being assessed It should also determine the responsibilities of each party, give a summary of the work done, detail the conclusion of the assurance provider and be signed off in their name and dated. There are 5 key types of assurance engagement: Reviews Risk assessments Systems reliability Performance measurement reviews E-commerce risk assessments

Reviews The work involved in reviews is limited mainly to enquiries with management and analytical review procedures. Much less work is done than is done in an audit so the level of assurance is low The aim of the review is to give negative assurance i.e. the report will state Based on our review nothing has come to our attention that causes us to believe that company and financial statements do not give a true and fair view This however is not the same as saying that the accounts give a true and fair view. The review report will identify the financial statements which have been reviewed and confirm managements responsibilities for them. It will also state that an audit has not been undertaken and that the work done has been limited to enquiries with management and analytical review Reviews are likely to become more common as exemptions levels for small companies increase Risk assessments and Systems reliability An assurance provider may be asked to identify or assess the risk profile of a company. In order to do this an assurance provider will need to have a good understanding of the business and identify the key risks to which the business is exposed given its nature and the fields in which it operates. These risks may be financial, operational or compliance risks.

The assurance provider is essentially conducting a SWOT analysis of the business (Strengths, Weaknesses, Opportunities and Threats) This will focus on the businesses Weaknesses and Threats and also identify any Strengths and Opportunities that the business is failing to maximize as there could also be risks that competitors will take advantage of the business failing to maximize these Strengths and Opportunities. As this is a very judgmental area the assurance provider will only be able to provide limited assurance. The assurance provider may also be hired to conduct a review of the internal controls in a specific operation and report to management on their effectiveness. Here he will conduct directed testing on particular control systems enabling him to provide reasonable assurance in his report. He will also report specific control failures to management.

Performance measurement reviews Performance measurement reviews look at assessing certain parts of the business and reporting on their performance to management. Performance measurement can assess both financial and non-financial indicators. For example an assurance provider may conduct a performance measurement review of the profitability of a division and produce a report for management which details areas such as cost inefficiencies which reduce profit. From a non-financial perspective they may conduct a review of staff turnover to report on the effectiveness of internal staff recruitment procedures

E-commerce risk assessments The assurance provider may also be hired to provide management with a level of comfort regarding their exposure to fraudulent transactions, server reliability, data theft, data protection and legal issues. Here the assurance provider is likely to be specialist within the E-commerce field

9. Prospective financial information PFI Another type of assurance engagement is a request to report on prospective financial information. Prospective financial information means financial information based on assumptions about events that may occur in the future and possible actions by an entity There are 2 types of PFI Forecasts and Projections A forecast is prospective financial information prepared on the basis of assumptions as to future events which management expects to take place and the actions management expects to take as of the date the information is prepared i.e a forecast depicts what is likely to happen A projection on the other hand is prospective financial information prepared on the basis of hypothetical assumptions about future events and management actions that are not necessarily

expected to take place or a mixture of best estimates and hypothetical assumptions i.e a projection shows what management are reasonably confident will happen. So a company may prepare a 1 year forecast along with a 10 year projection Auditor must consider 5 factors before they accept an engagement for examination of prospective financial information: 1. The intended use of the information does the management intend to use the information internally or will it be used externally 2. Whether the information will be for limited or general distribution for example the information may be prepared exclusively for a bank to support a loan application or it could be prepared for inclusion in a prospectus 3. The nature of the assumption on which the information is based are they best estimate or hypothetical 4. The information to be included 5. The period covered by the information an auditor would usually expect this to be a short time period As the examination of PFI involves considering the reasonableness of forward looking data the level of assurance will be limited at best although as future data is generally uncertain it will likely be negative assurance and the assurance provider will state that
Nothing has come to our attention that causes us to believe that the assumptions do not provide a reasonable basis for the prospective financial information

When examining PFIS it is important to obtain the assumptions upon which the prospective financial information is based and consider whether this is reasonable. The assumptions for the future must be consistent with your knowledge of the business and its current trading conditions. For example it may be reasonable to forecast 5% growth for next year forecasting 30% growth may be inconsistent with the current commercial climate unless management can provide evidence such as the acquisition of a key competitor to convince the assurance provider that the growth is plausible. The PFI should also be drawn up using current accounting standards unless a change to those used in the actual financial statements is required. The information should be recalculated to check the arithmetic and all assumptions should be adequately disclosed. It is also advisable to obtain written representations in relation to the work done. These would usually cover the intended use of the respective financial information, confirmation that the assumptions used are complete and a written record that management accepts responsibility for the prospective information. The key risk when examining PFI is that the assumptions upon which it is based are unrealistic.

10. Forensic audit

Forensic auditing means gathering, analyzing and reporting on data for the purpose of finding facts and evidence in the context of legal disputes or irregularities. Advice may also be given on preventing such problems from arising again. A forensic investigation is carried out for civil or criminal cases involving fraud or asset tracing for money laundering investigations. Forensic accounting means undertaking a financial investigation in response to a particular event where the findings may be used in court or to resolve disputes.

The most obvious applications of forensic audit arise in fraud investigations, negligence cases, insurance claims, investigation into terrorist financing and situations where the auditor needs to act as an expert witness. The fundamental principles of ACCA code of ethics and conduct must always be adhered to but some specific factors must be considered in forensic accounting such as:

ACCA code of Ethics (principles Based) Integrity - should be straightforward and honest in all business and personal dealings. As forensic work may bring you into contact with criminals and criminal activity before accepting any assignment the auditor must consider any risks to his integrity Objectivity - should not allow bias, conflicts of interest or undue influence of others to override professional judgement. This is essential when the auditor is acting as an expert witness Professional competence and due care- duty to maintain professional knowledge and skill at a level to ensure a client or employer receives a competent professional service. Members should act diligently and in accordance with applicable technical and professional standards when providing providing professional services Assignments such as investigations of complex fraud may require specialist skills Confidentiality - Should respect information acquired by as a result of business or professional relationships and shall not disclose this to third parties without authority or unless required by law or professional duty. confidential information should not be used for personal advantage of members or third parties The auditor is likely to have access to sensitive information and must have regard to the duty of confidentiality however the legal rules regarding disclosure of evidence in court cases may override this Professional behavior - Should comply with relevant laws and regulations and should avoid any action that would discredit A forensic auditor may be involved in high profile cases any lapses of professional behavior could damage the reputation of the profession as a whole

Generally a forensic audit will be similar to standard audit with a few exceptions as shown below The objective of a forensic audit could be to quantify the losses from a long running fraud. In this situation there is likely to be no materiality threshold Another objective could be to identify the perpetrator of a fraud. This means that the timing of the procedures must be far less predictable than on a standard audit and when making enquiries the objective may well be to try to obtain an admission of guilt. Documentation needs to be reviewed more critically than on an audit More complex computer assisted techniques such as data mining may need to be used in order to trace large volumes of transactions rather than the typical sample sizes that would be used on an audit

11. Social and environmental audits Social and environmental audits are a further example of an assurance engagement. Such reports are not mandatory but stakeholders may want these reports to ensure the company is being managed responsibly from a social and environmental point of view. In order to carry out this type of audit the auditor will need to consider the main social and environmental risks that the company is exposed to and then evaluating the management control systems that are in place. Discussions will be held with management, environmental experts and lawyers especially where the entity has caused damage. Specialists may be engaged on this assignment. The auditor will need to consider the impact the social and environmental responsibilities may have on the company may have on the financial statements for example if an environmental accident occurs there may be provisions for fines or penalties that need to be recorded in the accounts. Ultimately a company may find that breaches of environmental laws and regulations may result in a trading licenses been revoked resulting in going concern issues for the audit. 12. Internal audit and outsourcing

Under the UK corporate governance code If do not have an internal audit department must consider need for one annually Internal audit can involve Procurement audit Review of accounting systems and controls Examination of financial or operating information Review of adherence to corporate policies laws and regulations Special investigations such as fraud Internal auditors should be Independent Report to board of directors or audit committee Objective only consider facts not review areas previously worked

Use due skill and care and have a range of skills Work should be appropriately documented supervised and reviewed
Outsourcing is the use of external suppliers as a source of finished products, components or services. It is also known as sub-contracting. AdvantagesdvantagesAdvantages of outsourcing Disadvantages of outsourcing Staff do not need to be recruited, as the service provider has good quality staff. The service provider has different specialist skills and can assess what management require them to do. Outsourcing can provide an immediate internal audit department. Associated costs, such as staff training, are eliminated The service contract can be for the appropriate time scale Because the time scale is flexible, a team of staff can be provided if required. It can be used on a short-term basis. Disadvantages There will be independence and objectivity issues if the company uses the same firm to provide both internal and external audit services. The cost of outsourcing the internal audit function might be high enough to make the directors choose not to have an internal audit function at all. Company staff may oppose outsourcing if it results in redundancies. There may be a high staff turnover of internal audit staff. The outsourced staff may only have a limited knowledge of the company. The company will lose in-house skills. There may be a potential risk to any data being used by staff at the outsourced company

There will be an impact on the audit if a company outsources all or part of its internal function or accounting department potentially a large part of the information to be audited will be produced by the outsourced company. The auditor will assess the risk level attached to the outsourced company and will usually want access to the outsourced companies records. It will also be important to determine if the client performs any checks on the data provided by the outsourced company and if so what level of adjustments are usually done to their work. Where the level of work done by the outsourced company have a material effect on the financial statements the auditor may carry out detailed testing at their premises.

13. Auditors reports The auditors report is addressed to the shareholders of the company. Its basic format aims to identify the financial statements which have been audited, explain what an audit is and details the professional guidelines under which the audit has been conducted. The report concludes with audit opinion.

If the report is unqualified then the accounts are believed to give a true and fair view of the companys financial position, results and cashflows If not then he will give a Modified opinion
The audit report is then signed and dated. The formula the report should follow whether it is modified or unmodified is shown in ISA 700. This standard format gives consistency between different reports from different sets of accounts. A Limitation of scope / Disclaimer of opinion is declining to give an opinion because there is insufficient evidence upon which to base an opinion therefore the possible effects of any undetected errors could be material and pervasive (accounting entries destroyed in a fire and no back up evidence available upon which to base opinion) Where a limitation occurs the auditors report must contain a description of the limitation and an indication of the level of adjustments that might have been necessary if the limitation had not existed and the auditor was able to gather the audit evidence.

For all modifications the reasons for the opinion should be stated in a paragraph immediately before the opinion paragraph Items are pervasive if they are not confined to specific elements accounts etc or if confined could represent a substantial proportion of the fin stats Facts are pervasive if fundamental to users understanding of fin stats (omission of trading results or balances of major department in an organization) In the case of a material limitation on scope (disclaimer of opinion) the auditors report will state: In his opinion except for the effects of such adjustments if any as might have been determined to be necessary had the limitation discussed in the explanatory paragraph not existed the financial statements give a true and fair view Where the limitation is pervasive the auditors report will state: Because of the significance of the matters discussed in the explanatory paragraph we (the auditor) do not express an opinion on the financial statements This is a disclaimer of opinion Disagreement Here the auditor has been able to complete all the audit work but he disagrees with the accounting treatment or disclosure adopted by the company. With a disagreement an auditor must know exactly what is wrong with the accounts.

For all modifications the reasons for the opinion should be stated in a paragraph immediately before the opinion paragraph The auditor will outline: 1. The factors given rise to the disagreement 2. The implications for the financial statements 3. The quantification of the effect on the fin stats if possible 4. The audit opinion would commence with words except for Items are pervasive if they are not confined to specific elements accounts etc or if confined could represent a substantial proportion of the fin stats Facts are pervasive if fundamental to users understanding of fin stats (omission of trading results or balances of major department in an organization) If the disagreement is material the auditors report will state: In his opinion except for the effect on the financial statements of the matter referred to in the explanatory paragraph the financial statements give a true and fair view This is a qualified opinion. If the disagreement is pervasive the auditors report will state: Because of the effect of the matters discussed in the explanatory paragraph we (the auditor) the financial statements do not give a true and fair view This is called an adverse opinion. The emphasis of matter paragraph used to highlight a material matter which is properly disclosed in the fin stats but the auditor believes is extremely important that a reader of the audit report should (uncertainty of whether the company can continue as a going concern) Its important to note that the accounts are fine the auditors report is unqualified. If a company wishes to have its financial reports available on the internet. The risks of this are the accounts could be changed on the internet or website users may think the auditor is giving assurances beyond their true and fair opinion on the accounts. It is the directors responsibility to publish the information on their corporate website and to ensure they have sufficient internal controls in place to ensure the information is not tampered with in any way. The auditor will check that the information initially posted on the website is true to the hard copy of the accounts and that his report clearly identifies which information has been audited and the jurisdiction under which the information has taken place.

Some companies produce reports based solely on IFRSs while some companies produce reports based solely on IFRSs and the national framework and other companies produce reports based solely on the national framework but are also disclosing their compliance with IFRSs. If the accounts are produced based solely on IFRSs then the auditors opinion will judge whether they are true and fair solely based compliance with IFRSs. If the accounts are produced based on IFRSs and the national framework to be true and fair the accounts must comply with each framework individually and could be modified due to noncompliance with either framework If the accounts are produced based on solely on the national framework but are also disclosing their compliance with IFRSs the auditor will check the compliance and a true and fair opinion means that the disclosure is accurate Any non-compliance will lead to a modified opinion under national auditing standards