Auditing and Assurance Services
Introduction to Audit and Assurance Services
APT Support Notes 2
Sako Mayrick
Objective
• Understand the coverage requirement
including the Handbook by IFAC
• Understand the background, meaning and
scope of audit and assurance engagements
• Understanding nature and types of audit
• Understand the audit objectives and
objectives of audit
• Understand the key Audit Concepts
Introduction
• Key documents
– NBAA Examiners’ Report, November, 2012
– NBAA Syllabus and Past Examinations (At least 10)
– Handbook of International Quality Control, Auditing, Review,
Other Assurance, and Related Services Pronouncements (2012)
– downloadable from www.ifac.org
– Accountants and Auditors (Registration) Act No.33 of 1973
• NBAA By Law
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National Audit Act
Public Procurement Act and pertinent Regulations
Public Finance Act and pertinent Regulations
Ant-Money Laundering Act
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Introduction to Audit
Audit refers
to an independent examination of the financial statements of
an enterprise,
conducted with a view to expressing an opinion
as to whether those statements give a true and fair view
AUDITING (broadly defined) is a systematic process of
objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain
the degree of correspondence between those assertions and
established criteria and communicating the results to
interested parties.
AUDITING (narrowly defined) is a written report on the
examinations of financial statements for a client.
Investigation is an inquiry of fact about a particular matter
Auditors do not certify the financial statements, but report
that in their opinion the financial statements give a true and
fair view.
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True and fair view
This is a requirement of companies Act, the accounts of a Limited
company must show a true and fair view
Truth and fair is a dynamic concept, truth in accounting terms is
quite different from scientific truth. Accounting does not deal with
the type of truth that has a fixed and unchanging quality
True, information is factual and conforms with reality, not false. In
addition the information conforms with required standards and law.
The accounts have been correctly extracted from the books and
records
Fair, information is free from discrimination and bias and in
compliance with expected standards and rules. The accounts should
reflect the commercial substance of the company’s underlying
transactions.
True and fair view has become a term of art. It is generally
understood to mean presentation of accounts drawn up according
to accepted accounting principles using accurate figures as far as
possible and reasonable estimates otherwise, and arranging them
so as to show within the limits of current accounting practice as
objective picture as possible free from willful bias, distortion,
manipulation or concealment of material facts.’ (Lee)
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True and fair view
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This is a requirement of companies Act, the accounts
of a Limited company must show a true and fair view
Truth and fair is a dynamic concept, truth in accounting
terms is quite different from scientific truth.
Accounting does not deal with the type of truth that
has a fixed and unchanging quality
True, information is factual and conforms with reality,
not false. In addition the information conforms with
required standards and law. The accounts have been
correctly extracted from the books and records
Fair, information is free from discrimination and bias
and in compliance with expected standards and rules.
The accounts should reflect the commercial substance
of the company’s underlying transactions.
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Objectives of Auditing
• Primary Objective ( main objective)
– To produce a report by the auditor of his opinion of the
truth and fairness of financial statements so that any
person reading or using them can have belief in them
• Secondary
– To detect errors and fraud ( Consider materiality)
– To prevent errors and fraud by the deterrent and moral
effect of the audit
– To provide spin- off effects. The auditor will be able to
assist his clients with accounting , systems, taxation ,
financial , and other problems.
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Audit objectives
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Validity
Completeness
Cutoff
Ownership
Accuracy
Valuation
Classification
Disclosure
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Historical Background
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The role of auditor goes back many hundreds of
years. There are records from ancient Egypt and
Rome, showing that people were employed to
review work done by tax collector and estate
managers
The emphasis was very much on the detection of
fraud and other irregularities
Emphasis has changed and the role of the auditor
becomes much more sophisticated
Stewardship requires an outsider with sufficient
independence and objectively to review the
accounts of stewardship and to express an opinion
as to their honesty or
otherwise.
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• Companies
Advantages of audit
– Directors
• Assurance that statutory responsibilities concerning accounts have
been carried out
• Assistance with statutory responsibilities concerning accounts
• Availability of expert professional advice
• The letter of weakness
– To shareholders
• Assurance that accounts show a true and fair view and comply
with statutory requirements
• Assurance that directors have fulfilled their statutory
responsibilities for books and accounts, and the safeguarding of
assets
• Assurance that directors have fulfilled their statutory
responsibilities for books of accounts and the safeguarding of
assets
• Assurance that all directors remuneration has been disclosed
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Advantages of audit
• Companies
– Other organization with published accounts
• Assurance to all users of accounts , that the accounts
show a true and fair view and comply with statute
• Assurance that ‘stewards’ have fulfilled their
accounting and financial responsibilities
– Private organizations such as partnerships
• Assurance that accounts are reliable
• Reasonable assurance that all fraud of consequence has
been disclosed.
– In addition they provide reliable accounts to
regulatory bodies such as the Companies Registry,
the stock exchange etc.
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Disadvantages of audit
– The audit involves the client’s staff and
management in giving time to providing
information to the auditor. Professional auditors
should therefore plan their audit carefully to
minimize the disruption, which their work will
cause.
– The audit fee, clearly the services of an auditor
must be paid for. It is for this reason that few
partnership and even fewer sole trader are likely
to have their accounts audited. The accountant’s
role as the preparer of financial statements, as
tax adviser and general financial adviser,
becomes much more important to such
concerns.
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Development of modern auditing
Modern auditing as developed since the concept of a company
as a separate legal entity came into existence in the late
ninetieth century. This led to the separation of ownership
(shareholders) from control (directors) and consequent need to
safeguard the interests of the owners, who in all but the smallest
of business where shareholders and directors were on and the
same) were not involved in the day to day decisions made by
the management.
In previous years it was part of the appointed auditor duties to
discover fraudulent misrepresentations, the detection of fraud
and error become the major objective of company audits.
However in later part of nineteenth century, there was a growing
school of thought that the prevention of fraud and error (as
opposed to its detection) should be the major objective of the
auditor (both external and internal) and that the management of
a company should play a greater part.
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Development of modern auditing
• The Kingston Cotton Mill case of 1896,
established the fact that the auditor should
not be responsible for finding every fraud
and error. Here, the judgment pronounced
that the auditor’s role should be likened to
that of a watchdog rather than
bloodhound, and that what was required of
auditors was that they should act with such
reasonable care and skill as was
appropriate circumstances
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Duties of auditors
• Carry out procedures designed to obtain sufficient
appropriate audit evidence, in accordance with
International Standards of Auditing, to determine
with reasonable confidence whether the financial
statements are free from materials misstatement
• Evaluate the overall presentation of the financial
statements, in order to ascertain whether they have
been prepared in accordance with relevant
legislation and IFRS/IAS
• Issue a report containing a clear expression of their
opinion on the financial statements.
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Limitations of audit
• The responsibility for preparation and presentation of the
financial statements is that of directors of the entity. The audit
does not relieve the directors of any of their responsibilities.
– Auditors opinion is not a guarantee of the future viability of the entity
– Auditors opinion is not an assurance of management’s effectiveness
and efficient
• Causes of limitations
– The impracticality of examining all items within an account balance or
class of transactions
– The inherent limitation of any accounting and control system
– The possibility of collusion or misrepresentation for fraudulent
purposes
– Most audit evidence is being persuasive rather than conclusive
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Professional skepticism
• Material misstatement may exist in financial statement and
auditors should plan their work on this basis, i.e. professional
skepticism, ISA, makes it clear that, even where auditors assess
that the risk of litigation or adverse publicity as very low , they
must still perform sufficient procedures according to auditing
standards, ie there can never be a reason for carrying out an audit
of a lower quality than that demanded by the ISA’s
• In carrying out his work the auditor should adopt an attitude of
professional skepticism, recognizing that circumstances may exist
which cause the financial statements to be materially misstated.
• The purpose of the independent audit is to ensure that the
financial statements are OBJECTIVE, FREE from BIAS and
MANIPULATION and RELEVANT to the need of users.
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Common legislation
• The work of an auditor is regulated by two sources
– Statues, the Companies Act No.12 of 2002
– The Act also requires auditors to have a recognized
professional qualification, as well as laying down minimum
disclosure levels as per accountants and auditors Act
(Registration) of 1973 as amended
– Professional pronouncements on Auditing ( issued by NBAA
and IFAC)
– Professional pronouncements include the rules of professional
conduct issued by NBAA and IFAC,
– The ethical principles that govern auditors’ responsibilities are
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Integrity
Objectivity
Independence
Professional competence an due care
Professional behavior
confidentiality
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Types of audit
• -Statutory Audit, carried because the law requires
them. Statutes include Companies Act, Specific
Parastatal Organization Act
• -Private audits, because of auditor’s desire and not
because of law e.g. sole trader and partnership
• -Internal audits, is the one conducted by an employee
of a business into any aspect of its affairs.
• -Management audit, an inquiry into efficiency and
effectiveness of management
• -Public sector audit, contract audit , computer audit etc
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Types Of Audits
-Financial statements audits
-Compliance audits
-Operational audits
-Comprehensive audits
-Forensic audits
Types Of Auditors
-External auditors
-Internal auditors
-Government auditors
-Forensic auditors
Issues Affecting The Profession
-Expanded services
-Globalization
-Litigation
-Independence issues
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Presentation of the systems audit
Determine the audit approach
Ascertain relevant systems and controls
Document re levant systems and controls
Confirm operation of systems and controls
Evaluate operation of systems and controls
Select and perform test
of controls
Submit Interim mgt and letter
Select and perform
substantive procedures
Select and perform
restricted substantive
procedures
Carry out fina l rev iew
Submit final
manage ment letter
Report to me mbers
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Planning of the
audit
Assessment of the
accounting and internal
control systems and
audit risk assessments
Consideration of the ways in which
audit evidence can be sought
Testing of Internal
Controls ‘test of
control’
Reduced testing of
transactions and
balances “substantive
procedures’
Extensive testing of
transactions and
balances ‘substantive
procedures’
Review of financial statements
Audit Report
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Key stages
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Determine audit approach
Ascertain in the accounting system and internal controls
Assess the accounting system and internal controls
Test the accounting system and internal controls
Test the financial statements ( substantive testing)
Review the financial statements
Express an opinion
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Client acceptance and continuance
Establish the terms of the engagement
Plan the audit
Consider internal control
Conduct substantive audit procedures
Complete the audit
Issue audit report
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The relationship of evidential matter to the audit
report
Financial
Statements
Audit
Report
Management
Assertions
Audit
Objectives
Audit
Procedures
Evidence
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Management assertions
• Existence or occurrence
• Completeness
• Rights and obligations
• Valuation and allocation
• Presentation and disclosure
• Existence or occurrence
• Completeness
• Rights and obligations
• Valuation and allocation
• Presentation and disclosure
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Auditing, attestation, and assurance services
• ATTESTATION occurs when a practitioner is engaged
to issue or does issue a written communication
that expresses a conclusion about the reliability of
a written assertion that is the responsibility of
another party.
• Examples:
– The effectiveness of internal control
– Financial information other than the financial
statements
– Future-oriented financial information
– Compliance with statutory, regulatory, or contractual
obligations
– Management’s discussion and analysis
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Assurance engagement
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According to ISA, Audit client is an entity in respect of which a firm
conducts an audit engagement. When the audit client is a listed
entity, audit client will always include its related entities. Audit
engagement (An assurance engagement) to provide a high level of
assurance that financial statements are free of material misstatement,
such as an engagement in accordance with International Standards
on Auditing. This includes a statutory audit which is an audit required
by national legislation or other regulation.
Assurance Engagements is an assignment whereby a professional
accountant is required to evaluate or measure a subject matter that is
the responsibility of another party against identified suitable criteria,
and to express a conclusion that provides the intended user with a
level of assurance about the subject matter. It is important to
distinguish between the levels of assurance given by an audit ( which
gives a high level of assurance) to that given by other assurance
engagements which , depending on the nature of the engagement,
may give a lower level of assurance.
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Assurance engagement
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There is a broad range of assurance engagements , including any
combination of the following :
– Engagements to report on a broad range of subject matters covering
financial and non-financial information.
– Engagements intended to provide high or moderate levels of
assurance
– Attest and direct reporting engagements
– Engagements to report internally or externally
– Engagement in the private or public sector.
ISA states that the objective of a review of financial statements is to
enable an auditor to state whether, on the basis of procedures which do
not provide all the evidence that would be required in an audit, any thing
has come to the auditor’s attention that causes the auditor to believe
that the financial statements are not prepared, in all material respects, in
accordance with an identified financial reporting frame work (negative
assurance)
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Auditing, attestation, and assurance services… cont
 ASSURANCE services are independent
professional services that improve the
quality of information, or its context, for
decision makers.
 Examples:
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Risk assessment
Information system reliability
Electronic commerce
Health care performance measurement
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The relationship between auditing,
attestation, and assurance services
Auditing
Attestation
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Assurance
Three Fundamental Concepts In Conducting An Audit
-Materiality
-Audit risk
-Evidence
***Materiality A misstatement or the aggregate of all misstatements in financial
statements is considered to be material if, in light of surrounding circumstances, it is
probable that the decision of a person who is relying on the financial statements, and
who has a reasonable knowledge of business and economic activities ( the user),
would be changed or influenced by such misstatement or the aggregate of all
misstatements.
***Audit risk is the risk that the auditor will fail to express a reservation in his or
her opinion on financial statements that are materiality misstated
***Evidence
Evidential matter supporting the financial statements consists of the underlying
accounting records and all corroborating information available to the auditor.
Relevance refers to whether the evidence relates to the specific audit objective being
tested.
Reliability refers to the whether or not a particular type of evidence can be relied upon
to signal the true state of the assertion or audit objective.
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Internal auditing
An internal audit is an independent activity established by
management to examine and evaluate the organization’s risk
management process and systems of control, and to make
recommendations for the achievement of company objectives.
The internal audit staffs may also engage in number of other
activities :
– Examination and evaluation of financial and operating
information within the organization- in certain organization
this can form a type of continuous auditing and may
involve sophisticated information systems that capture
monitoring of risk and evidencing of controls
– Review of economy, efficiency and effectiveness of
operations
– Review of compliance with external laws and regulations
and internal policy and procedures
– Review and advice on the development of key
orgnaisational systems and on the implementation of
major change.
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Internal auditing cont…
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The current focus of internal audit is on adding value to an
organization through risk control and reviewing all types of risk
and recommending relevant controls. The institute of internal
Auditors definition has changed the focus of internal audit
toward a more risk-based, consultancy type activity. The internal
audit can be referred as
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An independent, objective assurance and consulting activity
Designed to add value and improve an organization’s operations
Helps the organization accomplish its objectives
Bring systematic, disciplined approach to evaluate and improve the
effectiveness of risk management, control and governance processes.
There are four major areas of importance for internal audit that
are addressed
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Corporate governance
Risk management
Organizational control
Corporate objectives
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Internal and External Auditing
It is important to understand and recognize the differences and commonalities between internal and external audit.
Internal and external auditor should work closely together, in particular to coordinate activity and maximize effectiveness
and where appropriate external audit may rely on the work of internal audit. However, there are number of fundamental
differences in their objectives, scope and responsibility.
Internal auditing
External auditing
Objectives
To advise management on whether the To provide an opinion on whether the financial
organization has sound systems of
statements provide a true and fair view
internal controls to protect the
organization against loss
Legal basis
All areas of the organization, operational as Financial focus
well as financial
Scope
All areas of the organization, operational as Financial focus
well as financial
Approach
Increasingly risk base
Assess risks
Evaluate system of controls
Test operation of system
Make recommendation for improvements
Responsibility
To advice and make recommendations on To form opinion on whether the financial statements
the internal control and corporate
provide a true and fair view.
governance
Increasingly risk based
Test underlying transactions that form the basis of the
financial statements
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Considering the work of internal auditing
ISA 610 requires external auditors to consider the activities of internal auditors and their effect, if any,
on the nature, timing, and extent of the external auditor’s procedures. The external auditor
considers the organizational status of the internal audit function, the scope of its function, the
technical competence of its members and the professional care they exercise when assessing
the work of the department.
The auditing process is very similar between the external and internal auditors however; the audit
objectives are often very different.
There are number of factors to consider for an auditor to rely on the
work of internal auditor:
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(a) Organizational status: Specific status of internal auditing in the entity and the effect this
has on its ability to be objective. In the ideal situation, internal auditing will report to the highest
level of management and be free of any other operating responsibility. Any constraints or
restrictions placed on internal auditing by management would need to be carefully considered.
In particular, the internal auditors will need to be free to communicate fully with the external
auditor.
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(b) Scope of function: The nature and extent of internal auditing assignments performed. The
external auditor would also need to consider whether management acts on internal audit
recommendations and how this is evidenced.
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(c) Technical competence: Whether internal auditing is performed by persons having
adequate technical training and proficiency as internal auditors. The external auditor may, for
example, review the policies for hiring and training the internal auditing staff and their
experience and professional qualifications.
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(d) Due professional care: Whether internal auditing is properly planned, supervised,
reviewed and documented. The existence
of adequate audit manuals, work programs and
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working papers would be considered.
Outsourcing of IA function
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The National Board of Accountants and Auditors’ Governing Board at its 132nd meeting held on 11th April 2005,
among other issues, deliberated on the above professional issue and resolved that the outsourcing of the Internal
Audit function in the country is a relatively new phenomenon, which needs some guidance. In view of this, it was
agreed that institutions wanting to outsource the Internal Audit function may only do so under the following
conditions:
(1)
That the service be provided in the form of a consultancy by competent, qualified accountants registered
with the Board in the registration category of CPA-PP.
(2)
That the outsourced Internal Auditor be distinct from the External Auditor of the entity.
(3)
That the institution seeking such professional services should have in place an Audit Charter.
(4)
That such professional services be guided by very clearly worked out “Terms of Reference” showing:
–the scope of the audit
–the number of man-days to be used
–the reporting requirement including the types and frequencies of reports to be prepared
–the price of the consultancy
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That the consultancy be for a specified time frame after which there should be need to change the
internal auditor.
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That the client (procuring entity) shall have the powers to pre-maturely terminate the consultancy contract
on unsatisfactory performance of the outsourced Internal Auditor (Consultant).
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That the Internal Audit process should be guided by programmes and detailed working papers which
should be available for AQR purposes, should need arise.
(8)
That the outsourcing of the Internal Audit function should avoid any kind of conflict of interest among the
parties.
(9)
That the Internal Auditor should exercise the pre-requisite independence when rendering such
professional services.
(10) That such professional services should be procured based on competitive bidding processes.
All organizations / entities operating in Tanzania and the general public are required to note this development and
observe the above guidelines.
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Shift of emphasis of audit
• The emphasis in approaching an audit has shifted
from detailed checking of individual items towards
an overall review of the systems in operation;
followed by an examination of the records and the
financial statements prepared from them. Amongst
the reason for this major shift of emphasis are:
– The increasing size and complexity of modern enterprises
– The development of more accurate and sophisticated
computerized systems
– The requirement that the auditor should also report on the
profit and loss account, which entails a review of all
transactions during the period, not simply of year-end
balances as before.
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Worked example
NEDCO, parastatal organization dealing with industrial research development has recently decided to
appoint a small internal audit team. The Chief Accountant has sent to you as statutory auditor for a
number of years for your comment on the following job specification for the team
Job specification- internal audit
Your role is to
– Review accounting systems and related internal controls
– Examine financial and operating information for management, including detailed testing of
transactions and balances
– Review the economy , efficiency and effectiveness of operations and of non financial controls
– Review the implementation of corporate policies, plans and procedures.
NEDCO also state that the new internal audit team should enable the statutory auditors to reduce the
amount of testing they undertake and thus, to increase overall efficiency and reduce the cost of the
statutory audit.
1. Describe the objectives and scope of internal audit function according to ISA 610
2. Comment briefly on the four items in the internal audit job specification indicating with examples
the extent, which they might impinge upon the work of the statutory auditor.
3. List and explain five criteria which you would have to consider accordance to ISA 610, before
deciding how much reliance you could place on the work done by the internal auditor
4. Outline the response, which you would make to NEDCO regarding a possible reduction in the
cost of the statutory audit.
5. If the management of NEDCO decided to outsource the internal audit services. Comment briefly
on possible advantages and disadvantages of the procedure.
6. Describe major ethical matters in accordance to ISA which external auditors to NEDCO should
consider in case they decide to undertake the external audit assignment
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Audit as a communication medium
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According to ISA 700, the objective of any audit is for the
auditor to obtain sufficient appropriate audit evidence to
be able to express an opinion on the financial statements.
ISA 700, provides authoritative guidance on audit reporting.
Audit report is the primary means of communication
between the auditor and the shareholders of the company.
In order to convey information of a succinct form, the audit
report has become an extremely formalized group of
phrases, each of which has special significance. These are
similar to legal phrases know as “terms of art’. Such phrases
do not mean merely what they appear to mean on the face
of it , and have significance much greater that they first
appear to. Any deviation from the standard format is
regarded by accountants as being significant and may
provide more important extra information.
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Auditor's standard unqualified audit report
• This is the most common type of audit report.
• The standard unqualified audit report contains
seven important elements:
– Title
– Addressee
– Introductory paragraph
– Scope paragraph
– Opinion paragraph
– Name of auditor
– Date of report
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Example of unqualified report
• AUDITOR’S REPORT TO .....
• We have audited the financial statements of ABC Company for the year
ended
• December 31, 19X0, from which the summarized financial statements8
were derived, in accordance with International Standards on Auditing (or
refer to relevant national standards or practices). In our report dated
March 10, 19X1 we expressed an unqualified opinion on the financial
statements from which the summarized financial statements were
derived.
• In our opinion, the accompanying summarized financial statements are
consistent, in all material respects, with the financial statements from
which they were derived.
• For a better understanding of the Company’s financial position and the
results of its operations for the period and of the scope of our audit, the
summarized financial statements should be read in conjunction with the
financial statements from which the summarized financial statements
were derived and our audit report thereon.
• AUDITOR
• Date
• Address
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Qualified report
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A qualified report is less common and is where
an auditor disagrees with the view presented in the
accounts, or if he has not been able to form an
opinion because of inadequate evidence. A sample
of it can be obtained on ISA 800 appendix 643 as an
appendix 4.
• Reasons for qualification
– A departure from IFRS
– Scope limitation
– The auditor is not independent
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Example of qualified report
• AUDITOR’S REPORT TO .....
• We have audited the financial statements of ABC Company for the year
ended December 31, 19X0, from which the summarized financial
statements9 were derived, in accordance with International Standards on
Auditing (or refer to relevant national standards or practices). In our report
dated March 10, 19X1 we expressed an opinion that the financial
statements from which the summarized financial statements were derived
gave a true and fair view of (or presented fairly, in all material respects)
...except that inventory had been overstated by ....
• In our opinion, the accompanying summarized financial statements are
consistent, in all material respects, with the financial statements from
which they were derived and on which we expressed a qualified opinion.
• For a better understanding of the Company’s financial position and the
results of its operations for the period and of the scope of our audit, the
summarized financial statements should be read in conjunction with the
financial statements from which the summarized financial statements were
derived and our audit report thereon.
• AUDITOR
• Date
• Address
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Other reports
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In summary the audit report must contain; the
heading which shows the independence of the
auditor, the fact that the report is addressed to the
shareholders and the name of the company;
Respective responsibilities of directors and
auditors; the basis of opinion and the opinion.
(Please visit google search on the Internet for
various samples of audit report).
Other forms
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Qualified
Denial/Disclaimer
Adverse
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Audit qualification matrix
Nature of
Circumstance
Material but not Fundamental
pervasive
and pervasive
Limitation of
Scope
Except for
..might
Disclaimer
Disagreement
Except for
Adverse opinion
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Audit Qualification Matrix… Cont.
Except for ..might auditors disclaim an opinion
on a particular aspects of the accounts which
is not considered fundamental
Disclaimer of Opinion- Auditor state they are
unable to form an opinion in the truth and
fairness
Except for , auditor expresses adverse opinion
on particular aspects of accounts which is not
considered fundamental
Adverse opinion, auditors state that accounts
do not give a true and fair view.
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Audit qualification matrix
• Limitation of Scope,
– Absence of accounting records
– Ownership of material assets
• Disagreement
– Inappropriate accounting policies
– Facts /amount
– Manner or extent of disclosure
– Failure to comply with legislation
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… cont
Reporting uncertainty
• Inherent uncertainty, an uncertainty whose
resolution is dependent upon uncertain future event
outside the control of the reporting entity’s directors
at the date financial statement are approved.
• Fundamental Uncertainty, is an inherent where the
magnitude of its potential impact is so great that,
without a clear disclosure of nature and implication
of uncertainty the view given by the f/s would be
seriously misleading.
• E.g. Going concern
• Major litigation
@Sako Mayrick 2012
Worked Example
•During the course of your audit of the fixed assets of NEDCO LTD at 31 March 2004 two
problems have arisen.
•The calculations of the cost of direct labour incurred on assets in course of construction by
the company’s employees have been accidentally destroyed for the early part of the year. The
direct labour cost involved is Tsh 10,000/=
•The company has received a government grant of Tshs25, 000/= towards the cost of plant
and equipment acquired during the year and expected to last for ten years. The grant has
been credited in full to the profit and loss account as exceptional income.
•Other relevant financial information is as follows.
Tshs.
–Profit before tax
–Fixed asset additions
–Assets constructed by company
–Fixed asset at net book value
•Required:
100,000/=
133,000/=
34,000/=
666,667/=
–List the general forms of qualification available to auditors in drafting their report and state the circumstance in
which each is appropriate.
–State whether you feel that a qualified audit report would be necessary with respect to the treatment of the
government grant, draft the section of the report describing the matter (the whole report is not required).
–On the assumption that you decide that a qualified audit report is necessary with respect to the treatment of the
government grant, draft the section of the report describing the matter (the whole report is not required).
–Outline the auditor’ general responsibility with regard to the statement in the directors’ report concerning the
valuation of land and buildings.
@Sako Mayrick 2012
IAS SERIES
PART II