ACCA F8 - Audit and Assurance Revision Kit 2016

audit opinion will need to be modified on the basis management has not complied with IAS 37. The
misstatement is material but not pervasive so a qualified opinion would be expressed. The opinion
paragraph would state that ‘except for’ this issue the financial statements are presented fairly (or
show a true and fair view). A basis for qualified opinion paragraph would explain the material
misstatement in relation to the $0.6m not provided and will describe the effect on the financial
statements.
109 D Options A and B describe the auditor’s responsibility with regards to subsequent events occurring
before the date of the auditor’s report. It is true that the auditor does not have any obligation to
perform procedures or make enquiries, but should an adjusting event come to light, adjustments to
the financial statements about to be issued must be considered and further audit procedures must be
performed as necessary at the time, rather than deferring to next year, hence Option C is incorrect.
Minnie
110 The correct answers are:
As part of their completion procedures, auditors shall consider whether the aggregate of uncorrected
misstatements in the financial statements is material
In deciding whether the uncorrected misstatements are material, the auditor shall consider the size and
nature of the misstatements
The auditor must accumulate misstatements, even individually immaterial one, unless they are clearly trivial.
Auditors are required to consider misstatements in relation to qualitative disclosures, as well as transactions
and account balances.
111 The correct answer is:
Ask the directors to correct the specific misstatement, explaining that it is material to the financial
statements.
The misstatement in relation to the property revaluation is 6% of profit before tax, and is therefore material.
As a result, it is not enough to accumulate the misstatement along with other uncorrected misstatements –
ISA 450 requires material misstatements to be identified individually and communicated to management. We
are at the finalisation stage of the audit, so the assessment of the management expert’s (the valuer’s)
methodology should already have been done. It is inappropriate to modify the audit opinion before first
asking management to correct the misstatement.
112 The correct answer is:
Material
Yes
Financial statement impact
Profit is understated
Land has been incorrectly depreciated – the depreciation of land is not permitted under IAS 16. The
misstatement represents 7% of profit before tax ($0.7m/$10m) and is therefore a material misstatement.
The effect of the incorrect depreciation understates profit and understates assets.
113 The correct answer is:
Audit opinion
Unmodified
Disclosure in the auditor’s report
No specific disclosure
Although legal action is being taken against the company for breach of copyright, the matter has been
correctly disclosed as a contingent liability, in accordance with IAS 37. No modification of the audit opinion
is required because the matter is appropriately disclosed. The uncertainty relating to the outcome of this
litigation is not fundamental to users’ understanding of the financial statements therefore no emphasis of
matter paragraph is included in the auditor’s report. Although the litigation might have implications for the
company’s ability to continue as a going concern, there is no indication that this would happen at this stage.
Therefore, it is inappropriate to include a material uncertainty related to going concern paragraph.
168 Answers