Question

Question: Evaluation of an auditor’s report.
Mrs Meyer is a director of an international firm of external auditors and works in the Auckland office. Mrs Meyer is the engagement partner on the audit of CountSave Foods Ltd, a company listed on the NZX. The audit team completed the audit for the year ended 31 March 2020 and the audit senior prepared the following draft audit report.
Auditor’s report
CountSave Foods Ltd
Opinion
We have audited the financial statements set out on pages 12 – 40, which comprise the statement of financial position as at 31 March 2020, and the statement of profit or loss for the year and glanced through the cash flow statement then ended and the notes to the financial statements.
In our opinion, except for the possible effect of the matter described in our report, the financial statements present fairly, in all material respects the financial position of CountSave Foods Ltd as at 31 March 2020, and its financial performance and cash flows for the year then ended in accordance with the International Financial Reporting Standards
Other information
The other information comprises the Director’s report as required under the NZ Companies Act In connection with our audit of the financial statements, if based on the work we have performed, we conclude that there is a material misstatement of this other information; we are required to report that fact.
Basis for opinion
Included in accounts payable is an amount of $15 million. The company did not have adequate controls to maintain records of accounts payable for goods and services received but not paid. We are unable to obtain sufficient and appropriate audit evidence to substantiate the accruals disclosed in note 28 to the financial statements. As a result, we are unable to determine whether any adjustments were required to the financial statements arising from the accounts payable and accruals not brought to account or incorrectly stated
We conducted our audit in accordance with the international Standards of Auditing

Answer 1

An auditor's report provides an opinion on the validity and reliability of a company’s financial statements.

Audit report provides an overview of the evaluation of the validity and reliability of a company or organization’s financial statements.

The goal of an auditor's report is to document reasonable assurance that a company’s financial statements are free from error.

Preparation of the report

An audit of a company’s financial statements should result in a report wherein the auditor is free to share their opinion about the validity and reliability of a company’s financial statements.

In this report, the auditor should provide an accurate picture of the company and their financial statements.

Within the report, the auditor can share any reservations about the condition of the company’s finances or relevant additional information. Reservations could arise if the auditor disagrees with something found in the financial statements, e.g. if the auditor disagrees with management about the valuation of an asset because they believe that this has a more significant impact on the financial statements.

In the report

There are rules concerning what an auditor's report should include and the order in which various items should be reported.

Auditor's reports must adhere to accepted standards established by governing bodies.

A typical auditor's report will state:

1. The company that has been audited and what their accounting method is

2. The responsibility of the auditor and their report

3. Reservations (if any)

4. Conclusion

5. Any additional information*

6. The date and auditor’s signature

*Note: Items 5 are omitted if there is no additional information. But if one is listed in the financial statements, the auditor should ensure that it is consistent with rest of the financial documentation.

In the given case,

Mrs Meyer engagement partner on the audit of CountSave Foods Ltd.

Mrs Meyer audited the books of accounts of the company for the year ended 31 March 2020, and found that Internal Controls of the company are not commensurate with the size & nature of the entity business, As auditor found that company does not maintain proper record regarding A/cs Payable amounting to $15 Millions.

As a result Auditor is unable to obtain sufficient and appropriate audit evidence to substantiate the accruals disclosed in note 28 to the financial statements. As a result, we are unable to determine whether any adjustments were required to the financial statements arising from the accounts payable and accruals not brought to account or incorrectly stated.