Question

The following audit report was drafted by a trainee on the audit of Golf (Pty) Ltd (“Golf”), a company which manufactures golf clubs. The trainee was asked to draft the report at the conclusion of the audit for the financial year end 31 March 2017 as part of on-the-job training and you have to evaluate his report. The shareholders of Golf included a clause in the company’s Memorandum of Incorporation which requires that the company’s annual financial statements are extremely audited.

Independent Report To the board of directors. We have evaluated the accompanying financial statements of Golf for fairness based on our annual audit carried out in terms of the Memorandum of Incorporation of the company.

Management is responsible for the preparation of the financial statements and for the prevention of fraud.

The auditor’s responsibility is to perform the audit and in doing do, to detect any fraud which may have material effect on the financial statements not having been prevented by the directors.

We report on the following aspects of the audit: 1. With regard to the detection of fraud, we detected a small wage fraud relating to unauthorized overtime. We reported this to management who subsequently dismissed the guilty persons.

2. An expert was engaged by our firm to assist in the valuation of the work-in-progress. Due to the complexity of the some of the company’s golf clubs, the risk of misstatements in the work-in-progress warranted this.

3. The company is currently being sued by a former employee who suffered personal injury at work whilst testing certain golf clubs during quality control procedures.

In our opinion, except for the matters raised in 1 to 3 above, there are no outstanding issues arising from the audit which was conducted in terms of the International Standards on Auditing and the International Financial Reporting Standards.
Emphasis of matter There are no matters which require emphasis.

ABD Audit Kings 31 March 2017 Windhoek Namibia

YOU ARE REQUIRED TO:

Detail the errors / deficiencies in the audit report presented to you for evaluation (give explanations where necessary). You are NOT required to redraft the report.

Answer 1

As per ISA 700 "Forming an Opinion and Reporting on Financial Statement"

The objectives of the auditor are:

(a) To form an opinion on the financial statements based on an evaluation of the conclusions drawn from the audit evidence obtained and

(b) To express clearly that opinion through a written report that also describes the basis for that opinion.

In order to form that opinion, the auditor shall conclude as to whether the auditor has obtained reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. That conclusion shall take into account:

(a) The auditor’s conclusion, in accordance with ISA 330, whether sufficient appropriate audit evidence has been obtained

(b) The auditor’s conclusion, in accordance with ISA 450, whether uncorrected misstatements are material, individually or in aggregate;

In given Audit Report of Golf (Pvt) Ltd following errors/ deficiencies are present:

-Headings of the paragraphs in the Audit Report are missing.

Title : The title should have been "Independent Audit Report", as the title specifies the report has been provided by independent Auditors

Introductory Paragraph: The introductory paragraph has the following errors:

(a) Which financial statements have been audited is not stated

(b) Identification of the title of each statement that comprises the financial statements

(c) Reference to the summary of significant accounting policies and other explanatory information and

(d) Date or period covered by each financial statement comprising the financial statements has not been mentioned

Auditors Responsibility: The Following deficiencies are present:

(a) The auditor’s report shall state that the audit was conducted in accordance with International Standards on Auditing.

(b) Procedures and assumption depended on auditor Judgement should have been mentioned.

Opinion: In opinion paragraph the use of the Phrase in case of Unmodified Opinion "The financial statements present fairly, in all material respects, … in accordance with [the applicable financial reporting framework]" is not provided