Fundamentals Level – Skills Module, Paper F8 (UK) Audit and Assurance (United Kingdom) 1 (a) (i) Importance of reporting to those charged with governance
June 2013 Answers
In accordance with ISA 260 (UK and Ireland) Communication with those charged with governance, it is important for the auditors to report to those charged with governance as it helps in the following ways: (1) It assists the auditor and those charged with governance in understanding matters related to the audit, and in developing a constructive working relationship. This relationship is developed while maintaining the auditor’s independence and objectivity. (2) It helps the auditor in obtaining, from those charged with governance, information relevant to the audit. For example, those charged with governance may assist the auditor in understanding the entity and its environment, in identifying appropriate sources of audit evidence and in providing information about specific transactions or events. (3) It helps those charged with governance in fulfilling their responsibility to oversee the financial reporting process, thereby reducing the risks of material misstatement of the financial statements. (ii) Matters to be communicated to those charged with governance – – – – – – – – – – – The auditor’s responsibilities with regards to providing an opinion on the financial statements and that they have carried out their work in accordance with International Standards on Auditing (UK and Ireland). The auditor should explain the planned approach to the audit as well as the audit timetable. Any key audit risks identified during the planning stage should be communicated. In addition, any significant difficulties encountered during the audit should be communicated. Also significant matters arising during the audit, as well as significant accounting adjustments. During the audit any significant deficiencies in the internal control system identified should be communicated in writing or verbally. Those charged with governance should be notified of any written representations required by the auditor. Other matters arising from the audit that are significant to the oversight of the financial reporting process. If any suspected frauds are identified during the audit, these must be communicated. If the auditors are intending to make any modifications to the audit opinion, these should be communicated to those charged with governance. For listed entities, a confirmation that the auditors have complied with ethical standards and appropriate safeguards have been put in place for any ethical threats identified.
Report to management Board of directors Fox Industries Ltd 15 Dog Street Cat Town UK 6 June 2013 Dear Sirs, Audit of Fox Industries Ltd (Fox) for the year ended 30 April 2013 Please find enclosed the report to management on deficiencies in internal controls identified during the audit for the year ended 30 April 2013. The appendix to this report considers deficiencies in the purchasing and payments system, the implications of those deficiencies and recommendations to address those deficiencies. Please note that this report only addresses the deficiencies identified during the audit and if further testing had been performed, then more deficiencies may have been reported. This report is solely for the use of management and if you have any further questions, then please do not hesitate to contact us. Yours faithfully An audit firm
APPENDIX Deficiency Deficiency Implication Recommendation Implication This could result in Fox ordering goods at a much higher price or a lower quality than they would like, as the only factor considered was speed of delivery. It is important that goods are despatched promptly, but this is just one of many criteria that should be used in deciding which supplier to use. Purchase orders are not sequentially numbered. Failing to sequentially number the orders means that Fox’s ordering team are unable to monitor if...
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