Question

subsequently discovered fact? LOS R15-10 List and briefly explain the components of the unqualified report on the effectiveness of ICFR. LO6 R15-11 What factors do auditors consider when determining if an identified control deficiency is a significant deficiency or a material weakness? LO6 R15-12 Explain how the standard unqualified report on the effectiveness of ICFR would be modified for an adverse opinion. LO6 R15-13 Compare and contrast a compilation engagement and review engagement. LO7 ANALYSIS PROBLEMS

Answer 1

1. Components of the unqualified report on the effectiveness of IFCR

A)Policies and Procedures adopted by the company for ensuring following

1. Orderly and efficient conduct of business
2. Accuracy and completeness of accounting records
3. Timely preparation of reliable financial statements
4. Company has adequate internal financial controls (IFC) in place and operating effectiveness of such controls

2. Factors to be considered while determining material weakness are:

1. Identification of fraud, whether or not material, on the part of senior management
2. Restatement of previously issued financial statements to reflect the correction of a material misstatement
3. Identification by the auditor of a material misstatement of financial statements in the current period in circumstances that indicate that the misstatement would not have been detected by the company's internal control over financial reporting; and
4. Ineffective oversight of the company's external financial reporting and internal control over financial reporting by the company's audit committee.

3. When expressing an adverse opinion on internal control over financial reporting because of a material weakness, the auditor's report must include -

• The definition of a material weakness

• A statement that a material weakness has been identified and an identification of the material weakness described in management's assessment.

4. Compilation Engagement

• There are no financial statement disclosure or presentation requirements associated with this engagement. So, the accountant has no obligation other than not to be associated if he/she is aware of any false or misleading results.
• The simplicity of this engagement comes from the definition itself. Other than “compiling” the client’s trial balance into a financial statement format, there is generally no other work carried out. That is unless the results clearly indicate that there could be a false or misleading position.
• Generally, there are no “notes to the financial statements” within a compilation engagement.

Review Engagement

• Procedures such as verification, examination and scrutiny are associated with auditing and are not performed in a review engagement. The review engagement report attached to the financial statements includes wording that informs the reader that an audit has not been performed.
• Although not as stringent as an audit, a review is often performed in the following circumstances:

1. Where the amount of borrowing is below a certain threshold
2. Where there are multiple owners and each wants some assurance that the financial statements have been independently assessed
3. Where it is mandated by a Provincial or Federal regulation based on total revenue.