Question

A client has been using the previous Accounting standards in preparing its accounts .This has lead to material misstatements in a number of assets as well as a substantial misstatement of profit .Due to its wanting to just finalise its accounts it is not prepared to amend its financial statements although it can calculate the extent of the misstatements. which is disallowed under the Australian Accounting Standards.ndicate the type of opinion that should be expressed in each of the following situations, providing reasons for your choice .

Answer 1

Accounting standard is a common set of principles, standards and procedures that define the basis of financial accounting policies and practices.

International Accounting Standard 8 (IAS 8) defines accounting policies as “the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements”.

Selection and application of accounting policies

Consistency in accounting policies of business

Changes and disclosure of accounting policies:

An entity can only change its accounting policy if some specific rules and conditions are fulfilled. These are:

• Management is allowed to change its accounting policies if it is required by a Standard
• If the change in accounting policy results in the providence of more reliable and accurate information regarding transactions, events and financial statements.

Auditor Should Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment.

The entity’s selection and application of accounting policies, including the reasons for changes thereto. The auditor shall evaluate whether the entity’s accounting policies are appropriate for its business and consistent with the applicable financial reporting framework and accounting policies used in the relevant industry.

The auditor’s understanding of internal control may raise doubts about the auditability of an entity’s financial report. For example:

Concerns about the integrity of the entity’s management may be so serious as to cause the auditor to conclude that the risk of management misrepresentation in the financial report is such that an audit cannot be conducted.

Concerns about the condition and reliability of an entity’s records may cause the auditor to conclude that it is unlikely that sufficient appropriate audit evidence will be available to support an unqualified opinion on the financial report.

Establishes requirements and provides guidance in determining whether there is a need for the auditor to express a qualified opinion or disclaim an opinion or, as may be required in some cases, to withdraw from the engagement where withdrawal is possible under applicable law or regulation.