EU-REPARIS is funded by the

European Union and is a part of

WB EDIF.

Road to Europe: Program of AccountingReform and Institutional Strengthening

Audit Training of Trainers

Aneta Wilk-Lys, Consultant, CFRR

Vienna 16 March 2016

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» Application of the standards and guidance provided in this

ISA will assist the auditor in obtaining audit evidence with

respect to the specific financial statement account

balances and other disclosures addressed.

» This ISA comprises the following parts:

» Attendance at physical inventory counting.

» Inquiry regarding litigation and claims.

» Valuation and disclosure of long-term investments.

» Segment information.

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» When inventory is material to the financial

statements, the auditor should obtain sufficient

appropriate audit evidence regarding its existence

and condition by attendance at physical inventory

counting unless impracticable.

» The auditor’s attendance serves as a test of

controls or substantive procedure over inventory

depending on the auditor’s risk assessment and

planned approach. Such attendance enables the auditor to

inspect the inventory, to observe compliance with the operation of

management’s procedures for recording and controlling the results of

the count and to provide audit evidence as to the reliability of

management’s procedures.

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» If unable to attend the physical inventory count on the

date planned due to unforeseen circumstances, the

auditor should take or observe some physical counts

on an alternative date and, when necessary, perform

audit procedures on intervening transactions.

» Where attendance is impracticable, due to factors such

as the nature and location of the inventory, the auditor

should consider whether alternative procedures

provide sufficient appropriate audit evidence of

existence and condition to conclude that the auditor

need not make reference to a scope limitation.

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PRODUCT SAMPLE BOOK VALUENRV (BASED ON

POST REPORTING DATE SELLING

PRICES)*

COMMENTS

A 100 90 IMPAIRED

B 200 210 NOT IMPAIRED

C 150 100 IMPAIRED

D 300 0 IMPAIRED

* AFTER DEDUCTION OF COSTS TO COMPLETE AND COSTS TO SELL

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» The auditor should carry out audit procedures in order to become aware of any

litigation and claims involving the entity which may result in a material

misstatement of the financial statements:

» Make appropriate inquiries of management including obtaining

» representations.

» Review minutes of those charged with governance and

correspondence with the entity’s legal counsel.

» Examine legal expense accounts.

» Use any information obtained regarding the entity’s business including

information obtained from discussions with any in-house legal

department.

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If management refuses to give the auditor permission to communicate with the entity’s legal counsel, this would

be a scope limitation and should ordinarily lead to a qualified opinion or a disclaimer of opinion.

In connection with the audit of the financial statements, independent auditors from………will appreciate your furnishing directly to:

Mr/Ms [name and surname of PwC contact] a description and evaluation of certain matters with respect to:

• Pending or threatened litigation, claims and assessments or administrative and collection proceedings, in which our Company is or

is going to be represented by your firm, especially information with regard to:

a) the subject and value of the case,

b) the progress of the case to date of the response,

c) how the management is responding to the matter (for example, to seek an amicable solution of contentious cases or to strive

to accept the complaint),

d) the anticipated decision.

• Unasserted claims or assessments, that according to you could be raised against the Company, especially information with regard

to:

a) the basis, nature and expected amount of the claim,

b) how the management is responding to the claim

c) the anticipated decision in the case of raising the claim.

Your response should present situation as at balance sheet date, ending the audited year, i.e. [xx.xx.xxxx] and as of the effective date of

your reply.

Your response may be limited to the specification of matters and claims that amount to, including court expenses and legal fees, at least

[ ] EUR. However, if the aggregate amount of unspecified matters and claims (which do not exceed above proposed amount) is greater

than [ ] EUR, please include this fact in your reply.

Please respond to all above mentioned inquiries, also when you do not have any information thereon.

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»Chance to win?

»Provision needed?

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PAST NOW FUTURE

EVENTOBLIGATION

OUTFLOW OF BENEFITS

CONSTRUCTIVE LEGAL

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DEFINITION MET

RELIABLE MEASUREMENT

PROBABILITY OF BENEFITS

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Bonus expected

Each year receivedbonus for hard work Each year paid bonus

CONSTRUCTIVE OBLIGATION

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HARD WORK IN 2015

BONUS

2015

EVENT?

TRAVEL TO MAURITIUS, 1 M. EUR

EVENT?

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» Under new legislation, an entity is required to fit smoke filters to its

factories by 30 June 20X1. The entity has not fitted the filters.

» Should a provision be recognised at the end of the reporting period:

» 31 December 20X0?

» 31 December 20X1?

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» What is the event?

» Definition met?

» Recognition criteria met?

» Any penalties, litigation?

» Going concern?

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»Current tax (tax questionnaire),

analysis of tax risks

»Deferred tax recalculation.

Reconcliation of amounts.

»Effective tax rate computation

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» obtain audit evidence as to whether the entity has the ability to

continue to hold the investments on a long term basis

» discuss with management whether the entity will continue to hold the

investments as long-term investments and obtain written

representations to that effect.

» consider related financial statements and other information, such as

market quotations, which provide an indication of value and

comparing such values to the carrying amount of the investments up

to the date of the auditor’s report. If such values do not exceed the

carrying amounts, the auditor would consider whether a write-down is

required. If there is an uncertainty as to whether the carrying amount

will be recovered, the auditor would consider whether appropriate

adjustments and/or disclosures have been made.

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CARRYING AMOUNT SHARE OF NET ASSETS CONCLUSION

200 190 IMPAIRED?

300 320 OK

200 200 RELEASE PREVIOUS IMPAIRMENT?

250 240 IMPAIRED?

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»Valuation of inventory returns

»Receivables for reimbursement of insurance claims

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» Management’s Refusal to Allow the Auditor to Send a Confirmation Request

» Results of the External Confirmation Procedures

» Designing confirmation requests

» Reliability of responses to confirmation requests

» Non-responses

» Positive confirmations

» Follow up and exceptions

.

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» Confirmations:

» Circularisation of debtors and creditors

» Bank confirmation

» Lawyer’s letter

» Other

.

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» In conducting an initial audit engagement, the objective of the

auditor with respect to opening balances is to obtain sufficient

appropriate audit evidence about whether:

» Opening balances contain misstatements that materially affect the current period’s

financial statements

» Appropriate accounting policies reflected in the opening balances have been

consistently applied:

» Where the prior year financial statements were audited, reviewing the predecessor

auditor’s working papers to obtain evidence regarding the opening balances;

» Evaluating whether audit procedures performed in the current period provide evidence

relevant to the opening balances; or

» Performing specific audit procedures to obtain evidence regarding the opening

balances.

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» If the auditor obtains audit evidence that the opening balances contain

misstatements that could materially affect the current period’s financial

statements, the auditor shall perform such additional audit procedures as are

appropriate in the circumstances to determine the effect on the current period’s

financial statements.

» If the auditor concludes that such misstatements exist in the current period’s

financial statements, the auditor shall communicate the misstatements with the

appropriate level of management and those charged with governance in

accordance with ISA.