Handbook of international standards on auditing and quality control

International Federation of Accountants 545 Fifth Avenue, 14th Floor New York, New York 10017 USA This publication was prepared by the International Federation of Accountants (IFAC) Its mission is to serve the public interest, strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high quality professional standards, furthering the international convergence of such standards and speaking out on public interest issues where the profession’s expertise is most relevant This publication may be downloaded free-of-charge from the IFAC website http://www.ifac.org The approved text is published in the English language IFAC welcomes any comments you may have regarding this handbook Comments may be sent to the address above or emailed to IAASBpubs@ifac.org Copyright © April 2009 by the International Federation of Accountants (IFAC) All rights reserved Permission is granted to make copies of this work provided that such copies are for use in academic classrooms or for personal use and are not sold or disseminated and provided that each copy bears the following credit line: “Copyright © April 2009 by the International Federation of Accountants (IFAC) All rights reserved Used with permission of IFAC Contact permissions@ifac.org for permission to reproduce, store, or transmit this document.” Otherwise, written permission from IFAC is required to reproduce, store, or transmit, or to make other similar uses of, this document, except as permitted by law Contact permissions@ifac.org ISBN: 978-1-934779-92-7 HANDBOOK OF INTERNATIONAL STANDARDS ON AUDITING AND QUALITY CONTROL 2009 EDITION Scope of this Handbook This handbook brings together all the International Standards on Auditing and the International Standard on Quality Control that have been redrafted by the International Auditing and Assurance Standards Board (IAASB) to improve their clarity (Clarity project) It also includes a Glossary of Terms and the Preface to the International Standards on Quality Control, Auditing, Review, Other Assurance and Related Services These become effective on December 15, 2009 Background information on the International Federation of Accountants (IFAC) is also included This handbook replaces Part II of the 2008 edition of the IFAC Handbook of International Standards on Auditing, Assurance, and Ethics Pronouncements Part I of the 2008 edition of the handbook will remain in effect during 2009 It contains pronouncements on auditing, review, other assurance, and related services issued by the IAASB as of January 1, 2008 It also includes the Code of Ethics for Professional Accountants, issued by the International Ethics Standards Board for Accountants The pronouncements on auditing will remain in effect up to December 14, 2009; thereafter they will be replaced by those contained in this handbook How this Handbook is Arranged The contents of this handbook are arranged by section as follows: Changes of Substance from Parts I and II of the 2008 Edition of the Handbook and Recent Developments Background Information on the International Federation of Accountants Preface to the International Standards on Quality Control, Auditing, Review, Other Assurance and Related Services 11 Glossary of Terms 16 International Standards on Auditing and Quality Control 41 IFAC encourages and facilitates the reproduction, or translation and reproduction of its publications For interested parties wishing to reproduce, or translate and reproduce this Handbook, please contact permissions@ifac.org for terms and conditions of agreement References This handbook contains references to International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs) Unless otherwise indicated, references to IASs and IFRSs are to the IASs and IFRSs in effect at the date of preparing a pronouncement Accordingly, readers are cautioned that, where a revised IAS or IFRS has been issued subsequently, reference should be made to the most recent IAS or IFRS References to “country” in this handbook should be read as “country or jurisdiction.” Pronouncements Issued by the International Auditing and Assurance Standards Board This handbook contains the complete set of International Auditing and Assurance Standards Board’s (IAASB) pronouncements on auditing and quality control This includes all the International Standards on Auditing (ISAs) that have been redrafted to improve their clarity, the redrafted International Standard on Quality Control (ISQC) 1, a Glossary of Terms, and a Preface which become effective on December 15, 2009 This handbook replaces Part II of the 2008 edition of the International Federation of Accountants (IFAC) Handbook of International Standards on Auditing, Assurance, and Ethics Pronouncements which featured nine redrafted ISAs issued by the IAASB as at January 1, 2008 Changes to Part I of the 2008 Edition of the IFAC Handbook Part I of the 2008 edition of the IFAC Handbook will remain in effect during 2009 That publication contains pronouncements on auditing, review, other assurance, and related services issued by the IAASB as of January 1, 2008 The pronouncements on auditing and quality control will remain in effect up to December 14, 2009 It also includes the Code of Ethics for Professional Accountants, issued by the International Ethics Standards Board for Accountants Paragraphs 15 and 18 of the International Standard on Review Engagements (ISRE) 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” have been amended as a result of ISA 200, “Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing” issued in October 2008 The amendments become effective on December 15, 2009 CHANGES CHANGES CHANGES OF SUBSTANCE FROM PARTS I AND II OF THE 2008 EDITION OF THE HANDBOOK AND RECENT DEVELOPMENTS CHANGES OF SUBSTANCE AND RECENT DEVELOPMENTS The conforming changes are shown in the Appendix to this section The amended ISRE 2410 can be accessed from the Publications/Bookstore section on the IFAC website at http://www.ifac.org Small Entity Audit Considerations For ISAs issued subsequent to March 2003, whenever necessary, small entity audit considerations are included in the body of those ISAs Guidance contained in International Auditing Practice Statement (IAPS) 1005, “The Special Considerations in the Audit of Small Entities” is withdrawn when revisions to related ISAs become effective Accordingly, readers are cautioned that, in addition to the guidance in IAPS 1005, reference should be made to the small entity audit considerations included in ISAs issued subsequent to March 2003 Clarity Project In March 2009, the IAASB announced the completion of its 18-month long program to comprehensively review all of its ISAs and ISQC to improve their clarity (Clarity project) As a result of this landmark achievement, auditors worldwide will have access to 36 newly updated and clarified ISAs and a clarified ISQC These standards are designed to enhance the understanding and implementation of them, as well as to facilitate translation The clarified standards, all of which are contained in this handbook, are effective for audits of financial statements for periods beginning on or after December 15, 2009 Visit the IAASB’s Clarity Centre website at http://web.ifac.org/clarity-center/index for more information on the Clarity Project Final Pronouncements Issued Subsequent to April 30, 2009 and Exposure Drafts For information on recent developments and to obtain final pronouncements issued subsequent to April 30, 2009 or outstanding exposure drafts, visit the IAASB’s website at http://www.ifac.org/IAASB/ CHANGES Appendix Note to Users of this Handbook: ISREs issued by the IAASB as of January 1, 2008 are contained in Part I of the 2008 edition of the IFAC Handbook of International Standards on Auditing, Assurance, and Ethics Pronouncements Part I of the 2008 edition of the IFAC Handbook will remain in effect during 2009 Conforming amendments to ISRE 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” as a result of ISA 200, “Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing” 15 18 The procedures performed by the auditor to update the understanding of the entity and its environment, including its internal control, ordinarily include the following: • … • Considering significant financial accounting and reporting matters that may be of continuing significance such as material weaknesses significant deficiencies in internal control • … This understanding enables the auditor to focus the inquiries made, and the analytical and other review procedures applied in performing a review of interim financial information in accordance with this ISRE As part of obtaining this understanding, the auditor ordinarily makes inquiries of the predecessor auditor and, where practicable, reviews the predecessor auditor’s documentation for the preceding annual audit, and for any prior interim periods in the current year that have been reviewed by the predecessor auditor In doing so, the auditor considers the nature of any corrected misstatements, and any uncorrected misstatements aggregated by the predecessor auditor, any significant risks, including the risk of management override of controls, and significant accounting and any reporting matters that may be of continuing significance, such as material weaknesses significant deficiencies in internal control CHANGES APPENDIX CHANGES CHANGES OF SUBSTANCE AND RECENT DEVELOPMENTS BACKGROUND INFORMATION ON THE INTERNATIONAL FEDERATION OF ACCOUNTANTS The Organization The International Federation of Accountants (IFAC) is the worldwide organization for the accountancy profession Founded in 1977, its mission is “to serve the public interest, IFAC will continue to strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high-quality professional standards, furthering the international convergence of such standards and speaking out on public interest issues where the profession’s expertise is most relevant.” IFAC’s governing bodies, staff and volunteers are committed to the values of integrity, transparency and expertise IFAC also seeks to reinforce professional accountants’ adherence to these values, which are reflected in the IFAC Code of Ethics for Professional Accountants Primary Activities Serving the Public Interest IFAC provides leadership to the worldwide accountancy profession in serving the public interest by: • Developing, promoting and maintaining global professional standards and a Code of Ethics for Professional Accountants of a consistently high-quality; • Actively encouraging convergence of professional standards, particularly, auditing, assurance, ethics, education, and public and private sector financial reporting standards; • Seeking continuous improvements in the quality of auditing and financial management; • Promoting the values of the accountancy profession to ensure that it continually attracts high caliber entrants; • Promoting compliance with membership obligations; and • Assisting developing and emerging economies, in cooperation with regional accounting bodies and others, in establishing and maintaining a profession committed to quality performance and to serving the public interest Contributing to the Efficiency of the Global Economy IFAC contributes to the efficient functioning of the international economy by: • Improving confidence in the quality and reliability of financial reporting; • Encouraging the provision of high-quality performance information (financial and non-financial) within organizations; IFAC • Promoting the provision of high-quality services by all members of the worldwide accountancy profession; and • Promoting the importance of adherence to the Code of Ethics for Professional Accountants by all members of the accountancy profession, including members in industry, commerce, the public sector, the not-for-profit sector, academia, and public practice Providing Leadership and Spokesmanship IFAC is the primary spokesperson for the international profession and speaks out on public policy issues, especially those where the profession’s expertise is most relevant, as well as on regulatory issues related to auditing and financial reporting This is accomplished, in part, through outreach to numerous organizations that rely on or have an interest in the activities of the international accountancy profession and through the issuance of public policy positions Membership IFAC is comprised of 158 members and associates in 123 countries worldwide, representing approximately 2.5 million accountants in public practice, industry and commerce, the public sector, and education No other accountancy body in the world and few other professional organizations have the broad-based international support that characterizes IFAC IFAC’s strengths derive not only from its international representation, but also from the support and involvement of its individual member bodies, which are themselves dedicated to promoting integrity, transparency, and expertise in the accountancy profession, as well as from the support of regional accountancy bodies Standard-Setting Initiatives IFAC has long recognized the need for a globally harmonized framework to meet the increasingly international demands that are placed on the accountancy profession, whether from the business, public sector or education communities Major components of this framework are the Code of Ethics for Professional Accountants, International Standards on Auditing (ISAs), International Education Standards (IESs), and International Public Sector Accounting Standards (IPSASs) IFAC’s standard-setting boards, described below, follow a due process that supports the development of high-quality standards in the public interest in a transparent, efficient, and effective manner These standard-setting boards all have Consultative Advisory Groups, which provide public interest perspectives, and include public members IFAC’s Public Interest Activity Committees (PIACs) – the International Auditing and Assurance Standards Board, International Accounting Education Standards Board, International Ethics Standards Board for Accountants (IESBA) and the Compliance Advisory Panel – are subject to oversight by the Public Interest Oversight Board (PIOB) (see below) IFAC IFAC BACKGROUND INFORMATION ON THE INTERNATIONAL FEDERATION OF ACCOUNTANTS BACKGROUND INFORMATION ON THE INTERNATIONAL FEDERATION OF ACCOUNTANTS The terms of reference, due process and operating procedures of the IFAC standardsetting boards are available from the IFAC website at http://www.ifac.org IFAC actively supports convergence to ISAs and other standards developed by IFAC’s independent standard-setting boards and the International Accounting Standards Board Auditing and Assurance Services The IAASB develops ISAs and International Standards on Review Engagements, which deal with the audit and review of historical financial statements, and International Standards on Assurance Engagements, which deal with assurance engagements other than the audit or review of historical financial information The IAASB also develops related practice statements These standards and statements serve as the benchmark for high-quality auditing and assurance standards and statements worldwide They establish standards and provide guidance for auditors and other professional accountants, giving them the tools to cope with the increased and changing demands for reports on financial information, and provide guidance in specialized areas In addition, the IAASB develops quality control standards for firms and engagement teams in the practice areas of audit, assurance and related services Ethics The Code of Ethics for Professional Accountants (the Code), developed by the IESBA, establishes ethical requirements for professional accountants and provides a conceptual framework for all professional accountants to ensure compliance with the five fundamental principles of professional ethics These principles are integrity, objectivity, professional competence and due care, confidentiality, and professional behavior Under the framework, all professional accountants are required to identify threats to these fundamental principles and, if there are threats, apply safeguards to ensure that the principles are not compromised A member body of IFAC or firm conducting an audit using ISAs may not apply less stringent standards than those stated in the Code Public Sector Accounting IFAC’s International Public Sector Accounting Standards Board (IPSASB) focuses on the development of high-quality financial reporting standards for use by public sector entities around the world It has developed a comprehensive body of IPSASs setting out the requirements for financial reporting by governments and other public sector organizations The IPSASs represent international best practice in financial reporting by public sector entities In many jurisdictions, the application of the requirements of IPSASs will enhance the accountability and transparency of the financial reports prepared by governments and their agencies IFAC The IPSASs are contained in the 2008 edition of the IFAC Handbook of International Public Sector Accounting Pronouncements and are also available from the IFAC website at http://www.ifac.org French and Spanish translations of the IPSASs are also available for download from the IFAC website Education Working to advance accounting education programs worldwide, IFAC’s International Accounting Education Standards Board (IAESB) develops International Education Standards (IESs), setting the benchmarks for the education of members of the accountancy profession All IFAC member bodies are required to comply with those standards, which address the education process leading to qualification as a professional accountant, as well as the ongoing continuing professional development of professional accountants, and the competence requirements of audit professionals The IAESB also develops International Education Practice Statements (IEPSs) and other guidance to assist member bodies and accounting educators implement and achieve good practice in accounting education The IESs and IEPSs are contained in the 2009 edition of IFAC’s Handbook of International Education Pronouncements and are also available from the IFAC website at http://www.ifac.org Support for Professional Accountants in Business Both IFAC and its member bodies face the challenge of meeting the needs of an increasing number of accountants employed in business and industry, the public sector, education, and the not-for-profit sector These accountants now comprise more than 50 percent of the membership of member bodies IFAC’s Professional Accountants in Business (PAIB) Committee develops good practice guidance and other resources, and facilitates the exchange of knowledge among its member bodies These address a wide range of professional issues, encourage high-quality performance by professional accountants in business, and build public awareness and understanding of the roles these individuals play in their organizations More information on the work of the committee can be obtained at http://www.ifac.org/paib Small- and Medium-Sized Practices IFAC is also focused on providing support for another important constituency: smalland medium-sized practices (SMPs) and other accountants providing services to small- and medium-sized entities (SMEs) Through its SMP Committee, direct input from an SMP/SME perspective is provided into the work of international standard setters with the objective of helping shape the work agenda of the standard setters and ensuring standards produced are applicable to SMPs and SMEs The committee also provides practical support in the form of implementation guides and web-based resources designed to help SMPs efficiently implement international standards, proficiently manage their practices and remain relevant to their clients In addition, the Committee engages in outreach activities such as its annual SMP forum, to IFAC IFAC BACKGROUND INFORMATION ON THE INTERNATIONAL FEDERATION OF ACCOUNTANTS • The information needs of the intended users of the summary financial statements; and • Whether the applied criteria will result in summary financial statements that are not misleading in the circumstances A5 The criteria for the preparation of summary financial statements may be established by an authorized or recognized standards setting organization or by law or regulation Similar to the case of financial statements, as explained in ISA 210,8 in many such cases, the auditor may presume that such criteria are acceptable A6 Where established criteria for the preparation of summary financial statements not exist, criteria may be developed by management, for example, based on practice in a particular industry Criteria that are acceptable in the circumstances will result in summary financial statements that: A7 (a) Adequately disclose their summarized nature and identify the audited financial statements; (b) Clearly describe from whom or where the audited financial statements are available or, if law or regulation provides that the audited financial statements need not be made available to the intended users of the summary financial statements and establishes the criteria for the preparation of the summary financial statements, that law or regulation; (c) Adequately disclose the applied criteria; (d) Agree with or can be recalculated from the related information in the audited financial statements; and (e) In view of the purpose of the summary financial statements, contain the information necessary, and are at an appropriate level of aggregation, so as not to be misleading in the circumstances Adequate disclosure of the summarized nature of the summary financial statements and the identity of the audited financial statements, as referred to in paragraph A6(a), may, for example, be provided by a title such as “Summary Financial Statements Prepared from the Audited Financial Statements for the Year Ended December 31, 20X1.” Evaluating the Availability of the Audited Financial Statements (Ref: Para 8(g)) A8 The auditor’s evaluation whether the audited financial statements are available to the intended users of the summary financial statements without undue difficulty is affected by factors such as whether: ISA 210, “Agreeing the Terms of Audit Engagements,” paragraphs A3 and A8-A9 811 ISA 810 AUDITING ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS • The summary financial statements describe clearly from whom or where the audited financial statements are available; • The audited financial statements are on public record; or • Management has established a process by which the intended users of the summary financial statements can obtain ready access to the audited financial statements Form of Opinion (Ref: Para 9) A9 A conclusion, based on an evaluation of the evidence obtained by performing the procedures in paragraph 8, that an unmodified opinion on the summary financial statements is appropriate enables the auditor to express an opinion containing one of the phrases in paragraph The auditor’s decision as to which of the phrases to use may be affected by generally accepted practice in the particular jurisdiction Timing of Work and Events Subsequent to the Date of the Auditor’s Report on the Audited Financial Statements (Ref: Para 12) A10 The procedures described in paragraph are often performed during or immediately after the audit of the financial statements When the auditor reports on the summary financial statements after the completion of the audit of the financial statements, the auditor is not required to obtain additional audit evidence on the audited financial statements, or report on the effects of events that occurred subsequent to the date of the auditor’s report on the audited financial statements since the summary financial statements are derived from the audited financial statements and not update them Auditor’s Report on Summary Financial Statements Elements of the Auditor’s Report Title (Ref: Para 14(a)) A11 A title indicating the report is the report of an independent auditor, for example, “Report of the Independent Auditor,” affirms that the auditor has met all of the relevant ethical requirements regarding independence This distinguishes the report of the independent auditor from reports issued by others Addressee (Ref: Para 14(b), 15) A12 Factors that may affect the auditor’s evaluation of the appropriateness of the addressee of the summary financial statements include the terms of the engagement, the nature of the entity, and the purpose of the summary financial statements ISA 810 812 ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS Introductory Paragraph (Ref: Para 14(c)(i)) A13 When the auditor is aware that the summary financial statements will be included in a document that contains other information, the auditor may consider, if the form of presentation allows, identifying the page numbers on which the summary financial statements are presented This helps readers to identify the summary financial statements to which the auditor’s report relates Date of the Auditor’s Report (Ref: Para 14(h), 16) A14 The person or persons with recognized authority to conclude that the summary financial statements have been prepared and take responsibility for them depend on the terms of the engagement, the nature of the entity, and the purpose of the summary financial statements Illustrations (Ref: Para.14 17-18, 19) A15 The Appendix to this ISA contains illustrations of auditors’ reports on summary financial statements that: (a) Contain unmodified opinions; (b) Are derived from audited financial statements on which the auditor issued modified opinions; and (c) Contain a modified opinion A16 If the audited financial statements contain comparatives, there is a presumption that the summary financial statements also would contain comparatives Comparatives in the audited financial statements may be regarded as corresponding figures or as comparative financial information ISA 710 describes how this difference affects the auditor’s report on the financial statements, including, in particular, reference to other auditors who audited the financial statements for the prior period A17 Circumstances that may affect the auditor’s determination whether an omission of comparatives is reasonable include the nature and objective of the summary financial statements, the applied criteria, and the information needs of the intended users of the summary financial statements Unaudited Supplementary Information Presented with Summary Financial Statements (Ref: Para 23) A18 ISA 7009 contains requirements and guidance to be applied when unaudited supplementary information is presented with audited financial statements that, ISA 700, “Forming an Opinion and Reporting on Financial Statements,” paragraphs 46-47 813 ISA 810 AUDITING Comparatives (Ref: Para 21-22) ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS adapted as necessary in the circumstances, may be helpful in applying the requirement in paragraph 23 Other Information in Documents Containing Summary Financial Statements (Ref: Para 24) A19 ISA 72010 contains requirements and guidance relating to reading other information included in a document containing the audited financial statements and related auditor’s report, and responding to material inconsistencies and material misstatements of fact Adapted as necessary in the circumstances, they may be helpful in applying the requirement in paragraph 24 Auditor Association (Ref: Para 25-26) A20 Other appropriate actions the auditor may take when management does not take the requested action may include informing the intended users and other known third-party users of the inappropriate reference to the auditor The auditor’s course of action depends on the auditor’s legal rights and obligations Consequently, the auditor may consider it appropriate to seek legal advice 10 ISA 720, “The Auditor’s Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements.” ISA 810 814 ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS Appendix (Ref: Para A15) • Illustration 1: An auditor’s report on summary financial statements prepared in accordance with established criteria An unmodified opinion is expressed on the audited financial statements The auditor’s report on the summary financial statements is dated later than the date of the auditor’s report on the financial statements from which summary financial statements are derived • Illustration 2: An auditor’s report on summary financial statements prepared in accordance with criteria developed by management and adequately disclosed in the summary financial statements The auditor has determined that the applied criteria are acceptable in the circumstances An unmodified opinion is expressed on the audited financial statements • Illustration 3: An auditor’s report on summary financial statements prepared in accordance with criteria developed by management and adequately disclosed in the summary financial statements The auditor has determined that the applied criteria are acceptable in the circumstances A qualified opinion is expressed on the audited financial statements • Illustration 4: An auditor’s report on summary financial statements prepared in accordance with criteria developed by management and adequately disclosed in the summary financial statements The auditor has determined that the applied criteria are acceptable in the circumstances An adverse opinion is expressed on the audited financial statements • Illustration 5: An auditor’s report on summary financial statements prepared in accordance with established criteria An unmodified opinion is expressed on the audited financial statements The auditor concludes that it is not possible to express an unmodified opinion on the summary financial statements 815 ISA 810 APPENDIX AUDITING Illustrations of Reports on Summary Financial Statements ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS Illustration 1: Circumstances include the following: • An unmodified opinion is expressed on the audited financial statements • Established criteria for the preparation of summary financial statements exist • The auditor’s report on the summary financial statements is dated later than the date of the auditor’s report on the financial statements from which the summary financial statements are derived REPORT OF THE INDEPENDENT AUDITOR ON THE SUMMARY FINANCIAL STATEMENTS [Appropriate Addressee] The accompanying summary financial statements, which comprise the summary balance sheet as at December 31, 20X1, the summary income statement, summary statement of changes in equity and summary cash flow statement for the year then ended, and related notes, are derived from the audited financial statements of ABC Company for the year ended December 31, 20X1 We expressed an unmodified audit opinion on those financial statements in our report dated February 15, 20X2 Those financial statements, and the summary financial statements, not reflect the effects of events that occurred subsequent to the date of our report on those financial statements The summary financial statements not contain all the disclosures required by [describe financial reporting framework applied in the preparation of the audited financial statements of ABC Company] Reading the summary financial statements, therefore, is not a substitute for reading the audited financial statements of ABC Company Management’s11 Responsibility for the Summary Financial Statements Management is responsible for the preparation of a summary of the audited financial statements in accordance with [describe established criteria] Auditor’s Responsibility Our responsibility is to express an opinion on the summary financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810, “Engagements to Report on Summary Financial Statements.” Opinion In our opinion, the summary financial statements derived from the audited financial statements of ABC Company for the year ended December 31, 20X1 are consistent, 11 Or other term that is appropriate in the context of the legal framework in the particular jurisdiction ISA 810 APPENDIX 816 ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS in all material respects, with (or a fair summary of) those financial statements, in accordance with [describe established criteria] [Auditor’s signature] [Date of the auditor’s report] AUDITING [Auditor’s address] 817 ISA 810 APPENDIX ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS Illustration 2: Circumstances include the following: • An unmodified opinion is expressed on the audited financial statements • Criteria are developed by management and adequately disclosed in Note X The auditor has determined that the criteria are acceptable in the circumstances REPORT OF THE INDEPENDENT AUDITOR ON THE SUMMARY FINANCIAL STATEMENTS [Appropriate Addressee] The accompanying summary financial statements, which comprise the summary balance sheet as at December 31, 20X1, the summary income statement, summary statement of changes in equity and summary cash flow statement for the year then ended, and related notes, are derived from the audited financial statements of ABC Company for the year ended December 31, 20X1 We expressed an unmodified audit opinion on those financial statements in our report dated February 15, 20X2.12 The summary financial statements not contain all the disclosures required by [describe financial reporting framework applied in the preparation of the audited financial statements of ABC Company] Reading the summary financial statements, therefore, is not a substitute for reading the audited financial statements of ABC Company Management’s13 Responsibility for the Summary Financial Statements Management is responsible for the preparation of a summary of the audited financial statements on the basis described in Note X Auditor’s Responsibility Our responsibility is to express an opinion on the summary financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810, “Engagements to Report on Summary Financial Statements.” Opinion In our opinion, the summary financial statements derived from the audited financial statements of ABC Company for the year ended December 31, 20X1 are consistent, 12 13 When the auditor’s report on the summary financial statements is dated later than the date of the auditor’s report on the audited financial statements from which it is derived, the following sentence is added to this paragraph: “Those financial statements, and the summary financial statements, not reflect the effects of events that occurred subsequent to the date of our report on those financial statements.” Or other term that is appropriate in the context of the legal framework in the particular jurisdiction ISA 810 APPENDIX 818 ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS in all material respects, with (or a fair summary of) those financial statements, on the basis described in Note X [Auditor’s signature] [Date of the auditor’s report] AUDITING [Auditor’s address] 819 ISA 810 APPENDIX ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS Illustration 3: Circumstances include the following: • A qualified opinion is expressed on the audited financial statements • Criteria are developed by management and adequately disclosed in Note X The auditor has determined that the criteria are acceptable in the circumstances REPORT OF THE INDEPENDENT AUDITOR ON THE SUMMARY FINANCIAL STATEMENTS [Appropriate Addressee] The accompanying summary financial statements, which comprise the summary balance sheet as at December 31, 20X1, the summary income statement, summary statement of changes in equity and summary cash flow statement for the year then ended, and related notes, are derived from the audited financial statements of ABC Company for the year ended December 31, 20X1.14 We expressed a qualified audit opinion on those financial statements in our report dated February 15, 20X2 (see below) The summary financial statements not contain all the disclosures required by [describe financial reporting framework applied in the preparation of the audited financial statements of ABC Company] Reading the summary financial statements, therefore, is not a substitute for reading the audited financial statements of ABC Company Management’s15 Responsibility for the Summary Financial Statements Management is responsible for the preparation of a summary of the audited financial statements on the basis described in Note X Auditor’s Responsibility Our responsibility is to express an opinion on the summary financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810, “Engagements to Report on Summary Financial Statements.” Opinion In our opinion, the summary financial statements derived from the audited financial statements of ABC Company for the year ended December 31, 20X1 are consistent, 14 15 When the auditor’s report on the summary financial statements is dated later than the date of the auditor’s report on the audited financial statements from which it is derived, the following sentence is added to this paragraph: “Those financial statements, and the summary financial statements, not reflect the effects of events that occurred subsequent to the date of our report on those financial statements.” Or other term that is appropriate in the context of the legal framework in the particular jurisdiction ISA 810 APPENDIX 820 ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS in all material respects, with (or a fair summary of) those financial statements, on the basis described in Note X However, the summary financial statements are misstated to the equivalent extent as the audited financial statements of ABC Company for the year ended December 31, 20X1 The misstatement of the audited financial statements is described in our qualified audit opinion in our report dated February 15, 20X2 Our qualified audit opinion is based on the fact that the company’s inventories are carried in the balance sheet in those financial statements at xxx Management has not stated the inventories at the lower of cost and net realizable value but has stated them solely at cost, which constitutes a departure from International Financial Reporting Standards The company’s records indicate that had management stated the inventories at the lower of cost and net realizable value, an amount of xxx would have been required to write the inventories down to their net realizable value Accordingly, cost of sales would have been increased by xxx, and income tax, net income and shareholders’ equity would have been reduced by xxx, xxx and xxx, respectively Our qualified audit opinion states that, except for the effects of the described matter, those financial statements present fairly, in all material respects, (or give a true and fair view of) the financial position of ABC Company as at December 31, 20X1, and (of) its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards [Auditor’s signature] [Date of the auditor’s report] AUDITING [Auditor’s address] 821 ISA 810 APPENDIX ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS Illustration 4: Circumstances include the following: • An adverse opinion is expressed on the audited financial statements • Criteria are developed by management and adequately disclosed in Note X The auditor has determined that the criteria are acceptable in the circumstances REPORT OF THE INDEPENDENT AUDITOR ON THE SUMMARY FINANCIAL STATEMENTS [Appropriate Addressee] The accompanying summary financial statements, which comprise the summary balance sheet as at December 31, 20X1, the summary income statement, summary statement of changes in equity and summary cash flow statement for the year then ended, and related notes, are derived from the audited financial statements of ABC Company for the year ended December 31, 20X1.16 The summary financial statements not contain all the disclosures required by [describe financial reporting framework applied in the preparation of the audited financial statements of ABC Company] Reading the summary financial statements, therefore, is not a substitute for reading the audited financial statements of ABC Company Management’s17 Responsibility for the Summary Financial Statements Management is responsible for the preparation of a summary of the audited financial statements on the basis described in Note X Auditor’s Responsibility Our responsibility is to express an opinion on the summary financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810, “Engagements to Report on Summary Financial Statements.” Denial of Opinion In our report dated February 15, 20X2, we expressed an adverse audit opinion on the financial statements of ABC Company for the year ended December 31, 20X1 The basis for our adverse audit opinion was [describe basis for adverse audit opinion] Our adverse audit opinion stated that [describe adverse audit opinion] 16 17 When the auditor’s report on the summary financial statements is dated later than the date of the auditor’s report on the audited financial statements from which it is derived, the following sentence is added to this paragraph: “Those financial statements, and the summary financial statements, not reflect the effects of events that occurred subsequent to the date of our report on those financial statements.” Or other term that is appropriate in the context of the legal framework in the particular jurisdiction ISA 810 APPENDIX 822 ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS Because of the significance of the matter discussed above, it is inappropriate to express an opinion on the summary financial statements of ABC Company for the year ended December 31, 20X1 [Auditor’s signature] [Date of the auditor’s report] AUDITING [Auditor’s address] 823 ISA 810 APPENDIX ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS Illustration 5: Circumstances include the following: • An unmodified opinion is expressed on the audited financial statements • Established criteria for the preparation of summary financial statements exist • The auditor concludes that it is not possible to express an unmodified opinion on the summary financial statements REPORT OF THE INDEPENDENT AUDITOR ON THE SUMMARY FINANCIAL STATEMENTS [Appropriate Addressee] The accompanying summary financial statements, which comprise the summary balance sheet as at December 31, 20X1, the summary income statement, summary statement of changes in equity and summary cash flow statement for the year then ended, and related notes, are derived from the audited financial statements of ABC Company for the year ended December 31, 20X1 We expressed an unmodified audit opinion on those financial statements in our report dated February 15, 20X2.18 The summary financial statements not contain all the disclosures required by [describe financial reporting framework applied in the preparation of the audited financial statements of ABC Company] Reading the summary financial statements, therefore, is not a substitute for reading the audited financial statements of ABC Company Management’s19 Responsibility for the Summary Audited Financial Statements Management is responsible for the preparation of a summary of the audited financial statements in accordance with [describe established criteria] Auditor’s Responsibility Our responsibility is to express an opinion on the summary financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810, “Engagements to Report on Summary Financial Statements.” Basis for Adverse Opinion [Describe matter that caused the summary financial statements not to be consistent, 18 19 When the auditor’s report on the summary financial statements is dated later than the date of the auditor’s report on the audited financial statements from which it is derived, the following sentence is added to this paragraph: “Those financial statements, and the summary financial statements, not reflect the effects of events that occurred subsequent to the date of our report on those financial statements.” Or other term that is appropriate in the context of the legal framework in the particular jurisdiction ISA 810 APPENDIX 824 ENGAGEMENTS TO REPORT ON SUMMARY FINANCIAL STATEMENTS in all material respects, with (or a fair summary of) the audited financial statements, in accordance with the applied criteria.] Adverse Opinion In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion paragraph, the summary financial statements referred to above are not consistent with (or a fair summary of) the audited financial statements of ABC Company for the year ended December 31, 20X1, in accordance with [describe established criteria] [Auditor’s signature] [Date of the auditor’s report] AUDITING [Auditor’s address] 825 ISA 810 APPENDIX .. .HANDBOOK OF INTERNATIONAL STANDARDS ON AUDITING AND QUALITY CONTROL 2009 EDITION Scope of this Handbook This handbook brings together all the International Standards on Auditing and the International. .. STANDARDS ON AUDITING AND QUALITY CONTROL INTERNATIONAL STANDARDS ON QUALITY CONTROL (ISQCs) INTERNATIONAL STANDARDS ON AUDITING AND QUALITY CONTROL ISA 501, Audit Evidence—Specific Considerations for... the International Auditing and Assurance Standards Board 4-9 International Standards on Auditing 10 International Standards on Quality Control 11 Other International Standards