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- May 24, 2017 at 12:29 pm #387830
Are tests of control performed in planning stage of audit to assess the effectiveness of controls , to determine whether we can depend on those controls and to identify the deficiencies in controls?
Also could you please explain to me what is meant by corresponding figures and how are they relevant to audit?
I read in an answer key where they said comparitives have to be re instated if the management has not separately recorded disposal group in statement of profit or loss ?why it should be re instated?
May 24, 2017 at 12:51 pm #387838“Are tests of control performed in planning stage of audit to assess the effectiveness of controls , to determine whether we can depend on those controls and to identify the deficiencies in controls?”
No, they’re typically carried out at the interim audit stage following the assessment of the theoretical strength of those supposed controls.
If we identify those controls that are claimed to exist, and we assess their apparent effectiveness, then we can plan tests of control to be carried out close to the year end to determine whether or not those controls do in fact appear to be working as intended
And that (if we conclude that they are working as intended) they justifies us in our decision to increase materiality levels and thus reduce the extent of our substantive work
“Also could you please explain to me what is meant by corresponding figures and how are they relevant to audit?”
Here are some extracts from ISA 710:
“The nature of the comparative information that is presented in an entity’s financial statements depends on the requirements of the applicable financial reporting framework.
There are two different broad approaches to the auditor’s reporting responsibilities in respect of such comparative information: corresponding figures and comparative financial statements.
The approach to be adopted is often specified by law or regulation but may also be specified in the terms of engagement.
The essential audit reporting differences between the approaches are:
(a) For corresponding figures, the auditor’s opinion on the financial statements refers to the current period only; whereas
(b) For comparative financial statements, the auditor’s opinion refers to each period for which financial statements are presented.”
and here are 3 relevant definitions from the ISA:
“(a) Comparative information – The amounts and disclosures included in the financial statements in respect of one or more prior periods in accordance with the applicable financial reporting framework.
(b) Corresponding figures – Comparative information where amounts and other disclosures for the prior period are included as an integral part of the current period financial statements, and are intended to be read only in relation to the amounts and other disclosures relating to the current period (referred to as “current period figures”).
The level of detail presented in the corresponding amounts and disclosures is dictated primarily by its relevance to the current period figures.
(c) Comparative financial statements – Comparative information where amounts and other disclosures for the prior period are included for comparison with the financial statements of the current period but, if audited, are referred to in the auditor’s opinion.
The level of information included in those comparative financial statements is comparable with that of the financial statements of the current period.”
If you can pick the bones out of that, that’s good
But bear in mind that it’s highly improbable that you’ll get the opportunity to demonstrate this depth of understanding in a P7 exam
“I read in an answer key where they said comparitives have to be re instated if the management has not separately recorded disposal group in statement of profit or loss ?why it should be re instated?”
Are you really sure that the expression used was “re instated” and not “restated”
This sounds like part of an answer to a specific question rather than a generalised rule
Where a company changes the presentation format of its financial statements – for example uses direct method presentation of cash flow where last year was indirect method – then in the preparation of this year’s financial statements it will be necessary to restate last year’s figures
Similarly for the disclosure of earnings per share where there has been a bonus or rights issue this year, last year’s disclosed eps will need to be restated
OK?
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