ACCA AAA · Chapter 14
Relevant IFRS Accounting Standards
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Framework and standards by topic
Start with treatment then identify the possible misstatement
Applicable framework
- Acceptable for entity and purpose, or required by law
- Evidence must support recognition, measurement and disclosure
For each audit matter
- Initial recognition and derecognition
- Initial and subsequent measurement
- Classification, presentation and disclosure
Use at each stage
- Planning: evaluate RoMM and design procedures
- Completion: evaluate evidence and misstatements
- Standard knowledge is the starting point, not the answer
Current assets
- Inventory and standard costing: IAS 2; also IAS 23
- Receivables: IFRS 9 and IFRS 15
Non-current assets
- Property, plant and equipment: IAS 16
- Intangibles: IAS 38; goodwill: IFRS 3
- Biological assets: IAS 41; investment property: IAS 40
- Held for sale/discontinued operations: IFRS 5
- Impairment: IAS 36
Other relevant standards
- Government grants: IAS 20; borrowing costs: IAS 23
- Fair value measurement: IFRS 13
Transactions
- Revenue: IFRS 15; Leases: IFRS 16
- Financial instruments: IAS 32, IFRS 7 and IFRS 9
- Share-based payments: IFRS 2
Liabilities and expenses
- Provisions/contingencies: IAS 37
- Employee benefits/payroll: IAS 19
- Taxation including deferred tax: IAS 12
Connected topics
- Estimates may involve IAS 19, IAS 36, IAS 37 or IFRS 9
- Leases may also involve IAS 16, IFRS 9 and IAS 24
Statements
- Presentation and notes: IFRS 18
- Statement of cash flows: IAS 7
- Changes in accounting policy: IAS 8
- Going concern basis: IAS 8
Other disclosures
- Related parties: IAS 24; segments: IFRS 8
- Events after reporting period: IAS 10
- Foreign exchange: IAS 21; also IFRS 9
Business combinations
- IFRS 3; group issues also IAS 27/28, IFRS 10/11/12
Design procedures and evaluate estimates
Evidence-led conclusion evaluate amount and disclosure
Start with the accounting question
- What treatment does the standard require?
- What amount, assertion or disclosure might be misstated?
Specify the work
- Action, source of evidence and matter established
- Test significant judgement and contractual substance
- Recalculate the accounting adjustment where relevant
E.g. Consignment inventory
- Inspect terms for control, risk and right of return
- Confirm goods and inspect separate inventory records
- Trace sales/returns and test obligations for unsold goods
- Exclude goods not controlled from inventory
Sequence
- Required treatment → Possible misstatement (RoMM) → Evidence required → Procedure and source
Ask whether work
- Addresses treatment and specific RoMM
- Uses an appropriate, reliable source
- Is sufficiently precise and tests assumptions
- Needs further or different evidence
Impairment example
- Old forecast may omit adverse regulatory development
- Obtain updated model reflecting new information
- Corroborate growth with actual sales and market evidence
- Recalculation tests arithmetic, not assumptions
- Compare bank forecast to identify management bias
Improve the answer
- Explain the limitation and a procedure that remedies it
ISA 540
- Estimation uncertainty: inherent lack of precision
- Complexity: difficult model or calculation
- Subjectivity: judgement over method, data or assumptions
Management bias
- Challenge optimistic forecasts and selective inputs
- Consider incentives such as loan covenants
Responses
- Use events up to date of auditor’s report
- Test management’s method, assumptions and data
- Develop auditor’s point estimate or range
Provision example
- Inspect guarantee and test forecast ticket sales
- Compare post-year-end bookings with forecast
- Use supportable scenarios to develop a range
- Assess optimistic growth and disclosure of uncertainty
Evaluate
- Compare estimate with reliable corroborating evidence
- Resolve contradictions and assess management bias
- Conclude whether amount/disclosure is reasonable
- Identify material misstatement and further work if needed
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