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After the audit, there are usually post audit adjustments to be passed, eg. Underbooked electricity expense, etc, or reclassification of fixed assets to repairs account, etc.
Do you need to submit the list of memo entries for approval to the managing director before you incorporate them into the final financials.
What if they refuse?
I currently work in an audit firm
It is management’s responsibility to prepare the FS and similarly their responsibility for processing final adjustments and corrections. Auditors should not do this. Indeed, in many companies the auditors might not know how to or be able to eg complex IT system with restricted log-ons.
The auditors should give the FD or audit committee a list of all errors discovered. If small, immaterial errors are not corrected it will make little difference. However, if a material error remains uncorrected the auditors should, by definition, modify the audit report to a qualified report or an adverse report.
If there is a large debtor balance that needs to be written off, and the directors are adamant on the writing off of the balance, that means that we should not pass the memo entry, but just indicate it in the auditor report, right?
Yes. The auditor cannot change the company’s FS: that’s up to the directors. You would discuss the issue with the directors, telling them that unless it is written down there will be a aullified/adverse opinion. Assuming they can’t convince you that yhey are right and refuse to write it down the audit opinion would ahve to be modified to reflect the material misstatement.
Hi.
I’ve seen a situation where my audit firm undertook an audit for financial year 2014. However, once the auditors went onto the field, the auditors observed that there were transactions in the accounting system for 2013. However, as the engagement was only for 2014, fwe issued a qualified modified opinion on the financials since the “opening balances were not audited”.
However, if each opening balance Is not audited, doesn’t that constitute a pervasive effect on the financials.
My second is, let’s say a startup company is having their first statutory audit done after 25 months after incorporation, and they give u you a trial balance for 25 months for which the auditors are required to draft and audit. The directors of the company are unaware that the jurisdiction of the country they are in only allows an 18 month threshold. The company would have been required to split the trial balance into 2 separate ones and each of the two financials would have a separate audit done. The auditors are aware of this, but decide that they will simply qualify the audit report and later solicit the directors after the financials are submitted to the authorities to amend the financials. The company is liable to face penalties bcoz it has violated the companies act
Is there anything the directors can do now to avert responsibility? What action can the directors take now?
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