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How to pin point a difference between of Scope limitation (SL) and disagreement (DA) ? E.g (If management did not carryout impairment testing of intangible asset when there is only doubt over its value?, would it be SL or DA for a auditor?)
(e.g if FS of associated company are not available till date of audit report, where accounts needs adjustment for P/L, what it wud be?), There are so many situations, how to identify a situation for SL or Da?Disagreement arises from some difference of opinion over a) a fact or amount b) the appropriateness of an accounting policy c) non-compliance with law or regulation or presentation / disclosure..
Try to fit your scenaria to those possibilities
Well thats what auditor need to make sure if there is impairment or not, if there is impairment and management is uncertain about amount (value) and do not provide impairment in FS then its limitation of scope, however if auditor are sure that there is impairment and management is doubtful about any impairment of an asset than this would be disagreement.
Normally audit work is carried out on draft FS, however it is very odd when audit report due to issue and final set of FS is not available (likely to be a limitation of scope from my point of view)
But, in response to Kay, if the directors say there is impairment but cannot quantify so neither provide nor explain, then auditors must surely be in disagreement.
It’s a mental minefield out there!
I thought Management and the Auditor are in agreement that an impairment has occurred. The problem is management does not have the capacity to estimate the impairment. Hence it appears to be a limitation of scope. Please clarify.
First of all, I find it hard to imagine a situation where it would be impossible to reach a reasonable estimation of the value of an intangible and therefore also the extent of any impairment.
Secondly, if both management and auditor agree that an impairment has occurred but management is unable to quantify, it would seem to me to be appropriate for management to make a full disclosure note explaining the event which has caused the impairment, the fact that the asset carrying value has not been reduced because of the impossibility of quantification and an explanation WHY it’s not quantifiable.
If management is unwilling to make that disclosure, then I suggest that the auditor should qualify their opinion on the grounds of disagreement with the (non) disclosure of a material matter
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