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For a new audit client, If previous year FS have been prepared using inappropriate accounting policies, what would impact on this year audit in the context of Audit risk?
Further, if current year FS are prepared using correct accounting policies does this still lead to modification of audit opinion if a client does not restate its opening balances?
It would depend on what is affected by the accounting policy, e.g.:
– non-depreciation – – – – > overstatement of non-current assets, understatement of deprecation expense and overstatement of profit (for current year) and same for comparatives (prior year) – also overstatement of reserves/accumulated profit (last y/e closing position is this y/e opening position).
Correct treatment this year would include a prior period adjustment to correct the opening position.
If change in policy is applied only prospectively, when it should have been applied retrospectively, that is non-compliance with IAS 8 and the audit opinion would be modified accordingly.
Great Explanation! Thank you, Kim,
Thank you for your appreciation!