Право /12. Предпринимательское и банковское право
Нечухаева Олеся
Владимировна
Аспирантка кафедры предпринимательского права
Московского государственного юридического университета
имени О.Е. Кутафина (МГЮА)
Nechukhaeva O.V.
Moscow State University of
Law by the name
O.E. Kutafin (MSLA), Russia
Auditors` reports
to users of financial statements and to the management in the United States and
the United Kingdom and Northern Ireland
The auditor`s report is a formal opinion, or disclaimer thereof, issued
by either an internal auditor or an independent external auditor as a
result of an internal or external audit or evaluation performed on a
legal entity or subdivision thereof (called an ‘auditee’). The report is subsequently
provided to a ‘user’ (such as an individual, a group of persons, a company, a government, or even the general public, among
others) as an assurance
service in order for the user to make decisions based on the results of the
audit [1].
Auditor`s report is a culminating
phase of audit and communicates to shareholders, and other users of the
entity`s financial statements, and includes the auditor`s opinion as to whether
or not financial statements give a true and fair view of their company`s
financial position and meet the statutory requirements.
In the United Kingdom and Northern
Ireland conducting auditing is regulated by the following acts:
·
Companies Act 2006;
·
Internal Standard on Auditing (ISA)
260 (Redrafted): Communication with those Charged with Governance (IFAC, 2007);
·
Internal Standard on Auditing (ISA)
265 (Redrafted): Communication Deficiencies in Internal Control (IFAC, 2007);
·
Internal Standard on Auditing (ISA)
700 (Redrafted): Forming an Opinion and Reporting on Financial Statements
(IFAC, June 2008)
·
Internal Standard on Auditing (ISA)
705 (Redrafted): Modifications to the Opinion in the Independent Auditor`s
Report (IFAC, June 2008);
·
Internal Standard on Auditing (ISA)
706 (Redrafted): Emphasis of Matter Paragraphs and Other Matter(s) Paragraphs
in the Independent Auditor`s Report (IFAC, June 2008).
Auditors in the USA comply with
auditing guidance issued by the American Institute of Certified Public
Accountants (AICPA), the Public Company Accounting Oversight Board (PCAOB), and
the International Auditing and Assurance Standards Board (IAASB).
In 2004 the AICA`s Auditing
Standards Board (ASB) developed a plan to converge U.S. generally accepted
auditing standards (GAAS) with the International Standards on Auditing (ISAs).
The ASB`s plan also included avoiding unnecessary conflict with PCAOB Auditing
Standards (ASs). As part of its project, the ASB began redrafting all of the
auditing section in Codification of Statements on Auditing Standards (i.e.,
GAAS) and converging its standards with the ISAs [2]. The ASB expects that
nearly all ISA requirements will also be requirements of U.S. However, the ASB
has noted that some differences between its new standards and those of both the
IAASB and the PCAOB are necessary because of legal, regulatory, and other considerations.
The project is expected to be finished on the 12th of December 2012
[3, P.13].
We can see the tendency of adopting
or incorporating ISA by the USA with reserving its specific characteristics.
According to the IAASB the USA are
not the only country, adopting ISA. Over 100 countries are using or are in the
process of adopting or incorporating International standards on Auditing
(ISAs), issued by the IAASB, into their national auditing standards or using
them as a basis for preparing national auditing standards. ISAs are intended
for use in all audits — publicly traded companies, private business of all
sizes and government entities at all levels [4].
There are basically two types of
audit report the United Kingdom and Northern Ireland:
·
An unmodified (or unqualified)
report. In order to express an unmodified (or unqualified) audit opinion, the
auditor should gather and evaluate appropriate audit evidence on which to base
a conclusion as to whether the auditee`s financial statements have been
prepared using appropriate accounting policies which have been consistently
applied, estimated amounts in the financial statements are reasonable, the
amounts and disclosures in the financial statements are presented so as to
enable users to gain a proper understanding of the entity`s financial position,
profit or loss, and cash flow, the financial statement are free from material
misstatements;
·
A modified report.
Modified reports may be classified
as containing:
·
A qualified (or an “except for”)
opinion. The auditor shall express a qualified opinion when he/she, having
obtained sufficient appropriate audit evidence, concludes that misstatements,
individually or in the aggregate, are material, but not pervasive, to the
financial statements. Or he/she is unable to obtain sufficient appropriate
audit evidence on which to base the opinion, but the auditor concludes that the
possible effects on the financial statements of undetected misstatements, if
any, could be material but not pervasive;
·
An adverse opinion. The auditor
shall express an adverse opinion when he/she, having obtained sufficient
appropriate audit evidence, concludes that misstatements, individually or in
the aggregate, are both material and pervasive to the financial statements;
·
A disclaimer of opinion. The auditor
shall disclaim an opinion when the auditor is unable to obtain sufficient
appropriate audit evidence on which to base the opinion, and the auditor
concludes that possible on the financial statements of undetected
misstatements, if any, could be both material and pervasive.
We can underline that common basis
for expressing these types of opinion are following:
·
The auditor considers that the
financial statements are not free from material misstatements;
·
The auditor can`t obtain sufficient
appropriate audit evidence.
ISA 705 (Redrafted) Modifications to
the Opinion in the Independent Auditor`s Report contain a table, illustrating
how the auditor`s judgment about the nature of the matter giving rise to the
modification, and pervasiveness of its effects or possible effects on the
financial statements, affects the type of opinion to be expressed [5].
|
Nature of Matter
Giving Rise |
Auditor`s Judgment about the
Pervasiveness of the Effects or Possible Effects on the Financial
Statements |
|
|
Material but Not
Pervasive |
Material and Pervasive |
|
|
Financial Statements are
materially misstated |
Qualified opinion |
Adverse opinion |
|
Inability to obtain sufficient
appropriate audit evidence |
Qualified opinion |
Disclaimer of opinion |
There are five basic types of
financial statement auditing reports in the USA [3, P.868]:
1.
Standard unqualified report;
2.
Unqualified report with an
explanatory paragraph – the explanatory paragraph may explain the following:
·
A justified departure from generally
accepted accounting principles (GAAP);
·
Inconsistent application of GAAP;
·
Substantial doubt about the client
being a going concern;
·
The emphasis of some matter, such as
unusually important subsequent events, risks, or uncertainties associated with
contingencies or significant estimates;
·
Reference to other auditors;
3.
Qualified report because of:
·
A material unjustified departure
from GAAP;
·
Inadequate disclosure;
·
A scope limitation;
4.
Adverse report because of:
·
A pervasive and material unjustified
departure from GAAP;
·
Lack of important disclosures;
5.
Disclaimer of opinion report because
the auditor either lacked independence or was unable to obtain sufficient
evidence to form an opinion on the overall fairness of the financial
statements, which may occur because of:
·
A scope limitation;
·
Substantial doubt about the client
being a going concern;
·
The CPA firm not being engaged to
perform an audit.
The general classifications of
auditor`s reports in the United Kingdom and Northern Ireland and in the USA are
very similar, but they also have distinguishes such as unqualified report with
an explanatory paragraph in the USA as an independent type of auditor`s report
and different bases of expressing determined type of auditor`s report such as
departures from GAAP in the USA and misstatements (i.e., the information
suggested to be in there is financial statement is not actually what is written
in there) in the United Kingdom and Northern Ireland.
According to my opinion the tendency
of adopting or incorporating ISAs by the USA will result in gradual reduction
of distinctions in the US and the United Kingdom and Northern Ireland auditing
practice.
We can see a similar way in Russia
auditing practice. The first step has been ISAs adoption and edition of Federal
Standards on Auditing on their basis. And now there are some attempts of
finding a way of ISAs application directly.
BIBLIOGRAPHY
1. Academic Dictionaries and Encyclopedias // http://en.academic.ru/dic.nsf/enwiki/750144#cite_note-fundamental-0
2. http://www.aicpa.org/RESEARCH/STANDARDS/AUDITATTEST/ASB/Pages/AuditingStandardsBoard.aspx
3. Gambling Aundrey A., Rittenberg Larry E., Johnstone Karla M.. Auditing.
Canada, 2012.
4. http://www.icai.org/resource_file/7492CFN-IAASB_Public_Member_2009.pdf
5. Internal Standard on Auditing (ISA) 705 (Redrafted): Modifications to
the Opinion in the Independent Auditor`s Report // http://www.slideshare.net/guest4a971d/isa-705-modifications-to-the-opinion-in-the-independent-auditors-report-en-ingles
6. Ershova I.V., Ershov A.A. Legal regulation of audit in the Russian
Federation. M., 2011.
7. Porter Brenda, Simon Jon, Hatherly David. Principles of External
Auditing. Croydon, 2011.