What is a financial audit? Let's take a look...
Many Kiwi businesses and organisations elect or are required to have annual audits of their financial...
The audit profession is assessing what the Covid-19 lockdown and flow on economic downturn means for each entity.
There are a wide range of impacts, including:
The audit report is the auditor’s key tool to communicate the key issues from an audit perspective to stakeholders. Management and directors take responsibility for ensuring that the financial statements themselves clearly communicate the information stakeholders need to be aware of, and we are certainly seeing greater disclosure as a result of the impact of COVID-19.
During these unprecedented times, we are likely to see a far greater number of modified audit reports with the auditor wanting to communicate just what you need to be aware of. A modified audit report is not necessarily a cause for concern.
Hot tip read the audit report! If you have never read an audit report before you may be pleasantly surprised. These audit reports may need some decoding as auditors are bound by the need to comply with the auditing standards when drafting these reports. Here’s your guide to decoding audit reports:”¹
|Type of audit report||What this means?||Example and explanation|
|Unqualified||Nothing to see here - all is good||This is your bog-standard audit report. The financial statements have been audited and there is nothing in particular you need to be aware of.|
|Key audit matters||These are the areas we spent the most time looking into||For most businesses, you will see something referred to in this section. It doesn't necessarily mean that something is wrong, it just means there was an area that the audit team needed to look into a bit more closely.
A common example is valuation of assets, both physical assets and also intangible assets, such as company brands and goodwill. Balances that involve judgement and estimation are likely to feature here.
|Emphasis of matter||We really think you should know about this specific matter (signposting to where you can find more information in the financial statements themselves). We think it's important and agree with what's included in the financial statements about this matter.||These are the ‘but wait’ paragraphs.
Examples include an emphasis of matter alerting readers to the subsequent event disclosure which outlines details of the COVID-19 lockdown and an overview of the impact this has had on the entity.
Material uncertainty relating to going concern we think that on balance the entity is going to be able to ride out the COVID-19 situation. However, there is a significant amount of uncertainty involved and we want you to be aware of this.
|Qualified||We don't agree with what the financial statements say about this particular area or we just couldn't get enough information. We'll let you know what area this is and why we couldn't get the information or disagree.||A qualification doesn’t impact on the whole financial statements just on specific areas.
An example you might see is a qualification in relation to inventory where the audit team weren’t able to attend the stocktake because of the need to adhere to social distancing restrictions.
|Disclaimer of opinion||Stop - we can't get enough information to be able to give you an opinion on these financial statements. There may be quite valid reasons for this. But you can't rely on them.||Essentially the opinion itself is withheld.
Examples of where you might see a disclaimer of opinion include going concern (i.e. we’re not sure this entity is not going to be able to operate for the next 12 months). Or perhaps for a disclaimer for an investment property company given the level of uncertainty around the valuation and rental income (i.e. we just can’t get enough comfort to give you an opinion on what is included in the financial statements).
We hope you and your families are staying safe during this time. If you need any help decoding audit reports or would like to discuss the impact that Covid-19 is having on your business please get in touch, we’d be only too happy to help.
DISCLAIMER: Our team is dedicated to helping you continue with business as usual, as much as you can. Information on government help is changing constantly and within hours of articles being added, the specifics may be out of date or only partially accurate. While we endeavour to keep this website accurate and current, our top priority is providing our clients with dedicated and relevant personal advice. If you need specific and up-to-date information, please seek help from your usual advisor directly.
No liability is assumed by Baker Tilly Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this website. It is recommended that you consult your advisor before acting on this information.
Cookies help us understand how you use our website, so we can serve up the right information here and in our other marketing.