You are a newly qualified accountant who works for the audit firm Harrison Ford

Question

You are a newly qualified accountant who works for the audit firm Harrison Ford & Co. You have been approached by a potential new client, Calista Electronics Pty Ltd, who is looking for an audit firm to carry out an audit on its annual financial report prepared in accordance with the Corporations Act. The managing director, Calista Flockhart, is not sure exactly what an audit involves and what are the responsibilities of the auditor.

Required: Prepare notes for a meeting with Calista Flockhart which identifies the responsibilities of the auditor and the responsibilities of management.

The notes should cover the following:

Distribution of the annual report to shareholders.

Delivery of the audit report to the entity.

Obtaining and evaluating evidence concerning the financial report.

Preparation and presentation of the financial report.

Maintaining adequate internal controls.

Testing internal control procedures.

Expressing an opinion on the financial report.

Selecting appropriate accounting policies.

Ensuring the financial report is presented in accordance with standards.

Performing test of controls.

Explanation / Answer

Notes:-

(i)             Distribution of the annual report to shareholders : This is the responsibility of management. Auditor is responsible for verifying the audit report and financial statements accompanying the audit report which form part of Annual Report.

(ii)            Delivery of the audit report to the entity : Auditor is responsible to issue and deliver the audit report to the entity. To perform audit, management of the entity needs to provide required data and information to the auditor.

(iii)           Obtaining and evaluating evidence concerning the financial report: This is a very important aspect of audit. This is a responsibility of auditor to substantiate the audit process.

(iv)          Preparation and presentation of the financial report : Preparation and presentation of financial statements is the responsibility of entity being audited. Auditor is only responsible to provide opinion on true and fair view of those financial statements.

(v)           Maintaining adequate internal controls: Responsibility of management. Auditor’s responsibility is to check whether those controls are in place or not and appropriately report to the management.

(vi)          Testing internal control procedures: Auditor’s responsibility

(vii)         Expressing an opinion on the financial report: Auditor’s responsibility

(viii)        Selecting appropriate accounting policies: Management’s responsibility

(ix)          Ensuring the financial report is presented in accordance with standards : Auditor’s responsibility to check whether financials are prepared and presented in accordance with relevant accounting framework applicable to the client entity based on the laws applicable

(x) Performing test of controls: Auditor’s responsibility

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