You are a newly qualified accountant who works for the audit firm Harrison Ford
ID: 2424965 • Letter: Y
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
Distribution of the annual report to shareholders
The contractor is liable to distribute the annual report to shareholders.
Delivery of the audit report to the entity.
The Contractor shall deliver the audit report to the Entity and the State, based on the schedule established in Appendices A, B and C. If the Contractor cannot deliver the audit report to the Entity and the State on the date specified in the Appendices, the Contractor shall notify the Entity and the State in writing of that fact, and the reason(s) therefore. Under Section 2-7-503(3)(a), MCA, all audits must be completed and the reports issued within one year from the close of the last fiscal year covered by the audit. If the audit is conducted in accordance with the provisions of OMB Circular A-133, the Contractor shall also complete the audit and issue the audit report within the time period required by that Circular, unless a longer period has been agreed to in advance by the federal cognizant or oversight agency for audit. If the Entity has requested and received an extension of the A-133 due date from a federal agency, the Entity shall submit a copy of the approved extension to the State.
Maintaining adequate internal controls.
A report on internal control over financial reporting and on compliance and other matters based on an audit of financial statements performed in accordance with Government Auditing Standards. If applicable, this report must include information about fraud, illegal acts, significant violations of provisions of contracts or grant agreements, and significant abuse, or indications of these acts.
Testing internal control procedures & Performing test of controls.
The Contractor shall include the following tests of compliance and other matters as required by Government Auditing Standards. The Contractor shall determine whether:
(1) the Entity has complied with all appropriate statutes and regulations, as required by Section 2-7-502, MCA;
(2) the Entity has complied with the provisions of each of its revenue bond ordinances and indenture agreements;
Expressing an opinion on the financial report & Obtaining and evaluating evidence concerning the financial report.
The Contractor shall conduct the audit in accordance with (i) generally accepted auditing standards adopted by the American Institute of Certified Public Accountants and (ii) the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. The objective of the audit is the expression of the Contractor’s opinion on the Entity’s financial statements. The Contractor shall obtain reasonable rather than absolute assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. Accordingly, a material misstatement may remain undetected.
Ensuring the financial report is presented in accordance with standards & Selecting appropriate accounting policies.
The final audit report must contain basic financial statements and required supplementary information consistent with financial reporting standards in effect for the year or years being audited, as established by the Governmental Accounting Standards Board. In addition, other supplementary information required by provisions within this contract and by OMB Circular A-133 must also be included, if applicable.
A. The final audit report must also contain any other financial statements and supporting schedules and information as agreed upon by the Entity and Contractor.
B. The financial statements presented must be in accordance with the financial reporting standards in effect for the year or years being audited, as described above. If the accounting records or other circumstances do not permit financial statements to comply with these requirements, the Contractor shall notify the State of those conditions and describe the financial statements that will be presented. The applicable auditor’s reports must also be modified as required to reflect a departure from generally accepted accounting principles.
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