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Unformatted text preview: The following factors influence the auditor’s consideration of whether the data are sufficiently
• whether the data were obtained from sources within the entity or from independent external
• whether any internal data can be corroborated by external data;
• whether the data is relied upon by others;
• whether data from sources within the entity were developed by persons who are not directly
responsible for the accuracy of the amount being audited;.
• whether the data were developed under a reliable system with adequate controls such as
supervision and competence;
• whether the auditor’s expectations regarding recorded amounts were developed using data from a
variety of sources;
• whether the auditor has performed substantive tests of the data to determine whether the data are
• alternatively, test whether controls over the data’s completeness, existence and accuracy are
operating effectively to determine whether the data are sufficiently reliable; and
• if non-financial data (for example, quantities and types of items produced) will be used in
performing analytical procedures the auditor needs an appropriate basis for determining whether
the non-financial data are sufficiently reliable for purposes of performing the analytical
procedures. For example, there might be a reduced risk of misstatement in the non-financial data
when regulatory authorities or other independent parties verify the data. 56 QUESTION 13 (6 marks)
Audit of Estimates (CICA 5305 Audit of Accounting Estimates and AuG-31 Applying
Materiality and Audit Risk Concepts in Conducting an Audit)
Management's recorded estimate of $110,000 does not fall within the current auditor's range so the
auditor would ordinarily conclude that the recorded amount is not reasonable. The difference
between the management's estimate and the low end of the auditor's range is not material in itself but
significant in that it would not leave much room for other items. It should be considered if there is
any cumulative bias in all of the estimates reviewed in other parts of the file. For example, if all
estimates are at the low end of the auditor’s range it may indicate a bias.
The following are examples of specific procedures.
• Discuss with management to obtain an understanding of the procedures involved in
preparing the estimate to see if it can be revised.
• Review transactions between the date of the balance sheet and the date of the auditor’s
report. This procedure may provide the best evidence because it is actual results.
• The auditor should try to develop a point estimate to make the final decision or assessment
on management’s estimate.
How to aggregate any difference if change is not made:
In determining the amount of the misstatements to be aggregated with respect to a management
estimate, the auditor considers the "closest reasonable estimate". That may be either a range of
acceptable amounts or a point estimate, if that is a better estimate than any other amount. Since
management's recorded estimate of $110,000 falls outside the auditor's range of acceptable amounts,
the difference between the recorded amount and the amount at the closest end of the auditor's range
would be aggregated as a misstatement.
ASL recorded an amount of $110,000 as the allowance. The amount by which the recorded estimate
falls outside the determined range ($20,000) would be aggregated as a misstatement. If there is a
refined estimate to come up with a point estimate, then the auditor would compare the point estimate
to the amount recorded by management and include any difference in the aggregation of
The auditor must also consider if the disclosure is adequate. (CICA 1508 - Measurement
Uncertainty) If the auditor is unable to obtain evidence to support the estimate there is a scope issue
and the auditor must assess the impact on the report. It could be a qualification or a denial of
opinion but as the auditor has the information to come up with an estimate it is unlikely. If the
auditor disagrees with management’s estimate then there is a GAAP departure and the auditor must
assess the impact on the report. It could be either qualified or adverse. This will depend on other
misstatements since the amount is not material in itself.
57 QUESTION 14 (6 marks)
Audit Reports-Reservations (CICA 5510,Reserations in the Auditor's Reports, Example N)
The audit report should be dated September 6 as the fieldwork was substantially complete at that
date. If OPL will not allow disclosure of the claims then there is a departure from GAAP. The
departure is a failure to disclose information with respect to an unasserted claim or contingent
liability. (CICA 3290) If OPL will not allow CA to obtain information on the potential claims then
there is also a scope limitation. The auditor must decide on the type of reservation required based on
the materiality and the users of the financial statements. The auditor must assess management's
integrity or the relevance of the disclosure and if they are withholding information or whether it will
be to the detriment of OPL. The scope limitation does not automatically require a denial of an
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