IFRS Adoption and Audit Opinion

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Asnake E
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IFRS Adoption and Audit Opinion

Post by Asnake E »

Greetings to you

I have questions on the auditors' opinion in relation to the audit of the financial statements of a first time IFRS adopter.
Below are the audit findings
The first time adopter has departed from the IFRS in the following
1. The accounting policy notes for the financial instruments are not as per IFRS 9
2. The accounting policy notes for the revenue are not as per IFRS 15
3. Accounting policy note is not included for related parties
4. The employee benefits is not calculated as per the requirements of IAS 19
5. The lease has not been measured as required by IFRS 16
6. The requirements of IFRS 1 are not complied with in that the retained earnings was not shown as retained earnings as per the previous GAAP add/less the first time IFRS adoption adjustments to arrive at the restated retained earnings balance at the opening statement of financial position

My questions:
1. What should be the modifications to the auditors opinion as per ISA 705? I mean disagreement, scope limitation and adverse or except for
2. Please share the wordings of the opinion

Thank you.
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Marek Muc
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Re: IFRS Adoption and Audit Opinion

Post by Marek Muc »

OMG, why so many issues?

it will be either qualified opinion or adverse opinion, adverse being more likely judging from the list of issues reported
Asnake E
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Re: IFRS Adoption and Audit Opinion

Post by Asnake E »

Thank you.

Yes, so many issues. The conversion was done by inexperienced consultants and that the client finance team has no knowledge of IFRS.

But my concerns are
1. As mentioned, some of the findings are on accounting policy and disclosures. The client doesn't have complex financial instruments and as a result there are no significant recognition and measurement issues. Same applies for revenue
2. The measurement findings relate to lease and employee benefits that are not pervasive to the financial statements

Given these facts: wouldn't it be appropriate to issue a qualified except for opinion?
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Marek Muc
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Re: IFRS Adoption and Audit Opinion

Post by Marek Muc »

we won't be able to judge it here I'm afraid
Asnake E
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Re: IFRS Adoption and Audit Opinion

Post by Asnake E »

Thank you for the help.
JRSB
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Re: IFRS Adoption and Audit Opinion

Post by JRSB »

That's not an IFRS question, but one for local country law regarding audit opinions, alongside the auditing standards used.

However it sounds like a disclaimer of opinion to me - how can an auditor sign off that they are properly prepared under IFRS.....
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Marek Muc
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Re: IFRS Adoption and Audit Opinion

Post by Marek Muc »

this is a 'General accounting and financial reporting discussion' so non-IFRS questions are welcome here ;)

Disclaimer of opinion is issued where there is insufficient evidence to form an opinion, which is not the case here
Asnake E
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Re: IFRS Adoption and Audit Opinion

Post by Asnake E »

Thank you for the invaluable insights.
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nauman
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Re: IFRS Adoption and Audit Opinion

Post by nauman »

If preparing financial statements under IFRS is not a legal requirement as per corporate law governing the entity, you can prepare special purpose financial statements and get those audited. I am no longer in audit profession but the auditors will be able to give a clear opinion (under a different audit standard) if the issue is only compliance with IFRS.
Leo
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Re: IFRS Adoption and Audit Opinion

Post by Leo »

Why doesn't correct the accounting disclosure? I mean if it's only wording problems, they would correct it no?

Are you telling me that maybe, for IFRS15 and IFRS16, the issues came from the measurements?
Asnake E
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Re: IFRS Adoption and Audit Opinion

Post by Asnake E »

Thank you for the reply. The issues are

1. The consultants who assist the entity refused to make the required disclosures
2. Yes, for IFRS15 and IFRS16, the issues came from the measurements
Leo
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Re: IFRS Adoption and Audit Opinion

Post by Leo »

That's bizarre because the consultants are working for the entity, and the entity's objective is to get the financial report certified IFRS by auditors.

However, the company that I'm working with also transited into IFRS, and we have worked on at least 15 IFRS norms from IAS1, IFRS1 to IAS38 IFRS16, including IFRIC21 & 23.

The amount of work for a company which has first adopted IFRS 5 years ago compared to a company which is first adopting IFRS now is incomparable.

So, my question would be, as auditors, and for no listed companies (very important to mention), is there a "light audit approach" for the first year of IFRS adoption? and work in progress from year on year?

Thank you

PS: the consulting fees paid to transit into IFRS for Small & middle-size companies could easily scare them away. So, from that point, this is in contradiction with IASB's objective to spread IFRS application to all companies worldwide.
Asnake E
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Re: IFRS Adoption and Audit Opinion

Post by Asnake E »

The consultants have the view that they have done the conversion to IFRS appropriately. However we the auditors, of course have the knowledge and experience better than the consultants in IFRS, have a different opinion.

The last solution we have now is to rework some section of the financial statements by auditors independent of the audit team and charge client for the additional work. The client will also recover the fee from the consultants.

The client is not a listed company. As a matter of fact we don’t have stock market in our country. However, the regulator set quantitative thresholds (of revenue, total assets etc) and require companies to adopt full IFRS.
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Marek Muc
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Re: IFRS Adoption and Audit Opinion

Post by Marek Muc »

I don't think a 'light' audit approach is possible. IASB, when they issued IFRS 1, had to find a balance between the ease of transition and a reliable starting point for future reporting periods.
Asnake E
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Re: IFRS Adoption and Audit Opinion

Post by Asnake E »

Yes, you are right.
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