CORRECTION OF FINANCIAL STATEMENTS IN ACCORDANCE WITH PARAGRAPH PS 2120.31
8 — Corresponding Figures
Qualification Arising from a Correction of Financial Statements in
Accordance with Paragraph PS 2120.31 —Effects of the Matter on the
Comparability of the Current and Prior Years — Same Auditor for Prior Year
Report illustrative of the following circumstances:
• The financial statements for the years ended March 31, 2011 and
2012 are prepared in accordance with Canadian public sector
accounting standards.
• The auditor is required to report only on the current year financial
statements.
• The auditor for the current year was also the auditor for the prior
year.
• The auditor's report on the prior year, as previously issued,
included a qualified opinion arising from a departure from the
financial reporting framework because of a failure to record a
material liability as at March 31, 2011.
• The departure from the financial reporting framework has been
corrected in accordance with paragraph PS 2120.31 of CPA Canada
Public Sector Accounting Handbook by the recognition of an
expense and a liability in the current year’s financial statements.
• The entity has decided to include a note to the 2012 financial
statements explaining the matter.
• The audit is conducted in accordance with Canadian Auditing
Standards.
(Please read Introduction to Illustrative Reports)
1. Paragraph 11 of CAS 710, Comparative Information —Corresponding
Figures and Comparative Financial Statements, states that if the
auditor's report on the prior period, as previously issued, included
a qualified opinion, a disclaimer of opinion, or an adverse opinion
and the matter that gave rise to the modification is unresolved, the
auditor shall modify the auditor's opinion on the current period's
financial statements.
2. Paragraph 11(b) of CAS 710 requires that in the Basis for
Modification paragraph in the auditor's report, when the effects or
possible effects of the matter on the current period’s figures are
not material, the auditor shall explain that the audit opinion has
been modified because of the effects or possible effects of the
unresolved matter on the comparability of the current period's
figures and the corresponding figures.
3. Because the comparative information in the 2011 financial
statements is still materially misstated, the matter has not been
resolved for the purposes of paragraph 11 of CAS 710 even though
the entity correctly accounted for the error in the current year’s
figures in the 2012 financial statements for financial reporting
purposes in accordance with paragraph PS 2120.31. Accordingly
the auditor would apply paragraph 11(b) of CAS 710 and modify the
auditor’s opinion because, notwithstanding the correction of the
error, there are effects on the comparability of the current year’s
figures and the corresponding figures.
4. This Illustrative Report can be compared with the auditor’s report
under the comparative financial statements reporting approach.
Under this approach, the auditor’s opinion on the current year’s
figures in the 2012 financial statements would be an unmodified
opinion because the entity correctly accounted for the error in
accordance with paragraph PS 2120.31. Also, the auditor’s report
on the comparative information in the 2012 financial statements
would contain a qualified opinion because the financial statements
contain a material departure from Canadian public sector
accounting standards.
INDEPENDENT AUDITOR'S REPORT
[Appropriate Addressee]
We have audited the accompanying financial statements of ABC
Government Organization, which comprise the statement of financial
position as at March 31, 2012, and the statements of operations, change
in net debt and cash flow for the year then ended, and a summary of
significant accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of
these financial statements in accordance with Canadian public sector
accounting standards, and for such internal control as management
determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit in accordance with
Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgment, including
the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
entity's preparation and fair presentation of the financial statements
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our qualified audit opinion.
Basis for Qualified Opinion
As discussed in Note X to the financial statements, ABC Government
Organization did not accrue for liabilities of $xxx for XYZ program at
March 31, 2011, which constitutes a departure from Canadian public
sector accounting standards. The program expenses should have been
increased and the results of operations should have been decreased
for the year ended March 31, 2011 by $xxx, and accrued liabilities and
net debt should have been increased as at March 31, 2011 by $xxx. This
caused us to modify our opinion on the financial statements for that
year.
In accordance with Canadian public sector accounting standards, ABC
Government Organization corrected the error in the current year's
figures rather than correcting the comparative information. Our opinion
on the current year’s financial statements is modified because of the
effects of this matter on the comparability of the current year’s figures
and the comparative information.
Qualified Opinion
In our opinion, except for the effects on the comparative information of
the matter described in the Basis for Qualified Opinion paragraph, the
financial statements present fairly, in all material respects, the financial
position of ABC Government Organization as at March 31, 2012 and
the results of its operations, changes in its net debt, and its cash flows
for the year ended March 31, 2012 in accordance with Canadian public
sector accounting standards.
[Auditor's signature]
[Date of the auditor's report]
[Auditor's address]
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