Listed companies have to include, in their financial
statements, a narrative report from the directors which:
statements, a narrative report from the directors which:
·
Identifies the organization’s business objectives;
Identifies the organization’s business objectives;
·
Identifies and assesses risks which threaten
achievement of those objectives;
Identifies and assesses risks which threaten
achievement of those objectives;
·
Reports on the design and operation of controls to
manage those risks;
Reports on the design and operation of controls to
manage those risks;
·
Reports on the process of monitoring and reviewing
those controls to ensure they are operating correctly.
Reports on the process of monitoring and reviewing
those controls to ensure they are operating correctly.
We will covering the detail of risk identifications
and management and the whole system of internal controls in this book-what we
are concerned about now is simply the report the directors make.
and management and the whole system of internal controls in this book-what we
are concerned about now is simply the report the directors make.
ISA 720 requires the auditors only to read the report
and comment on any inconsistencies except that part of the duties of the
directors is to carry out a review of the internal controls and to report to
the shareholders they have done so. The auditors have to verify that the
directors have, in fact, carried out such a review.
and comment on any inconsistencies except that part of the duties of the
directors is to carry out a review of the internal controls and to report to
the shareholders they have done so. The auditors have to verify that the
directors have, in fact, carried out such a review.
The work the auditors carry out is:
·
Enquire of the directors as to the process they use to
carry out review.
Enquire of the directors as to the process they use to
carry out review.
·
Review the evidence gathered by the directors which
they are going to use to support their statement to the shareholders and assess
whether or not it is sufficient and appropriate.
Review the evidence gathered by the directors which
they are going to use to support their statement to the shareholders and assess
whether or not it is sufficient and appropriate.
·
Match what the directors are saying with the evidence
from other audit procedures and the auditors’ own view of the internal control
environment.
Match what the directors are saying with the evidence
from other audit procedures and the auditors’ own view of the internal control
environment.
If the auditors are not
satisfied with the directors’ disclosure they will include an explanatory
comment in their auditors’ report
satisfied with the directors’ disclosure they will include an explanatory
comment in their auditors’ report