Assume the 2020 fiscal year-end audit of NorthJet is completed and that Burt and Cameron Accounting has determined that the financial statements of NorthJet are presented fairly, in all material respects, except for the area of capital leases. Capital leases are material. Your audit work indicated the two capital leases should be accounted for as capital leases; however, NorthJet did not want to do this. The amount is material but not pervasive to the financial statements. Draft the expected audit report that will be issued by Burt and Cameron Accounting for this engagement. Assume that the financial statements of NorthJet are prepared under one of the two general purpose accounting frameworks used in Canada.
The audit report follows this format:
The main components of the auditor’s report are required by CAS 700 (Revised) to be in writing. The required components include:
- 1.Title
- 2.Addressee
- 3.Opinion paragraph:
- •includes the auditor’s opinion on whether the financial statements give a true and fair view or are presented fairly, in all material respects, in accordance with the applicable financial reporting framework
- •identifies the entity whose financial statements have been audited
- •states that the financial statements have been audited
- •identifies the title of each of the statements that comprise the complete financial statements
- •refers to the summary of significant accounting policies and other explanatory notes
- •specifies the date and period covered by the financial statements
- 4.Basis for opinion:
- •states that the audit was conducted in accordance with Canadian generally accepted auditing standards
- •refers to the section of the report that refers to the auditor’s responsibilities
- •provides an affirmative statement about the auditor’s independence and fulfillment of relevant ethical responsibilities, and the identification of the relevant ethical requirements applicable within Canada
- •states that the audit evidence obtained is sufficient and appropriate to provide a basis for the auditor’s opinion
- 5.Key audit matters- when required by law or regulation or if the auditor elects to include KAMs
- 6.Management’s responsibility for the financial statements, which includes:
- •establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial statements that are free from material misstatements, whether due to fraud or error
- •a description of management’s responsibility for going concern
- 7.Auditor’s responsibility for the financial statements, which is to:
- •obtain reasonable assurance about whether the financial statements, as a whole, are free from material misstatement, whether due to fraud or error and express an opinion on the financial statements based on the audit
- •state that reasonable assurance is a high level of assurance, but it is not a guarantee that an audit will always detect material misstatements when they exist
- •state that misstatements can arise from fraud or error
- •state that the auditor exercises professional judgment and maintains professional skepticism throughout the audit
- •includes an enhanced description of the responsibilities of the auditor and key features of an audit, together with the provision that certain components of this description may be presented in an appendix to the auditor’s report if referenced in the report, or on a website if permitted by law, regulation or national auditing standards
- 8.Other reporting responsibilities; for example, in some cases auditors may be required to report on other matters
- 9.The name of the engagement partner for listed entities and the auditor’s signature either in the firm’s name, the personal name of the auditor, or both (depending on the legislative requirements)
- 10.Date of the report
- 11.Auditor’s address
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