Company – Listed (non-PIE)
Engagement objectives
Our primary responsibility as your auditor is to form and express an opinion as to whether the financial statements show a true and fair view and comply with the Companies Act 2006.
We also report to you whether, in our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and the Directors’ Report is consistent with the financial statements and the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. We are also required to state, in the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, whether or not we identified material misstatements in the Strategic Report and the Directors’ Report
Our other responsibilities comprise:
- consideration of whether other information contained in the Annual Report ( for example, Chairman’s Statement, Operating and Financial Review, Chief Executive’s review, Corporate Governance Statement, unaudited part of the Directors’ Remuneration Report, the Strategic Report, and Directors’ Report etc.) is consistent with the audited financial statements;
- consideration of whether, in the light of our understanding of the company and its environment obtained in the course of the audit, we have identified any material misstatements in the strategic report or directors’ report;
- reporting to you where the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate or where the directors have not disclosed in the financial statements any material uncertainties that may cast significant doubt about the company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue;
- reporting to you if, in our opinion:
- adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
- the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or
- certain disclosures of directors’ remuneration specified by law are not made; or
- we have not received all the information and explanations we require for our audit.
We will plan our work with a view to ensuring:
- minimum disruption to your staff and operations;
- that reports submitted to you are constructive and clear, focusing on the issues that matter;
- that surprises are avoided and that good communications are maintained with you throughout the assignment;
- our engagement letter sets out in detail our respective responsibilities.
Reliance on internal controls
During the planning phase of our audit we will re-confirm our understanding of the business environment established by the directors, including internal controls, relevant to the audit. Where we plan to place reliance on internal controls, we will test the operation of those controls. If our examination of internal controls leads us to believe there may be significant deficiencies therein, we will report our findings to you.Qualitative aspects of accounting practices and financial reporting
We will discuss with management and will report to you any areas where our experience as auditor leads us to believe that accounting practices and financial reporting could be improved.
Materiality
The directors, or members of a limited liability partnership, have primary responsibility for ensuring that annual financial statements are free from material misstatement or error. In accounting terms, a material error is one that, if it were unadjusted, would cause a user of the financial statements to alter his view of those statements or the results or the financial position of the entity being reported on. Materiality, therefore, is incapable of monetary definition, since it has both quantitative and qualitative elements. It is necessary to consider not only the impact of an error on the financial statements as a whole, but also on the individual accounting items affected. Additionally, the cumulative impact of all unadjusted errors must be considered.Auditors examine financial statements on a test basis. The level of testing we will carry out is based on our assessment of the risk that an item in the financial statements may be materially misstated (see below). As such, as well as for the reasons stated in the preceding paragraph, it is neither practical nor appropriate to give an indication of the value of an item we would consider to be material although, clearly, we do relatively more work in areas where the risk of misstatement is considered to be high.
A key element of our annual audit planning is to make an assessment of the risk that the financial statements might contain material errors. We base this assessment on our knowledge of the entity or group and understanding of its business and of the industry in which it operates. We assess risk both at the overall financial statement and at the individual item levels. Risk assessments may be amended as the audit progresses. The nature and volume of audit work that we will conduct are directly related to the outcome of our risk assessments.
Going Concern
The economic difficulties of recent years and the subsequent paucity of available credit have resulted in far greater focus, by both directors, or members of a limited liability partnership, and auditors, on the appropriateness of adopting the going concern assumption used in the preparation of financial statements. As auditor it is our responsibility to consider management’s assessment of the entity or group’s ability to continue as a going concern together with any relevant disclosures in the financial statements in order for them to show a true and fair view.When making its assessment, if management is aware of material uncertainties related to events or conditions that may cast significant doubt upon the ability to continue as a going concern, those uncertainties shall be disclosed. Management’s assessment must cover a period of at least twelve months from the date of approval of the financial statements. As auditor we shall consider the appropriateness of management’s use of the going concern assumption and related disclosures.
‘Guidance on Risk Management and Internal Control and Related Financial and Business Reporting’ issued by the Financial Reporting Council (FRC) is primarily directed to companies subject to the UK Corporate Governance Code for periods beginning on or after 1 October 2014. ‘Guidance on the Going Concern Basis of Accounting and Reporting on Solvency and Liquidity Risks – Guidance for directors of companies that do not apply the UK Corporate Governance Code’ was issued by the FRC in April 2016. The guidance is intended to assist directors of ‘non-Code’ companies in applying the relevant requirements in accounting standards and company law, including the requirements of new UK and Ireland GAAP and the strategic report.
Dealing with errors
We will record and investigate all potential errors that we discover during our work and, except for matters which we judge to be clearly trivial, communicate our findings to management directly responsible for the preparation of the company’s financial statements. These matters will include the adequacy of disclosures made within the financial statements. Management must decide which errors are material and therefore require adjustment if the financial statements are to show a true and fair view. We will ask management to provide us with written explanations supporting any decision not to make adjustments, which we will discuss with them. If we cannot agree with management’s decisions, we will consider the implications for our audit opinion.In accordance with the requirements of ISA (UK) 260 ‘Communication with those charged with governance’, we are required to report to you all known adjusted and unadjusted errors (including those relating to disclosures within the financial statements), unless they are considered ‘clearly trivial’. We will request a written representation that you are comfortable with any unadjusted errors and the reasons for adjustment not being made.
Fraud
In accordance with the requirements of ISA (UK) 240, we will consider the susceptibility of the entity’s or group to fraud, taking account of the business and control environment established and maintained by the directors, as well as the nature of transactions, assets and liabilities recorded in the accounting records. However, the principal responsibility for the prevention and detection of fraud rests with management, who should not rely on the audit to discharge those functions. We will request a written representation that you have disclosed to us the results of your assessment of the risk that the financial statements may be materially misstated as a result of fraud.We will report, as soon as practicable, any suspected or discovered fraud which comes to our attention, even if the potential effect on the financial statements is immaterial, unless there is a legal or regulatory requirement to report direct to a third party.
Compliance with law and regulations
We will report, as soon as practicable, any suspected or actual non-compliance with law or regulations which comes to our attention, unless there is a legal or regulatory requirement to report direct to a third party.Audit scope limitations
Should any factors arise during the course of our audit that may limit our scope, we will inform you immediately and seek to have the limitation removed.Information and access
We will request a written representation that you have provided us with all relevant information and access as set out in the current letter of engagement, and that all transactions have been recorded and are reflected in the financial statements.
Audit report and scope of an audit
International Standard on Auditing (UK) 700 (Revised June 2016) ‘Forming an Opinion and Reporting on Financial Statements’ provides auditors with options as to the disclosure in the audit report of the scope of an audit (previously the basis of opinion). Those options are:
- cross refer to a ‘Statement of the Scope of an Audit’ that is maintained on the FRC website; or
- cross refer to a ‘Statement of the Scope of an Audit’ that is included elsewhere within the Annual Report; or
- include a prescribed description of the scope of an audit.
It is RSM policy to adopt option (1) unless there is a compelling reason why an alternative should be adopted. We believe this policy achieves the objective of brevity within the audit report whilst at the same time providing members with the option to review the detailed audit scope as promulgated by the Financial Reporting Council on its website.