Bulletin 2010_2 Cover.qxd 27/01/2011 10:55 Page 1 IN Compendium of Illustrative Auditor's Reports on United Kingdom Private Sector Financial Statements for periods ended on or after 15 December 2010 (Revised) FRC Publications 145 London Road Kingston upon Thames Surrey KT2 6SR Telephone: 020 8247 1264 Fax: 020 8247 1124 E-mail: [email protected] or ordered online at: www.frcpublications.com L U Further copies, £25.00, post-free, can be obtained from: B UP/APBD-BI10246 2010/2 (Revised) L February E T 2011 Further copies, £8.00, post-free, can be obtained from: This Bulletin is a revision of Bulletin 2010/2 to update the illustrative examples to reflect the requirements of the version of ISA (UK and Ireland) 700 that was issued in February 2011 and which is effective for periods ending on or after 23 March 2011. THE AUDITING PRACTICES BOARD The Auditing Practices Board (APB), which is part of the Financial Reporting Council (FRC), prepares for use within the United Kingdom and the Republic of Ireland: Standards and guidance for auditing; Standards and guidance for reviews of interim financial information performed by the auditor of the entity; Standards and guidance for the work of reporting accountants in connection with investment circulars; and Standards and guidance for auditor’s and reporting accountant’s integrity, objectivity and independence with the objective of enhancing public confidence in the audit process and the quality and relevance of audit services in the public interest. The APB comprises individuals who are not eligible for appointment as company auditors, as well as those who are so eligible. Those who are eligible for appointment as company auditors may not exceed 40% of the APB by number. Neither the APB nor the FRC accepts any liability to any party for any loss, damage or costs howsoever arising, whether directly or indirectly, whether in contract, tort or otherwise from any action or decision taken (or not taken) as a result of any person relying on or otherwise using this Bulletin or arising from any omission from it. The purpose of Bulletins issued by the APB is to provide auditors and, where relevant, reporting accountants, with timely guidance on new and emerging issues. They are persuasive rather than prescriptive. However, they are indicative of good practice, even though they may be developed without the full process of consultation and exposure used for auditing standards. # The Financial Reporting Council Limited 2011 Bulletin 2010/2 (Revised) February 2011 THE AUDITING PRACTICES BOARD COMPENDIUM OF ILLUSTRATIVE AUDITOR’S REPORTS ON UNITED KINGDOM PRIVATE SECTOR FINANCIAL STATEMENTS FOR PERIODS ENDED ON OR AFTER 15 DECEMBER 2010 Contents Page Introduction Description of the ‘‘Scope of the Audit’’ Classifications of Companies Publicly traded and non-publicly traded Companies subject to the small companies regime Quoted companies Listed companies Companies admitted to trading on AIM Treatment of the classifications in the illustrative examples Alternative presentation options of the financial statements of a group Omitting the parent company profit and loss account Opinion in respect of an additional financial reporting framework Emphasis of Matter Paragraphs Other Matter Paragraphs Regulated entities Modifying the auditor’s opinion on the financial statements Modifying the auditor’s opinion on the Directors’ Report Illustrative Directors’ Responsibilities Statement 5 5 6 6 7 7 8 9 9 9 10 10 11 11 11 12 12 12 CLEAN AUDITOR’S OPINIONS COMPANIES (excluding charitable companies) Appendix 1 Company does not prepare group financial statements 1. Non-publicly traded company preparing financial statements under the FRSSE 2. Non-publicly traded company preparing financial statements under UK GAAP 3. Publicly traded standard listed company preparing financial statements under UK GAAP 4. Publicly traded premium listed company preparing financial statements under IFRSs as adopted by the European Union THE AUDITING PRACTICES BOARD 13 14 17 19 22 1 Bulletin 2010/2 (Revised) February 2011 Appendix 2 Group and parent company financial statements reported on in a single auditor’s report 5. Non-publicly traded group preparing financial statements under UK GAAP 6. Non-publicly traded group preparing financial statements under IFRSs as adopted by the European Union (may apply to a group admitted to trading on AIM) 7. Publicly traded standard listed group – Parent company financial statement prepared under UK GAAP and Corporate Governance Statement not included in directors’ report 8. Publicly traded premium listed group – Parent company financial statements prepared under IFRSs as adopted by the European Union 25 26 28 31 34 Appendix 3 Group financial statements reported on separately from the parent company financial statements 9. Publicly traded premium listed group – Auditor’s report on group financial statements prepared under IFRSs as adopted by the European Union 38 Appendix 4 Parent company financial statements reported on separately from the group financial statements 41 37 10. Publicly traded group – Auditor’s report on parent company financial statements prepared under UK GAAP 42 11. Publicly traded group – Auditor’s report on parent company financial statements prepared under IFRSs as adopted by the European Union 45 EMPHASIS OF MATTER PARAGRAPHS Appendix 5 12. Emphasis of matter – Material uncertainty that may cast significant doubt about the company’s ability to continue as a going concern 13. Emphasis of matter – Uncertain outcome of a lawsuit PARTNERSHIPS Appendix 6 14. Limited Liability Partnership preparing financial statements under UK GAAP 15. Limited Liability Partnership preparing financial statements under IFRSs as adopted by the EU 16. Qualifying Partnership preparing financial statements under UK GAAP 2 THE AUDITING PRACTICES BOARD 48 49 51 52 53 56 59 Bulletin 2010/2 (Revised) February 2011 REGULATED ENTITIES OTHER THAN CHARITIES Appendix 7 Insurers 17. Publicly traded insurer with a standard listing preparing financial statements under UK GAAP and having equalisation provisions 18. Lloyd’s syndicate – annual financial statements 19. Lloyd’s syndicate – underwriting year accounts – closed year of account 20. Lloyd’s syndicate – underwriting year accounts – run-off year of account 21. Non directive friendly society with no subsidiary companies, preparing financial statements under UK GAAP 22. Directive friendly society group preparing financial statements under UK GAAP Appendix 8 Banking institutions that are not companies 23. Building society preparing financial statements under UK GAAP 24. Building society preparing financial statements under IFRSs as adopted by the European Union 25. 26. 61 62 65 68 70 72 74 76 77 80 83 85 Credit Union in Great Britain Credit Union in Northern Ireland Appendix 9 Other regulated entities 27. Occupational pension scheme 28. Housing Association registered in England that is an Industrial and Provident Society 87 88 90 CHARITIES Appendix 10 Charitable companies registered in England & Wales 29. Charitable company audited under the Charities Act 1993 30. Charitable company audited under the Companies Act 2006 31. Charitable company group whose consolidated financial statements are prepared and audited under both the Companies Act 2006 and the Charities Act 1993 98 Appendix 11 Charitable companies registered either in Scotland or in both Scotland and England & Wales 101 32. Charitable company where an election has been made for audit exemption under the Companies Act 2006 33. Charitable company audited under the Charities and Trustee Investment (Scotland) Act 2005 and the Companies Act 2006 Large charitable company group whose consolidated financial statements are required to be prepared and audited under the Companies Act 2006 34. 92 93 95 102 105 108 THE AUDITING PRACTICES BOARD 3 Bulletin 2010/2 (Revised) February 2011 Appendix 12 Non-company charities 35. Charity registered in England & Wales 36. Charity registered in Scotland 111 112 114 MODIFIED OPINIONS Appendix 13 Qualified opinion on financial statements 37. Disagreement – Inappropriate accounting treatment of debtors 38. Disagreement – Non-disclosure of a going concern problem 39. Disagreement – Non-disclosure of information required to be disclosed 40. Scope Limitation – Auditor not appointed at the time of the stocktaking 41. Scope Limitation – Directors did not prepare cash flow forecasts sufficiently far into the future to be able to assess the going concern status of the company Appendix 14 Adverse opinion on financial statements 42. Adverse opinion: No provision made for losses expected to arise on long term contracts 43. Adverse opinion: Significant level of concern about going concern status that is not disclosed in the financial statements Appendix 15 Disclaimer of opinion on financial statements 44. Disclaimer of opinion: Auditor unable to attend stocktaking and confirm trade debtors 45. Disclaimer of opinion: Multiple uncertainties Appendix 16 Modified opinion on other requirements of the Companies Act 2006 46. Qualified opinion on the consistency of the financial statements with the directors’ report Appendix 17 Directors’ Responsibilities Statement 47. Directors’ Responsibilities Statement for a non-publicly traded company preparing financial statements under UK GAAP 4 THE AUDITING PRACTICES BOARD 116 117 119 121 122 124 126 127 129 131 132 135 138 139 141 142 Bulletin 2010/2 (Revised) February 2011 INTRODUCTION 1. This Bulletin is a compendium of illustrative auditor’s reports applicable to United Kingdom private sector financial statements for periods ended on or after 23 March 20111. The auditor’s reports support and illustrate the requirements of ISAs (UK and Ireland) 700 ‘‘The auditor’s report on financial statements’’, 705 ‘‘Modifications to the opinion in the independent auditor’s report’’ and 706 ‘‘Emphasis of matter paragraphs and other matter paragraphs in the independent auditor’s report’’2. They also support the requirements of the law and regulations applicable to the particular type of entity to which the illustration applies. DESCRIPTION OF THE ‘‘SCOPE OF THE AUDIT’’ 2. Paragraph 16 of ISA (UK and Ireland) 700 requires: The auditor’s report shall either: (a) Cross refer to a ‘‘Statement of the Scope of an Audit’’ that is maintained on the APB’s website; or (b) Cross refer to a ‘‘ Statement of the Scope of an Audit’’ that is included elsewhere within the Annual Report; or (c) Include the following description of the scope of an audit. ‘‘An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the [describe nature of entity] circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by [describe those charged with governance]; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.’’3 1 2 3 The APB publishes a bulletin of illustrative auditor’s reports applicable to the UK public sector and a bulletin of illustrative auditor’s reports applicable to the private sector in the Republic of Ireland. The relevant versions of ISAs (UK and Ireland) 700, 705 and 706 are those published in the APB’s Compendium of Auditing Standards 2010 and subsequent revisions thereto. At the time of writing the APB is consulting on a proposal to revise this wording through the inclusion of an additional paragraph. If, following consultation, the change is made it will be effective for auditor’s reports for periods ending on or after 23 March 2011. THE AUDITING PRACTICES BOARD 5 Bulletin 2010/2 (Revised) February 2011 3. In the illustrative auditor’s reports in this Bulletin these alternatives are shown by means of two text boxes. The alternative shown by the first text box is the wording that is used when the auditor’s report cross refers to a Statement of the Scope of an Audit maintained on the APB’s website, or included elsewhere within the Annual Report. The alternative shown by the second text box is the wording that must be used if the description of the Scope of an Audit is included within the auditor’s report. 4. With effect for financial statements ended on or after 15 December 2010 the Statement of the Scope of an Audit maintained on the APB website has been revised such that a single statement can be used with respect to the auditor’s reports of all private sector entities. It can be found on the APB’s website at www.frc.org.uk/apb/scope/private.cfm. CLASSIFICATIONS OF COMPANIES 5. Company law and the Listing Rules classify companies in a number of different ways and these various classifications affect the content of the auditor’s report applicable to a particular company. Publicly traded and non-publicly traded 6. The primary classification distinguishes between: (a) ‘‘publicly traded companies’’ – defined as ‘‘those whose securities are admitted to trading on a regulated market in any Member State in the European Union’’; and (b) ‘‘non-publicly traded companies’’ – defined as ‘‘those who do not have any securities that are admitted to trading on a regulated market in any Member State in the European Union’’ (EU). 7. Under Article 4 of the IAS Regulation4, publicly traded companies governed by the law of a Member State are required to prepare their consolidated accounts on the basis of accounting standards issued by the International Accounting Standards Board (IASB) that are adopted by the EU5. In CA 2006 such accounts are referred to as ‘‘IAS accounts’’ whereas in the auditor’s reports in this Bulletin this framework is referred to as ‘‘IFRSs as adopted by the European Union’’6. 8. Article 4 does not apply to a publicly traded company that is not required to prepare consolidated accounts. 4 5 6 6 Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards. This requirement has been effected into UK law by virtue of section 403(1) of CA 2006 For companies that apply the requirements of applicable UK law and United Kingdom Accounting Standards the financial reporting framework is described as UK Generally Accepted Accounting Practice (UK GAAP). THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 9. In the UK (as permitted under Article 5 of the IAS Regulation) the use of IAS accounts has been extended so that: Publicly traded companies are permitted to use IAS in their individual accounts (this is discussed further in paragraphs 21 to 25 of this Bulletin); Non publicly traded companies are permitted to use IAS in both their individual and consolidated accounts; and Building societies7, limited liability partnerships, and certain banking, insurance undertakings and partnerships (to which Part 15 of CA 2006 applies), are permitted to use IAS. 10. In the UK, CA 2006 does not permit charities to use IAS8. In addition charities do not fall within the ambit of Article 4 of the IAS Regulation as non-profit making bodies are specifically excluded. 11. For the purposes of the auditor’s report a further implication of being a publicly traded company is that such companies are required to include a Corporate Governance Statement in their annual report. The requirements relating to the content of the Corporate Governance Statement are set out in section 7.2 of the Disclosure and Transparency Rules of the Financial Services Authority (FSA). 12. If the Corporate Governance Statement is not included in the directors’ report the Companies Act 2006 (CA 2006) imposes specific reporting responsibilities on the auditor with respect to the Statement. Guidance on the auditor’s responsibilities with respect to the Corporate Governance Statement is set out more fully in Bulletin 2009/4. Example 7 illustrates how the auditor is required to report in this circumstance. Companies subject to the small companies regime 13. Under section 381 of CA 2006, the small companies’ regime for accounts applies to a company for a financial year in relation to which the company qualifies as small and is not excluded from the regime. An auditor’s report applicable to a company to which the small companies’ regime applies is illustrated in example 1. Quoted companies 14. CA 2006 also classifies companies as being either quoted or unquoted. For the purposes of the auditor’s report the implication of being a quoted company is that the company has to prepare a directors’ remuneration report and the auditor has to report on certain 7 8 Building societies which prepare consolidated accounts and have securities admitted to trading on a regulated market are required by Article 4 of the IAS Regulation to prepare IAS accounts. See sections 395(2) and 403(3) of CA 2006. THE AUDITING PRACTICES BOARD 7 Bulletin 2010/2 (Revised) February 2011 aspects of it. The definition of ‘‘quoted company’’ for the purposes of the Directors’ Remuneration Report is set out in sections 385(1) and 385(2) of CA 2006. 15. The definition of a quoted company differs from that of a publicly traded company. A publicly traded company may not necessarily meet the definition of a quoted company and a non-publicly traded company may be a quoted company. However, for the purposes of the illustrative examples in this Bulletin it is assumed that non-publicly traded companies are not quoted companies and that publicly traded companies are quoted companies. Guidance on the auditor’s responsibilities with respect to the Directors’ Remuneration Report is set out in Bulletin 2002/2. Examples 3, 4, 7, 8, 10 and 11 illustrate the reporting requirements in respect of the Directors’ Remuneration Report. Listed companies 16. A company that is listed on the Official List maintained by the United Kingdom Listing Authority (UKLA) will either have a Premium or a Standard Listing for each listed security. For the purposes of the auditor’s report having a Standard Listing does not give rise to additional requirements over that of a non-traded company with respect to the content of the auditor’s report. However, Standard Listed companies are required to meet the requirements for a corporate governance statement as described in paragraph 11 above. As discussed in paragraph 12 there are implications for the content of the auditor’s report if the corporate governance statement is not included within the Directors’ Report. 17. Chapter 9 of the Listing Rules applies to a company that has a premium listing of equity shares. For the purposes of the auditor’s report there are implications for the auditor’s report of having a Premium Listing. They arise from the requirements in Listing Rule 9.8.10R for a premium listed company to ensure that its auditor reviews: The directors’ going concern statement (required by LR 9.8.6R(3)); Parts of the directors’ statement relating to the company’s compliance with the UK Corporate Governance Code (required by Listing Rule 9.8.6R(6))9; and Parts of the report to shareholders by the Board on directors’ remuneration required by Listing Rule 9.8.8R10. 18. The Listing Rules are silent as to whether the auditor should report on the auditor’s review. However, the APB is of the view that paragraph 22 of ISA (UK and Ireland) 700 9 This statement is different from the requirement for a corporate governance statement in the Disclosure and Transparency Rules described in paragraph 11. The interrelationship of the various requirements relating to the dislcosure of corporate governance arrangements is explained in Schedule B of The UK Corporate Governance Code (June 2010). 10 For those companies that are both ‘‘listed’’ and ‘‘quoted’’ the requirements of the Listing Rules with respect to directors’ remuneration disclosures are additional to the content requirements of the directors’ remuneration report required by CA 2006. 8 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 applies to the auditor’s review. Therefore, the auditor should decribe its responsibilites within the auditor’s report and incorporate a suitable conclusion in respect of its review. Examples 4, 8 and 9 illustrate this. Companies admitted to trading on AIM 19. The definitions of publicly traded company and quoted company both exclude AIM companies. However, under the AIM Rules a company that is admitted to trading on the AIM market is required to prepare its financial statements in accordance with IFRSs as adopted by the European Union. Example 6 is applicable to companies admitted to trading on AIM. Treatment of the classifications in the illustrative examples 20. If not otherwise apparent from the title of a particular illustration in the appendices, the rubric to an example makes clear which of the above classifications apply to the illustration. ALTERNATIVE PRESENTATION OPTIONS OF THE FINANCIAL STATEMENTS OF A GROUP 21. As explained in paragraph 9 above, group and parent company financial statements may be prepared in accordance with different financial reporting frameworks (for example IFRSs as adopted by the EU used for the group financial statements and UK GAAP used for the parent company financial statements). 22. Where the financial statements of the group and the parent company are presented in accordance with different financial reporting frameworks the financial statements might be presented separately within the Annual Report and in such circumstances separate auditor’s reports might be provided11. 23. The examples in Appendix 2 of this Bulletin illustrate auditor’s reports where the report on the group financial statements and the report on the parent company financial statements are presented as a single auditor’s report. 24. The examples in Appendices 3 and 4 illustrate auditor’s reports where the group and the parent company financial statements are presented separately. In such cases the auditor might provide separate auditor’s reports on the group financial statements (See Appendix 3) and on the parent company financial statements (See Appendix 4). 11 CA 2006 does not require the directors to sign the group balance sheet and thereby evidence their approval of it. Where separate financial statements are presented the auditor obtains evidence of the directors’ approval of the group financial statements before signing the auditor’s report on those group financial statements. THE AUDITING PRACTICES BOARD 9 Bulletin 2010/2 (Revised) February 2011 25. Where separate auditor’s reports are provided on the group and parent company financial statements the illustrative examples assume that: (a) the auditor’s responsibilities with respect to the Corporate Governance Statement are described in the auditor’s report on the group financial statements; and (b) the Directors’ Remuneration Report is reported on in the auditor’s report on the parent company financial statements. However, other approaches may be adopted. OMITTING THE PARENT COMPANY PROFIT AND LOSS ACCOUNT 26. Section 408 CA 2006 allows a company that prepares group accounts to omit the parent company’s profit and loss account from the company’s annual accounts provided that: (a) the notes to the parent company’s balance sheet show the company’s profit or loss for the financial year determined in accordance with CA 2006; and (b) it is disclosed in the company’s annual accounts that the exemption applies. 27. Where advantage has been taken of the section 408 exemption and the parent company financial statements have been prepared in accordance with ‘‘IFRSs as adopted by the European Union’’ the financial reporting framework is described in the auditor’s report as: ‘‘have been properly prepared in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 2006’’12. 28. Example 5 illustrates an auditor’s report where the section 408 exemption has been taken in respect of the parent company’s own profit and loss account. The other example reports in Appendices 2 and 4 illustrate (by way of shaded text) the wording that is required to be inserted in the auditor’s report when the company does not take advantage of the section 408 exemption (i.e. a parent company profit and loss account is included). They illustrate by way of struck out text, wording that should be deleted when the shaded text is included (i.e. the struck out text is included in the auditor’s report when the company excludes the profit and loss account from the parent company financial statements). Charitable company groups can also take advantage of the section 408 exemption. In examples 31 and 34 the alternatives are illustrated by the use of square brackets. 12 See paragraph 9.24 of ‘‘Guidance for UK Companies on Accounting and Reporting: Requirements under the Companies Act 2006 and the application of the IAS regulation’’ Department for Business Enterprise & Regulatory Reform. June 2008. (www.bis.gov.uk/files/file46791.pdf) 10 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 OPINION IN RESPECT OF AN ADDITIONAL FINANCIAL REPORTING FRAMEWORK 29. The financial statements of some companies may comply with two financial reporting frameworks (for example IFRSs as adopted by the European Union and IFRSs as issued by the IASB) and those charged with governance may engage the auditor to express an opinion in respect of both frameworks. 30. ISA (UK and Ireland) 700 (Revised) requires that the second opinion should be clearly separated from the first opinion on the financial statements by use of an appropriate heading. This is illustrated in examples 4, 6, 7, 9 8 and 2413. EMPHASIS OF MATTER PARAGRAPHS 31. An emphasis of matter paragraph refers to a matter that is appropriately presented or disclosed in the financial statements that, in the auditor’s judgment, is of such importance that it is fundamental to a user’s understanding of the financial statements. When the auditor includes an emphasis of matter paragraph ISA (UK and Ireland) 706 requires the auditor to indicate in its report that the auditor’s opinion is not modified in respect of the matter emphasized. 32. Example of emphasis of matter paragraphs are set out in Appendix 5. These examples have been drafted in the context of auditor’s reports on the financial statements of a company. However, the examples can be tailored for use in the auditor’s reports of all entities. OTHER MATTER PARAGRAPHS 33. An other matter paragraph refers to a matter other than those presented or disclosed in the financial statement that, in the auditor’s judgment, is relevant to a user’s understanding of the audit, the auditor’s responsibilities or the auditor’s report. 34. Examples 9, 10 and 11 illustrate how an other matter paragraph is included in the auditor’s report. REGULATED ENTITIES 35. Further APB guidance with respect to the auditor’s reports on the financial statements of regulated entities is set out in the following Practice Notes: 13 The wording used in these examples is illustrative to reflect the requirement of the Securities and Exchange Commission of the USA whose Final Rule ‘‘Acceptance From Foreign Private Issuers of Financial Statements Prepared in Accordance With International Financial Reporting Standards Without Reconciliation to US GAAP (4 January 2008) states ‘‘...the independent auditor must opine in its report on whether those financial statements comply with IFRS as issued by the IASB. ...the auditor’s report can include this language in addition to any opinion relating to compliance with standards required by the home country’’. THE AUDITING PRACTICES BOARD 11 Bulletin 2010/2 (Revised) February 2011 PN No. Title Appendices in this Bulletin 11 The Audit of Charities in the United Kingdom 10, 11 and 12 14 The Audit of Registered Social Landlords in the United Kingdom 9 (example 28) 15 The Audit of Occupational Pension Schemes in the United Kingdom 9 (example 27) 19 The Audit of Banks and Building Societies in the United Kingdom 8 (examples 23 and 24) 20 The Audit of Insurers in the United Kingdom 7 (examples 17 to 20) 24 The Audit of Friendly Societies in the United Kingdom 7 (examples 21 and 22) 27 The Audit of Credit Unions in the United Kingdom 8 (examples 25 and 26) 36. These Practice Notes also contain illustrative examples of auditor’s reports that arise from the requirements of regulations and which, therefore, are not required to follow the reporting requirements of ISAs (UK and Ireland). MODIFYING THE AUDITOR’S OPINION ON THE FINANCIAL STATEMENTS 37. An auditor’s opinion on financial statements is considered to be modified in the following situations. (a) Qualified opinion arising from either a disagreement or a scope limitation (Illustrative examples set out in Appendix 13); (b) Adverse opinion (Illustrative examples set out in Appendix 14); and (c) Disclaimer of opinion (Illustrative examples set out in Appendix 15). MODIFYING THE AUDITOR’S OPINION ON THE DIRECTORS’ REPORT 38. Section 496 of CA 2006 requires the auditor to state in its report on the company’s annual accounts whether in its opinion the information given in the directors’ report for the financial year for which the accounts are prepared is consistent with those accounts. The example report in Appendix 16 illustrates a modified opinion on the consistency of the directors’ report with the annual accounts. ILLUSTRATIVE DIRECTORS’ RESPONSIBILITIES STATEMENT 39. Example 47 in Appendix 17 is an illustrative example of a Directors’ Responsibilities Statement for a non-publicly traded company preparing its parent company financial statements under UK GAAP. Illustrative examples of Directors’ Responsibilities Statements for publicly traded companies are not provided as the directors’ responsibilities will vary dependent on the rules of the market on which a company’s securities are admitted to trading. 12 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 APPENDIX 1 COMPANY DOES NOT PREPARE GROUP FINANCIAL STATEMENTS 1. Non-publicly traded company preparing financial statements under the FRSSE 2. Non-publicly traded company preparing financial statements under UK GAAP 3. Publicly traded standard listed company preparing financial statements under UK GAAP 4. Publicly traded premium listed company preparing financial statements under IFRSs as adopted by the European Union THE AUDITING PRACTICES BOARD 13 Bulletin 2010/2 (Revised) February 2011 Example 1 – Non-publicly traded company preparing financial statements under the FRSSE Company qualifies as a small company. Company does not prepare group financial statements. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ LIMITED We have audited the financial statements of (name of company) for the year ended ... which comprise [specify the titles of the primary statements such as the Profit and Loss Account, the Balance Sheet, the Cash Flow Statement, the Statement of Total Recognised Gains and Losses, the Reconciliation of Movements in Shareholders’ Funds] and the related notes14. The financial reporting framework that has been applied in their preparation is applicable law and the Financial Reporting Standard for Smaller Entities [(Effective April 2008)]15 (United Kingdom Generally Accepted Accounting Practice applicable to Smaller Entities). Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement [set out [on page ...]], the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors[, including ‘‘APB Ethical Standard – Provisions Available for Small Entities (Revised)’’, in the circumstances set out in note [x] to the financial statements]16. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. 14 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. 15 Specify the version of The Financial Reporting Standard for Smaller Entities. 16 Delete the words in square brackets if the relief and exemptions provided by ES PASE are not utilised. Paragraph 22 of ES PASE requires disclosure in the auditor’s report where the audit firm has taken advantage of an exemption provided by ES PASE. The Appendix to ES PASE provides illustrative disclosures of relevant circumstances where the audit firm has taken advantage of an exemption provided by ES PASE. 14 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Or: An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the company’s affairs as at ........ and of its profit [loss] for the year then ended17; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice applicable to Smaller Entities; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.17 Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or 17 Guidance for auditors when a company takes advantage of the option in section 444(1) of CA 2006 not to file the profit and loss account or the directors’ report is set out in paragraph 12 of APB Bulletin 2008/ 4 ‘‘The Special Auditor’s Report on Abbreviated Accounts in the United Kingdom’’. THE AUDITING PRACTICES BOARD 15 Bulletin 2010/2 (Revised) February 2011 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; or the directors were not entitled to [prepare the financial statements in accordance with the small companies regime] [and] [take advantage of the small companies’ exemption in preparing the directors’ report]. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor 16 THE AUDITING PRACTICES BOARD Address Date Bulletin 2010/2 (Revised) February 2011 Example 2 – Non-publicly traded company preparing financial statements under UK GAAP Company is not a quoted company. Company either does not qualify as a small company or qualifies as a small company but chooses not to prepare its financial statements in accordance with the FRSSE. Company does not prepare group financial statements. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ LIMITED/PLC We have audited the financial statements of (name of company) for the year ended ... which comprise [specify the titles of the primary statements such as the Profit and Loss Account, the Balance Sheet, the Cash Flow Statement, the Statement of Total Recognised Gains and Losses, the Reconciliation of Movements in Shareholders’ Funds] and the related notes18. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement [set out [on page ...]], the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. Or: 18 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. THE AUDITING PRACTICES BOARD 17 Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the company’s affairs as at ........ and of its profit [loss] for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements 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. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor 18 THE AUDITING PRACTICES BOARD Address Date Bulletin 2010/2 (Revised) February 2011 Example 3 – Publicly traded standard listed company preparing financial statements under UK GAAP Company is a quoted company and has a standard listing. Company does not prepare group financial statements. Corporate governance statement incorporated into the directors’ report, either directly or by incorporation by reference as explained in APB Bulletin 2009/4(see example 7 for an illustration of an auditor’s report where the corporate governance statement is not incorporated into the directors’ report). INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ PLC We have audited the financial statements of (name of company) for the year ended ... which comprise [specify the titles of the primary statements such as the Profit and Loss Account, the Balance Sheet, the Cash Flow Statement, the Statement of Total Recognised Gains and Losses, the Reconciliation of Movements in Shareholders’ Funds] and the related notes19. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement [set out [on page ...]], the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. 19 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. THE AUDITING PRACTICES BOARD 19 Bulletin 2010/2 (Revised) February 2011 Or: An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the company’s affairs as at ....... and of its profit [loss] for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 200620; and the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: 20 Part 3 of Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008 No. 410) sets out the information in the Directors’ Remuneration Report that is subject to audit. Companies should describe clearly within the Directors’ Remuneration Report which disclosures have been audited. 20 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the 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. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor Address Date THE AUDITING PRACTICES BOARD 21 Bulletin 2010/2 (Revised) February 2011 Example 4 – Publicly traded premium listed company preparing financial statements under IFRSs as adopted by the European Union Company is a quoted company and has a premium listing. Company does not prepare group financial statements. Corporate governance statement incorporated into the directors’ report, either directly or by incorporation by reference as explained in APB Bulletin 2009/4(see example 7 for an illustration of an auditor’s report where the corporate governance statement is not incorporated into the directors’ report). INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ PLC We have audited the financial statements of (name of company) for the year ended ... which comprise [specify the titles of the primary statements such as the Statement of Financial Position, the Statement of Comprehensive Income, the Statement of Cash Flows, the Statement of Changes in Equity21] and the related notes22. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement [set out [on page ...]], the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. 21 The names used for the primary statements in the auditor’s report should reflect the precise titles used by the company for them. 22 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. 22 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Or: An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the company’s affairs as at ....... and of its profit [loss] for the year then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006. [Separate opinion in relation to IFRSs as issued by the IASB As explained in note [x] to the financial statements, the company in addition to applying IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB). In our opinion the financial statements comply with IFRSs as issued by the IASB.]23 23 See footnote 12 THE AUDITING PRACTICES BOARD 23 Bulletin 2010/2 (Revised) February 2011 Opinion on other matters prescribed by the Companies Act 2006 In our opinion: the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 200624; and the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the 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. Under the Listing Rules we are required to review: the directors’ statement, [set out [on page...]], in relation to going concern; the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the [June 2008 Combined Code] [UK Corporate Governance Code25] specified for our review; and certain elements of the report to the shareholders by the Board on directors’ remuneration26. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor Address Date 24 Part 3 of Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008 No. 410) sets out the information in the Directors’ Remuneration Report that is subject to audit. Companies should describe clearly within the Directors’ Remuneration Report which disclosures have been audited. 25 The UK Corporate Governance Code was issued in May 2010 and applies to financial years beginning on or after 29 June 2010 26 The report on directors’ remuneration should clearly identify those elements that have been audited. 24 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 APPENDIX 2 GROUP AND PARENT COMPANY FINANCIAL STATEMENTS REPORTED ON IN A SINGLE AUDITOR’S REPORT 5. Non-publicly traded group preparing financial statements under UK GAAP 6. Non-publicly traded group preparing financial statements under IFRSs as adopted by the European Union (applicable to a company admitted to trading on AIM) 7. Publicly traded standard listed group – Parent company financial statement prepared under UK GAAP and corporate governance statement not incorporated into directors’ report 8. Publicly traded premium listed group – Parent company financial statements prepared under IFRSs as adopted by the European Union THE AUDITING PRACTICES BOARD 25 Bulletin 2010/2 (Revised) February 2011 Example 5 – Non-publicly traded group preparing financial statements under UK GAAP Company is not a quoted company. Section 408 exemption taken for parent company’s own profit and loss account. Company does prepare group financial statements. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ LIMITED/PLC We have audited the financial statements of (name of company) for the year ended ... which comprise [specify the titles of the primary statements such as the Group Profit and Loss Account, the Group and Parent Company Balance Sheets, the Group Cash Flow Statement, the Group Statement of Total Recognised Gains and Losses, the Group and Parent Company Reconciliation of Movements in Shareholders’ Funds] and the related notes27. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement [set out [on pages ...]], the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. Or: 27 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. 26 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the group’s and of the parent company’s affairs as at ....... and of the group’s profit [loss] for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report 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 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. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor Address Date THE AUDITING PRACTICES BOARD 27 Bulletin 2010/2 (Revised) February 2011 Example 6 – Non-publicly traded group preparing financial statements under IFRSs as adopted by the European Union Company is not a quoted company. Shaded text to be included and struck through text omitted, where section 408 exemption not taken in respect of parent company’s own profit and loss account. Company does prepare group financial statements. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ LIMITED/PLC We have audited the financial statements of (name of company) for the year ended ... which comprise [specify the titles of the primary statements such as the Group and Parent Company Statements of Financial Position, the Group and Parent Company Statements of Comprehensive Income, the Group and Parent Company Statements of Cash Flow, the Group and Parent Company Statements of Changes in Equity] and the related notes28. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement [set out [on pages ...]], the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. 28 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. 28 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Or: An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at ....... and of the group’s and the parent company’s profit [loss] for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and . the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. [Separate opinion in relation to IFRSs as issued by the IASB As explained in Note X to the financial statements, the group in addition to applying IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB). In our opinion the financial statements comply with IFRSs as issued by the IASB.]29 Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. 29 See footnote 12 THE AUDITING PRACTICES BOARD 29 Bulletin 2010/2 (Revised) February 2011 Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report 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 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. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor 30 THE AUDITING PRACTICES BOARD Address Date Bulletin 2010/2 (Revised) February 2011 Example 7 – Publicly traded standard listed group – Parent company financial statements prepared under UK GAAP and corporate governance statement not incorporated into directors’ report Company is a quoted company and has a standard listing. Shaded text to be included only where section 408 exemption not taken in respect of parent company’s own profit and loss account. Company does prepare group financial statements. Corporate governance statement not incorporated into the directors’ report, either directly or by incorporation by reference as explained in APB Bulletin 2009/4 (the underlined text is included in the auditor’s report as a consequence of the statement not being incorporated into the directors’ report). INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ PLC We have audited the financial statements of (name of company) for the year ended ... which comprise [specify the titles of the primary statements such as the Group Statement of Financial Position and Parent Company Balance Sheet, the Group Statement of Comprehensive Income, the Parent Company Profit and Loss Account, the Group Statement of Cash Flows, the Group Statement of Changes in Equity, the Parent Company Statement of Total Recognised Gains and Losses, the Parent Company Reconciliation of Movements in Shareholders’ Funds] and the related notes30. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement [set out [on page ...]], the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. 30 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. THE AUDITING PRACTICES BOARD 31 Bulletin 2010/2 (Revised) February 2011 Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. Or: An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at ....... and of the group’s and the parent company’s profit [loss] for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the group financial statements, Article 4 of the IAS Regulation. [Separate opinion in relation to IFRSs as issued by the IASB As explained in note [x] to the group financial statements, the group in addition to complying with its legal obligation to apply IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB). 32 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 In our opinion the group financial statements comply with IFRSs as issued by the IASB.]31 Opinion on other matters prescribed by the Companies Act 2006 In our opinion: the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 200632; the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements: the information given in the Corporate Governance Statement set out [on pages] [in describe document] [at include web-address] with respect to internal control and risk management systems in relation to financial reporting processes and about share capital structures is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report 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; or a Corporate Governance Statement has not been prepared by the company. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor Address Date 31 See footnote 12 32 Part 3 of Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008 No. 410) sets out the information in the Directors’ Remuneration Report that is subject to audit. Companies should describe clearly within the Directors’ Remuneration Report which disclosures have been audited. THE AUDITING PRACTICES BOARD 33 Bulletin 2010/2 (Revised) February 2011 Example 8 – Publicly traded premium listed group – Parent company financial statements prepared under IFRSs as adopted by the European Union Company is a quoted company and has a premium listing. Shaded text to be included, and struck through text omitted, where section 408 exemption not taken in respect of parent company’s own profit and loss account. Company does prepare group financial statements. Corporate governance statement incorporated into the directors’ report INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ PLC We have audited the financial statements of (name of company) for the year ended ... which comprise [specify the titles of the primary statements such as, the Group and Parent Company Statements of Financial Position, the Group and Parent Company Statements of Comprehensive Income, the Group and Parent Company Statements of Cash Flow, the Group and Parent Company Statements of Changes in Equity]33 and the related notes34. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement [set out [on page ...]], the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. 33 The names used for the primary statements in the auditor’s report should reflect the precise titles used by the company for them. 34 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. 34 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Or: An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at ....... and of the group’s and the parent company’s profit [loss] for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and . the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. [Separate opinion in relation to IFRSs as issued by the IASB As explained in note [x] to the group financial statements, the group in addition to complying with its legal obligation to apply IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB). In our opinion the group financial statements comply with IFRSs as issued by the IASB.]35 35 See footnote 12 THE AUDITING PRACTICES BOARD 35 Bulletin 2010/2 (Revised) February 2011 Opinion on other matters prescribed by the Companies Act 2006 In our opinion: the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 200636; and the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report 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. Under the Listing Rules we are required to review: the directors’ statement, [set out [on page...]], in relation to going concern; the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the [June 2008 Combined Code] [UK Corporate Governance Code37] specified for our review; and certain elements of the report to shareholders by the Board on directors’ remuneration38. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor Address Date 36 Part 3 of Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008 No. 410) sets out the information in the Directors’ Remuneration Report that is subject to audit. Companies should describe clearly within the Directors’ Remuneration Report which disclosures have been audited. 37 The UK Corporate Governance Code was issued in May 2010 and applies to financial years beginning on or after 29 June 2010 38 The report on directors’ remuneration should clearly identify those elements that have been audited. 36 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 APPENDIX 3 GROUP FINANCIAL STATEMENTS REPORTED ON SEPARATELY FROM THE PARENT COMPANY FINANCIAL STATEMENTS 9. Publicly traded premium listed group – Auditor’s report on group financial statements prepared under IFRSs as adopted by the European Union THE AUDITING PRACTICES BOARD 37 Bulletin 2010/2 (Revised) February 2011 Example 9 – Publicly traded premium listed group – Auditor’s report on group financial statements prepared under IFRSs as adopted by the European Union Company is a quoted company and has a premium listing. Corporate governance statement reported on in the auditor’s report on the group financial statements and incorporated into the directors’ report, either directly or by incorporation by reference as explained in APB Bulletin 2009/4 (see example 7 for an illustration of an auditor’s report where the corporate governance statement is not incorporated into the directors’ report). Directors’ Remuneration Report reported on in the auditor’s report on the parent company financial statements. Company does prepare group financial statements. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ PLC We have audited the group financial statements of (name of company) for the year ended ... which comprise [specify the titles of the primary statements such as the Group Statement of Financial Position, the Group Statement of Comprehensive Income, the Group Statement of Cash Flows, the Group Statement of Changes in Equity]39 and the related notes40. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement [set out [on page ...]], the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. 39 The names used for the primary statements in the auditor’s report should reflect the precise titles used by the company for them. 40 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. 38 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Or: An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the group financial statements: give a true and fair view of the state of the group’s affairs as at ....... and of its profit [loss] for the year then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation. [Separate opinion in relation to IFRSs as issued by the IASB As explained in note [x] to the group financial statements, the group in addition to complying with its legal obligation to apply IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB). In our opinion the group financial statements comply with IFRSs as issued by the IASB.]41 Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the group financial statements are prepared is consistent with the group financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: 41 See footnote 12 THE AUDITING PRACTICES BOARD 39 Bulletin 2010/2 (Revised) February 2011 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. Under the Listing Rules we are required to review: the directors’ statement, [set out [on page...]], in relation to going concern; and the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the [June 2008 Combined Code] [UK Corporate Governance Code42] specified for our review; certain elements of the report to shareholders by the Board on directors’ remuneration43. Other matter We have reported separately on the parent company financial statements of (name of company) for the year ended ... and on the information in the Directors’ Remuneration Report that is described as having been audited. [That report includes an emphasis of matter] [The opinion in that report is (qualified)/(an adverse opinion)/(a disclaimer of opinion)]. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor Address Date 42 The UK Corporate Governance Code was issued in May 2010 and applies to financial years beginning on or after 29 June 2010 43 The report on directors’ remuneration should clearly identify those elements that have been audited. 40 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 APPENDIX 4 PARENT COMPANY FINANCIAL STATEMENTS REPORTED ON SEPARATELY FROM THE GROUP FINANCIAL STATEMENTS 10. Publicly traded group – Auditor’s report on parent company financial statements prepared under UK GAAP 11. Publicly traded group – Auditor’s report on parent company financial statements prepared under IFRSs as adopted by the European Union THE AUDITING PRACTICES BOARD 41 Bulletin 2010/2 (Revised) February 2011 Example 10 – Publicly traded group – Auditor’s report on parent company financial statements prepared under UK GAAP Company is a quoted company and could be either standard or premium listed. Shaded text to be included only where section 408 exemption not taken in respect of parent company’s own profit and loss account. Corporate Governance Statement incorporated into the directors’ report. For premium listed companies the review requirements under the Listing Rules are reported on in the auditor’s report on the group financial statements. Directors’ Remuneration Report reported on in the auditor’s report on the parent company financial statements Company does prepare group financial statements. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ PLC We have audited the parent company financial statements of (name of company) for the year ended ... which comprise [specify the titles of the primary statements such as the Parent Company Balance Sheet, the Parent Company Profit and Loss Account, the Parent Company Statement of Total Recognised Gains and Losses, the Parent Company Reconciliation of Movements in Shareholders’ Funds] and the related notes44. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement [set out [on page ...]], the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. 44 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘PDF‘ format may refer to the financial statements by reference to page numbers. 42 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Or: An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the parent company financial statements: give a true and fair view of the state of the company’s affairs as at ....... and of its profit [loss] for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 200645; and the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the parent company financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: 45 Part 3 of Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008 No. 410) sets out the information in the Directors’ Remuneration Report that is subject to audit. Companies should describe clearly within the Directors’ Remuneration Report which disclosures have been audited. THE AUDITING PRACTICES BOARD 43 Bulletin 2010/2 (Revised) February 2011 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. Other matter We have reported separately on the group financial statements of (name of company) for the year ended .... [That report includes an emphasis of matter] [The opinion in that report is (qualified)/(an adverse opinion)/(a disclaimer of opinion)]. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor 44 THE AUDITING PRACTICES BOARD Address Date Bulletin 2010/2 (Revised) February 2011 Example 11 – Publicly traded group – Auditor’s report on parent company financial statements prepared under IFRSs as adopted by the European Union Company is a quoted company and could be either standard or premium listed. Shaded text to be included, and struck through text omitted, where section 408 exemption not taken in respect of parent company’s own profit and loss account. Corporate Governance Statement incorporated into the directors’ statement. For premium listed companies the review requirements under the Listing Rules are reported on in the auditor’s report on the group financial statements. Directors’ Remuneration Report reported on in the auditor’s report on the parent company financial statements. Company does prepare group financial statements. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ PLC We have audited the parent company financial statements of (name of company) for the year ended ... which comprise [specify the titles of the primary statements such as the Statement of Financial Position, the Statement of Comprehensive Income, the Statement of Cash Flow, the Statement of Changes in Equity]46 and the related notes47. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement [set out [on page ...]], the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. 46 The names used for the primary statements in the auditor’s report should reflect the precise titles used by the company for them. 47 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. THE AUDITING PRACTICES BOARD 45 Bulletin 2010/2 (Revised) February 2011 Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. Or: An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the parent company financial statements: give a true and fair view of the state of the company’s affairs as at ....... and of its profit [loss] for the year then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: 46 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 200648; and the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the parent company financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report 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. Other matter We have reported separately on the group financial statements of (name of company) for the year ended .... [That report includes an emphasis of matter] [The opinion in that report is (qualified)/(an adverse opinion)/(a disclaimer of opinion).] [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor Address Date 48 Part 3 of Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008 No. 410) sets out the information in the Directors’ Remuneration Report that is subject to audit. Companies should describe clearly within the Directors’ Remuneration Report which disclosures have been audited. THE AUDITING PRACTICES BOARD 47 Bulletin 2010/2 (Revised) February 2011 APPENDIX 5 EMPHASIS OF MATTER PARAGRAPHS 12. Emphasis of matter: Material uncertainty that may cast significant doubt about the company’s ability to continue as a going concern 13. Emphasis of matter: Uncertain outcome of a lawsuit 48 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Example 12 – Emphasis of matter: Material uncertainty that may cast significant doubt about the company’s ability to continue as a going concern UK non-publicly traded company prepares UK GAAP financial statements (Example 2). The company incurred a net loss of £X during the year ended 31 December 20X1 and, as of that date, the company’s current liabilities exceeded its total assets by £Y and it had net current liabilities of £Z. These conditions, along with other matters set forth in the notes to the financial statements, indicate the existence of a material uncertainty, which may cast significant doubt about the Company’s ability to continue as a going concern. The company makes relevant disclosures in the financial statements including those referred to in paragraphs 18 and 19 of ISA (UK and Ireland) 570 ‘‘Going Concern’’. The auditor issues an unmodified opinion with an emphasis of matter paragraph describing the situation giving rise to the emphasis of matter and its possible effects on the financial statements, including (where practicable) quantification. Extract from auditor’s report ... Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the company’s affairs as at 31 December 20X1 and of its loss for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. Emphasis of matter – Going concern In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in note [x] to the financial statements concerning the company’s ability to continue as a going concern. The company incurred a net loss of £X during the year ended 31 December 201X and, at that date, the company’s current liabilities exceeded its total assets by £Y and it had net current liabilities of £Z. These conditions, along with the other matters explained in note [x] to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the company’s ability to THE AUDITING PRACTICES BOARD 49 Bulletin 2010/2 (Revised) February 2011 continue as a going concern. The financial statements do not include the adjustments that would result if the company was unable to continue as a going concern. Opinion on other matter prescribed by the Companies Act 2006 ... 50 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Example 13 – Emphasis of matter: Uncertain outcome of a lawsuit UK non-publicly traded company prepares UK GAAP financial statements (Example 2). A lawsuit alleges that the company has infringed certain patent rights and claims royalties and punitive damages. The company has filed a counter action, and preliminary hearings and discovery proceedings on both actions are in progress. The ultimate outcome of the matter cannot presently be determined, and no provision for any liability that may result has been made in the financial statements. The company makes relevant disclosures in the financial statements. The auditor issues an unmodified opinion with an emphasis of matter paragraph describing the situation giving rise to the emphasis of matter and its possible effects on the financial statements, including that the effect on the financial statements of the resolution of the uncertainty cannot be quantified. Extract from auditor’s report ... Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the company’s affairs as at ... and of its profit [loss] for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. Emphasis of matter – uncertain outcome of a lawsuit In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosures made in note [x] to the financial statements concerning the uncertain outcome of a lawsuit, alleging infringement of certain patent rights and claiming royalties and punitive damages, where the company is the defendant. The company has filed a counter action, and preliminary hearings and discovery proceedings on both actions are in progress. The ultimate outcome of the matter cannot presently be determined, and no provision for any liability that may result has been made in the financial statements. Opinion on other matter prescribed by the Companies Act 2006 ... THE AUDITING PRACTICES BOARD 51 Bulletin 2010/2 (Revised) February 2011 APPENDIX 6 PARTNERSHIPS 14. Limited liability partnership preparing financial statements under UK GAAP 15. Limited liability partnership preparing financial statements under IFRSs as adopted by the EU 16. Qualifying partnership preparing financial statements under UK GAAP 52 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Example 14 – Limited liability partnership49 preparing financial statements under UK GAAP The limited liability partnership does not prepare group financial statements. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ LLP We have audited the financial statements of (name of limited liability partnership) for the year ended ... which comprise [specify the titles of the primary statements such as the Balance Sheet, the Profit and Loss Account, the Cash Flow Statement, the Statement of Total Recognised Gains and Losses] and the related notes50. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of members and auditor As explained more fully in the Members’ Responsibilities Statement [set out [on page ...]], the members are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. Or: 49 Regulations relevant to audit reports of limited liability partnerships are set out in Statutory Instrument 2008 No. 1911 ‘‘The Limited Liability Partnerships (Accounts and Audit) (Application of Companies act 2006) Regulations 2008’’. 50 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. THE AUDITING PRACTICES BOARD 53 Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the limited liability partnership’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the designated members; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the limited liability partnership’s affairs as at ... and of its profit [loss] for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006 as applied to limited liability partnerships by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 as applied to limited liability partnerships requires us to report to you if, in our opinion: adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or we have not received all the information and explanations we require for our audit[; or the members were not entitled to prepare financial statements in accordance with the small limited liability partnerships’ regime]51. 51 This bullet point is only required where the LLP has prepared the financial statements in accordance with the small LLP’s regime. 54 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor Address Date THE AUDITING PRACTICES BOARD 55 Bulletin 2010/2 (Revised) February 2011 Example 15 – Limited liability partnership52 preparing financial statements under IFRSs as adopted by the EU The limited liability partnership does not prepare group financial statements. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ LLP We have audited the financial statements of (name of limited liability partnership) for the year ended ... which comprise [specify the titles of the primary statements such as the Statement of Financial Position, the Statement of Comprehensive Income, the Statement of Cash Flows, the Statement of Changes in Equity] and the related notes53. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. Respective responsibilities of members and auditor As explained more fully in the Members’ Responsibilities Statement [set out [on page ...]], the members are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. Or: 52 Regulations relevant to audit reports of limited liability partnerships are set out in Statutory Instrument 2008 No. 1911 ‘‘The Limited Liability Partnerships (Accounts and Audit) (Application of Companies act 2006) Regulations 2008’’. 53 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. 56 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the limited liability partnership’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the designated members; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the limited liability partnership’s affairs as at ....... and of its profit [loss] for the year then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006 as applied to limited liability partnerships by the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 as applied to limited liability partnerships requires us to report to you if, in our opinion: adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or we have not received all the information and explanations we require for our audit[; or the members were not entitled to prepare financial statements in accordance with the small limited liability partnerships’ regime]54. 54 This bullet point is only required where the LLP has prepared the financial statements in accordance with the small LLP’s regime. THE AUDITING PRACTICES BOARD 57 Bulletin 2010/2 (Revised) February 2011 [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor 58 THE AUDITING PRACTICES BOARD Address Date Bulletin 2010/2 (Revised) February 2011 Example 16 – Qualifying partnership55 preparing financial statements under UK GAAP INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ PARTNERSHIP We have audited the financial statements of (name of qualifying partnership) for the year ended ... which comprise [specify the titles of the primary statements such as the Profit and Loss Account, the Balance Sheet, the Cash Flow Statement, the Statement of Total Recognised Gains and Losses, the Reconciliation of Movements in Members’ Funds] and the related notes56. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of members and auditor As explained more fully in the Members’ Responsibilities Statement [set out [on page ...]], the members are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. Or: 55 Regulations relevant to auditor’s reports of qualifying partnerships are set out in Statutory Instrument 2008 No. 569 ‘‘The Partnerships (Accounts) Regulations 2008’’. 56 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. THE AUDITING PRACTICES BOARD 59 Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the qualifying partnership’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the members; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the qualifying partnership’s affairs as at ....... and of its profit [loss] for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006 as applied to qualifying partnerships by The Partnerships (Accounts) Regulations 2008. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 as applied to qualifying partnerships requires us to report to you if, in our opinion: adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or certain disclosures of members’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor 60 THE AUDITING PRACTICES BOARD Address Date Bulletin 2010/2 (Revised) February 2011 APPENDIX 7 INSURERS 17. Publicly traded insurer with a standard listing preparing financial statements under UK GAAP and having equalisation provisions 18. Lloyd’s syndicate – annual financial statements 19. Lloyd’s syndicate – underwriting year accounts – closed year of account 20. Lloyd’s syndicate – underwriting year accounts – run off year of account 21. Non-directive friendly society with no subsidiaries preparing financial statements under UK GAAP 22. Directive friendly society group preparing financial statements under UK GAAP THE AUDITING PRACTICES BOARD 61 Bulletin 2010/2 (Revised) February 2011 Example 17 – Publicly traded insurer with a standard listing preparing financial statements under UK GAAP and having equalisation provisions Insurer is a quoted company and has a standard listing. Insurer does not prepare group financial statements Corporate governance statement incorporated into the directors’ report. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ PLC We have audited the financial statements of (name of insurer) for the year ended ... which comprise [specify the titles of the primary statements such as the Profit and Loss Account, the Balance Sheet, the Cash Flow Statement, the Statement of Total Recognised Gains and Losses, the Reconciliation of Movements in Shareholders’ Funds] and the related notes57. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), having regard to the statutory requirement for insurance companies to maintain equalisation provisions. The nature of equalisation provisions, the amounts set aside at ..., and the effect of the movement in those provisions during the year on shareholders’ funds, the balance on the general business technical account and profit before tax, are disclosed in note x. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement [set out [on page ...]], the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. 57 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. 62 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Or: An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the insurer’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the company’s affairs as at ....... and of its profit [loss] for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 200658; and the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: 58 Part 3 of Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008 No. 410) sets out the information in the Directors’ Remuneration Report that is subject to audit. Companies should describe clearly within the Directors’ Remuneration Report which disclosures have been audited. THE AUDITING PRACTICES BOARD 63 Bulletin 2010/2 (Revised) February 2011 adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the 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. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor 64 THE AUDITING PRACTICES BOARD Address Date Bulletin 2010/2 (Revised) February 2011 Example 18 – Lloyd’s syndicate annual financial statements INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SYNDICATE XYZ We have audited the syndicate annual financial statements for the year ended ... which comprise [specify the titles of the primary financial statements such as the Profit and Loss Account, the Balance Sheet, the Cash Flow Statement, the Statement of Total Recognised Gains and Losses]59, [the Statement of Accounting Policies]60 and the related notes 1 to X61. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of the managing agent and the auditor As explained more fully in the Statement of Managing Agent’s Responsibilities [set out [on page ... ]], the managing agent is responsible for the preparation of syndicate annual financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the syndicate annual financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the syndicate annual financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. Or: 59 The terms used to describe the primary financial statements should be the same as those used by the managing agent. 60 Reference is only made to the Statement of Accounting Polices where the accounting policies are not included within the numbered notes to the financial statements. 61 Auditor’s reports of syndicates that do not publish their financial statements on a website or publish them using ‘‘PDF’’ format may refer to the financial statements by reference to page numbers. THE AUDITING PRACTICES BOARD 65 Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the annual financial statements sufficient to give reasonable assurance that the annual financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the syndicate’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the managing agent; and the overall presentation of the annual financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on syndicate annual financial statements In our opinion the annual financial statements: give a true and fair view of the syndicate’s affairs as at ... and of its profit [loss] for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of The Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008. Opinion on other matter prescribed by The Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008 In our opinion the information given in the Managing Agent’s Report for the financial year in which the annual financial statements are prepared is consistent with the annual financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where The Insurance Accounts Directive (Lloyds’s Syndicate and Aggregate Accounts) Regulations 2008 requires us to report to you, if in our opinion: 66 the managing agent in respect of the syndicate has not kept adequate accounting records; or the syndicate annual financial statements are not in agreement with the accounting records; or we have not received all the information and explanations we require for our audit. THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor Address Date THE AUDITING PRACTICES BOARD 67 Bulletin 2010/2 (Revised) February 2011 Example 19 – Lloyd’s syndicate underwriting year accounts – closed year of account INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SYNDICATE XYZ – 20XX CLOSED YEAR OF ACCOUNT We have audited the syndicate underwriting year accounts for the 20XX year of account of syndicate [XYZ] for the three years ended ...... which comprise [specify the titles of the primary financial statements such as the Profit and Loss Account, the Balance Sheet, the Cash Flow Statement, the Statement of Total Recognised Gains and Losses]62, [the Statement of Accounting Policies]63, the related notes 1 to X64 and the Statement of Managing Agent’s Responsibilities. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of the managing agent and the auditor As explained more fully in the Statement of Managing Agent’s Responsibilities [set out [on page ... ]], the managing agent is responsible for the preparation of the syndicate underwriting year accounts, under the Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008 and in accordance with the Lloyd’s Syndicate Accounting Byelaw (no. 8 of 2005), which give a true and fair view. Our responsibility is to audit and express an opinion on the syndicate underwriting year accounts in accordance with applicable legal and regulatory requirements and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the syndicate underwriting year accounts Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. Or: 62 The terms used to describe the primary financial statements should be the same as those used by the managing agent. 63 Reference is only made to the Statement of Accounting Polices where the accounting policies are not included within the numbered notes to the financial statements. 64 Auditor’s reports of syndicates that do not publish their financial statements on a website or publish them using ‘‘PDF’’ format may refer to the financial statements by reference to page numbers. 68 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the syndicate underwriting year accounts sufficient to give reasonable assurance that the syndicate underwriting year accounts are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the syndicate’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the managing agent; and the overall presentation of the syndicate underwriting year accounts. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on syndicate underwriting year accounts In our opinion the syndicate underwriting year accounts: give a true and fair view of the profit [loss] for the 201X closed year of account; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008 and have been properly prepared in accordance with the Lloyd’s Syndicate Accounting Byelaw (no. 8 of 2005). Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Lloyd’s Syndicate Accounting Byelaw (no. 8 of 2005) requires us to report to you if, in our opinion: the managing agent in respect of the syndicate has not kept proper accounting records; or the syndicate underwriting year accounts are not in agreement with the accounting records. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor Address Date THE AUDITING PRACTICES BOARD 69 Bulletin 2010/2 (Revised) February 2011 Example 20 – Lloyd’s syndicate underwriting year accounts – run-off year of account INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SYNDICATE XYZ We have audited the syndicate underwriting year accounts for the 20XX run-off year of account for the xx years ended ......, which comprise [specify the titles of the primary financial statements such as the Profit and Loss Account, the Balance Sheet, the Cash Flow Statement the Statement of Total Recognised Gains and Losses]65, [the statement of accounting policies]66, the related notes 1 to X67 and the Statement of Managing Agent’s Responsibilities. The financial reporting framework that has been applied in their preparation is applicable law, the Lloyd’s Syndicate Accounting Byelaw (no. 8 of 2005) and applicable United Kingdom Accounting Standards. Respective responsibilities of the managing agent and the auditor As explained more fully in the Statement of Managing Agent’s Responsibilities [ set out [on page ... ]], the managing agent is responsible for the preparation of the syndicate underwriting year accounts in accordance with the financial reporting framework described above. Our responsibility is to audit and express an opinion on the syndicate underwriting year accounts in accordance with applicable legal and regulatory requirements and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the syndicate underwriting year accounts Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report. Or: 65 The terms used to describe the primary financial statements should be the same as those used by the managing agent. 66 Reference is only made to the Statement of Accounting Policies where the accounting policies are not included within the numbered notes to the financial statements. 67 Auditor’s reports of syndicates that do not publish their financial statements on a website or publish them using ‘‘PDF’’ format may refer to the financial statements by reference to page numbers. 70 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the syndicate underwriting year accounts sufficient to give reasonable assurance that the syndicate underwriting year accounts are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the syndicate’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the managing agent; and the overall presentation of the syndicate underwriting year accounts. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on syndicate underwriting year accounts In our opinion the syndicate underwriting year accounts for the ... run-off year of account have been properly prepared in accordance with the Lloyd’s Syndicate Accounting Byelaw (no. 8 of 2005). Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Lloyd’s Syndicate Accounting Byelaw (no. 8 of 2005) requires us to report to you if, in our opinion: the managing agent in respect of the syndicate has not kept proper accounting records; or the syndicate underwriting year accounts are not in agreement with the accounting records. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor Address Date THE AUDITING PRACTICES BOARD 71 Bulletin 2010/2 (Revised) February 2011 Example 21 – Non directive friendly society with no subsidiary companies, preparing financial statements under UK GAAP INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ FRIENDLY SOCIETY We have audited the financial statements of (name of friendly society) for the year ended ... which comprise [specify the titles of the primary statements such as the Income and Expenditure Account, the Balance Sheet] and the related notes68. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of the Committee of Management and auditor As explained more fully in the Committee of Management’s Responsibilities Statement [set out [on page ...]], the Committee of Management is responsible for preparing financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Boards [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page] of the Annual Report] Or: 68 Auditor’s reports of societies that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. 72 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Committee of Management; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of the society’s affairs as at ... and of its income and expenditure for the year then ended; and have been properly prepared in accordance with the Friendly Societies Act 1992. Opinion on other matters prescribed by the Friendly Societies Act 1992 In our opinion the Report of the Committee of Management has been prepared in accordance with the Friendly Societies Act 1992 and the regulations made under it, and the information given therein is consistent with the financial statements for the financial year. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Friendly Societies Act 1992 requires us to report to you if, in our opinion: proper accounting records have not been kept; or the financial statements are not in agreement with the accounting records; or we have not received all the information and explanations and access to documents that we require for our audit. In accordance with our instructions from the Society we review whether the Corporate Governance Statement reflects the Society’s compliance with the 8 provisions of the Annotated Combined Code specified by the Association of Financial Mutuals. Statutory Auditor Date Address THE AUDITING PRACTICES BOARD 73 Bulletin 2010/2 (Revised) February 2011 Example 22 – Directive friendly society group preparing financial statements under UK GAAP INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ FRIENDLY SOCIETY We have audited the financial statements of (name of friendly society) for the year ended ... which comprise (specify the titles of the primary statements such as the Group and Society Income and Expenditure Accounts, the Group and Society Balance Sheets) and the related notes69. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice)[, having regard to the statutory requirement to maintain equalisation provisions. The nature of equalisation provisions, the amounts set aside at ..., and the effect of the movement in those provisions during the year on the fund for future appropriations, the balance on the general business technical account and on excess of income over expenditure before tax are disclosed in note x70]. Respective responsibilities of the Committee of Management and auditor As explained more fully in the Committee of Management’s Responsibilities Statement [set out [on page ...]], the Committee of Management is responsible for preparing financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Boards [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page] of the Annual Report] Or: 69 Auditor’s reports of societies that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. 70 The wording in square brackets is only included where the society has one or more general insurance subsidiaries that prepare financial statements in accordance with UK GAAP and which are required to provide statutory equalisation provisions. 74 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Committee of Management; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of the society’s and the group’s affairs as at ... and of the income and expenditure of the society and the group for the year then ended; and have been properly prepared in accordance with the Friendly Societies Act 1992. Opinion on other matters prescribed by the Friendly Societies Act 1992 In our opinion the Report of the Committee of Management has been prepared in accordance with the Friendly Societies Act 1992 and the regulations made under it, and the information given therein is consistent with the financial statements for the financial year. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Friendly Societies Act 1992 requires us to report to you if, in our opinion: proper accounting records have not been kept; or the financial statements are not in agreement with the accounting records; or we have not received all the information and explanations and access to documents that we require for our audit. In accordance with our instructions from the Society we review whether the Corporate Governance Statement reflects the Society’s compliance with the 8 provisions of the Annotated Combined Code specified by the Association of Financial Mutuals. [Signature] John Smith (Senior statutory auditor) For and on behalf of ABC LLP, Statutory Auditor Address Date THE AUDITING PRACTICES BOARD 75 Bulletin 2010/2 (Revised) February 2011 APPENDIX 8 BANKING INSTITUTIONS THAT ARE NOT COMPANIES 23. Building society preparing financial statements under UK GAAP 24. Building society preparing financial statements under IFRSs as adopted by the European Union 25. Credit union in Great Britain 26. Credit Union in Northern Ireland 76 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Example 23 – Building society preparing financial statements under UK GAAP Group and Society financial statements reported on in a single auditor’s report INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ BUILDING SOCIETY We have audited the [Group and Society] financial statements of (name of Building Society) for the year ended ... which comprise [specify the titles of the primary statements such as the [Group and Society] Profit and Loss Account[s], [Group and Society] Balance Sheet[s], the Group Cash Flow Statement, the Group Statement of Total Recognised Gains and Losses and the [Group and Society] Statement[s] of Movements in Member’s Interests] [, the Accounting Policies71] and the related notes72. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement [set out [on pages..]], the directors are responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page] of the Annual Report]. Or: 71 Include if the accounting policies are presented in a separate statement and not as a note to the financial statements. 72 Auditor’s reports of building societies that do not publish their financial statements on a website or publish them using ‘‘PDF’’ format may refer to the financial statements by reference to page numbers. THE AUDITING PRACTICES BOARD 77 Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the [Group’s and] Society’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the [Group’s and the] Society’s affairs as at ... and of [the Group’s and] the Society’s income and expenditure for the year then ended; and have been prepared in accordance with the requirements of the Building Societies Act 1986. Opinion on other matters prescribed by the Building Societies Act 1986 In our opinion: the Annual Business Statement and the Directors’ Report have been prepared in accordance with the requirements of the Building Societies Act 1986; the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the accounting records and the financial statements; and the information given in the Annual Business Statement (other than the information upon which we are not required to report) gives a true representation of the matters in respect of which it is given. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Building Societies Act 1986 requires us to report to you if, in our opinion: 78 proper accounting records have not been kept by the Society; or the [Society] financial statements are not in agreement with the accounting records; or THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 we have not received all the information and explanations and access to documents we require for our audit. [Signature] John Smith (Senior Statutory Auditor) for and on behalf of ABC LLP, Statutory Auditor Address Date THE AUDITING PRACTICES BOARD 79 Bulletin 2010/2 (Revised) February 2011 Example 24 – Building society preparing financial statements under IFRSs as adopted by the European Union Group and Society financial statements are both prepared under IFRSs as adopted by the EU and reported on in a single auditor’s report INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ BUILDING SOCIETY We have audited the [Group and Society] financial statements of (name of Building Society) for the year ended ... which comprise [specify the titles of the primary statements such as the [Group and Society] Income Statement[s], [Group and Society] Statement[s] of Comprehensive Income, [Group and Society] Balance Sheet[s] and the [Group and Society] Statement[s] of Movements in Member’s Interests and the [Group and Society] Cash Flow Statement[s]], [the Accounting Policies73] and the related notes74. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement [set out [on pages..]], the directors are responsible for the preparation of the financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page] of the Annual Report]. Or: 73 Include if the accounting policies are presented in a separate statement and not as a note to the financial statements. 74 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘‘PDF’’ format may refer to the financial statements by reference to page numbers. 80 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the [Group’s and] Society’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the [Group’s and the] Society’s affairs as at ... and of [the Group’s and] the Society’s income and expenditure for the year then ended; and have been prepared in accordance with the requirements of the Building Societies Act 1986 [and, as regards the group financial statements, Article 4 of the lAS Regulation]. [Separate opinion in relation to IFRSs as issued by the IASB As explained in note [x] to the group financial statements, the group in addition to complying with its legal obligation to apply IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB). In our opinion the group financial statements comply with IFRSs as issued by the IASB.]75 Opinion on other matters prescribed by the Building Societies Act 1986 In our opinion: the Annual Business Statement and the Directors’ Report have been prepared in accordance with the requirements of the Building Societies Act 1986; the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the accounting records and the financial statements; and 75 See footnote 12. THE AUDITING PRACTICES BOARD 81 Bulletin 2010/2 (Revised) February 2011 the information given in the Annual Business Statement (other than the information upon which we are not required to report) gives a true representation of the matters in respect of which it is given. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Building Societies Act 1986 requires us to report to you if, in our opinion: proper accounting records have not been kept by the Society; or the [Society] financial statements are not in agreement with the accounting records; or we have not received all the information and explanations and access to documents we require for our audit. [Signature] John Smith (Senior Statutory Auditor) for and on behalf of ABC LLP, Statutory Auditor 82 THE AUDITING PRACTICES BOARD Address Date Bulletin 2010/2 (Revised) February 2011 Example 25 – Credit Union in Great Britain INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ CREDIT UNION We have audited the financial statements of (name of credit union) for the year ended ... which comprise [specify the titles of the primary statements such as the income and expenditure account, appropriation account, the statement of general reserve, the balance sheet] and the related notes76. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement [set out [on page ...]] the directors are responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. Or: 76 Auditor’s reports of credit unions that do not publish their financial statements on a website or publish them using ‘‘pdf’’ format may refer to the financial statements by reference to page numbers. THE AUDITING PRACTICES BOARD 83 Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the credit union’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the credit union’s affairs as at .... and of its income and expenditure for the year then ended;and have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, and with the Industrial and Provident Societies Acts 1965 to 2002 and the Credit Unions Act 1979. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Friendly and Industrial and Provident Societies Acts 1965 to 2002 require us to report to you if, in our opinion: proper books of account have not been kept by the credit union in accordance with the requirements of the legislation, a satisfactory system of control over transactions has not been maintained by the credit union in accordance with the requirements of the legislation, the revenue account or the other accounts (if any) to which our report relates, and the balance sheet are not in agreement with the books of account of the credit union. we have not obtained all the information and explanations necessary for the purposes of our audit. Statutory Auditor Date 84 THE AUDITING PRACTICES BOARD Address Bulletin 2010/2 (Revised) February 2011 Example 26 – Credit Union in Northern Ireland INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ CREDIT UNION LIMITED We have audited the financial statements of (name of Credit union) for the year ended ... which comprise [specify the titles of the primary statements such as the income and expenditure account, appropriation account, the statement of general reserve, the balance sheet] and the related notes77. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement [set out [on page ...]] the directors are responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...]] of the Annual Report]. Or: 77 Auditor’s reports of credit unions that do not publish their financial statements on a website or publish them using ‘‘pdf’’ format may refer to the financial statements by reference to page numbers. THE AUDITING PRACTICES BOARD 85 Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the credit union’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the credit union’s affairs as at ... and of its income and expenditure for the year then ended; and have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, and with the Credit Unions (Northern Ireland) Order 1985. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Credit Unions (Northern Ireland) Order 1985 requires us to report to you if, in our opinion: proper books of account have not been kept by the credit union in accordance with the requirements of the legislation, a satisfactory system of control over transactions has not been maintained by the credit union in accordance with the requirements of the legislation, the revenue account or the other accounts (if any) to which our report relates, and the balance sheet are not in agreement with the books of account of the credit union. we have not obtained all the information and explanations necessary for the purposes of our audit. Statutory Auditor Date 86 THE AUDITING PRACTICES BOARD Address Bulletin 2010/2 (Revised) February 2011 APPENDIX 9 OTHER REGULATED ENTITIES 27. Occupational pension scheme 28. Housing Association registered in England that is an industrial and provident society THE AUDITING PRACTICES BOARD 87 Bulletin 2010/2 (Revised) February 2011 Example 27 – Occupational pension scheme INDEPENDENT AUDITOR’S REPORT TO THE TRUSTEES OF THE XYZ PENSION SCHEME We have audited the financial statements of (name of pension scheme for the year ended .... which comprise the fund account, the net assets statement and the related notes78. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of trustees and auditor As explained more fully in the Trustees’ Responsibilities Statement [set out [on page ...]], the scheme’s trustees are responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Trustees’ Annual Report]. Or: An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the scheme’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the trustees; and the overall presentation of the financial statements. In addition, we read all the financial and nonfinancial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. 78 Auditor’s reports of schemes that do not publish their financial statements on a website or publish them using ‘‘PDF’’ format may refer to the financial statements by reference to page numbers. 88 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Opinion on financial statements In our opinion the financial statements: show a true and fair view of the financial transactions of the scheme during the year ended ..., and of the amount and disposition at that date of its assets and liabilities, other than the liabilities to pay pensions and benefits after the end of the year; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and contain the information specified in Regulation 3 of, and the Schedule to, the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, made under the Pensions Act 1995. Statutory Auditor Date Address THE AUDITING PRACTICES BOARD 89 Bulletin 2010/2 (Revised) February 2011 Example 28 – Housing Association registered in England that is an Industrial and Provident Society INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ HOUSING ASSOCIATION We have audited the financial statements of [name of housing association] for the year ended ... which comprise (state the primary financial statements such as the Income and Expenditure Account, the Balance Sheet, the Cash Flow Statement, the Statement of Total Recognised Gains and Losses)79 and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of the board and the auditor As explained more fully in the Statement of Board’s Responsibilities [set out [on page]], the board is responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. Or: 79 Auditors’ reports on Housing Associations that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. 90 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the association’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the board; and the overall presentation of the financial statements. In addition, we read all the financial and nonfinancial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the association’s affairs as at ... and of its income and expenditure for the year then ended; and have been properly prepared in accordance with the Industrial and Provident Societies Acts, 1965 to 2002, the Housing and Regeneration Act 200880 and The Accounting Requirements for Registered Social Landlords General Determination 2006. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Industrial and Provident Societies Acts, 1965 to 2002 require us to report to you if, in our opinion: a satisfactory system of control over transactions has not been maintained; or the association has not kept proper accounting records; or the financial statements are not in agreement with the books of account; or we have not received all the information and explanations we need for our audit. Statutory Auditor Date Address 80 For periods ending before 1 April 2010 the Housing Act 1996 is the relevant legislation that should be referred to. THE AUDITING PRACTICES BOARD 91 Bulletin 2010/2 (Revised) February 2011 APPENDIX 10 CHARITABLE COMPANIES REGISTERED IN ENGLAND & WALES 29. Charitable company audited under the Charities Act 1993 30. Charitable company audited under the Companies Act 2006 31. Charitable company group whose consolidated financial statements are prepared and audited under both the Companies Act 2006 and the Charities Act 1993 92 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Example 29 – Charitable company audited under the Charities Act 1993 INDEPENDENT AUDITOR’S REPORT TO THE TRUSTEES OF XYZ CHARITABLE COMPANY [LIMITED] We have audited the financial statements of (name of charitable company) for the year ended ... which comprise [specify the titles of the primary statements such as the Statement of Financial Activities, the Summary Income and Expenditure Account, the Balance Sheet, the Cash Flow Statement] and the related notes81. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of trustees and auditor As explained more fully in the Trustees’ Responsibilities Statement [set out [on page...]], the trustees (who are also the directors of the charitable company for the purposes of company law) are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. The trustees have elected for the financial statements to be audited in accordance with the Charities Act 1993 rather than the Companies Act 2006. Accordingly we have been appointed as auditor under section 43 of the Charities Act 1993 and report in accordance with regulations made under section 44 of that Act. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Trustees’ Annual Report]. Or: 81 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘‘PDF’’ format may refer to the financial statements by reference to page numbers. THE AUDITING PRACTICES BOARD 93 Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the charitable company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the trustees; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the charitable company’s affairs as at ..., and of its incoming resources and application of resources, including its income and expenditure, for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Charities Act 1993 requires us to report to you if, in our opinion: the information given in the Trustees’ Annual Report is inconsistent in any material respect with the financial statements; or the charitable company has not kept adequate accounting records; or the financial statements are not in agreement with the accounting records and returns; or we have not received all the information and explanations we require for our audit. Statutory Auditor Address Date ABC LLP is eligible to act as an auditor in terms of section 1212 of the Companies Act 2006 94 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Example 30 – Charitable company audited under the Companies Act 2006 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ CHARITABLE COMPANY [LIMITED] We have audited the financial statements of (name of charitable company) for the year ended ... which comprise [specify the titles of the primary statements such as the Statement of Financial Activities, the Summary Income and Expenditure Account, the Balance Sheet, the Cash Flow Statement] and the related notes82. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of trustees and auditor As explained more fully in the Trustees’ Responsibilities Statement [set out [on page...]], the trustees (who are also the directors of the charitable company for the purposes of company law) are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Trustees’ Annual Report]. Or: 82 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘‘PDF’’ format may refer to the financial statements by reference to page numbers. THE AUDITING PRACTICES BOARD 95 Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the charitable company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the trustees; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the charitable company’s affairs as at ... and of its incoming resources and application of resources, including its income and expenditure, for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Trustees’ Annual Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: 96 adequate accounting records have not been kept or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or certain disclosures of trustees’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. [or THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 the trustees were not entitled to prepare the financial statements in accordance with the small companies regime [and] [take advantage of the small companies exemption in preparing the Trustees’ Annual Report]].83 [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor Address Date 83 Only applicable if a charitable company, below the small companies threshold, has chosen to prepare its financial statements in accordance with the small companies regime. THE AUDITING PRACTICES BOARD 97 Bulletin 2010/2 (Revised) February 2011 Example 31 – Charitable company group whose consolidated financial statements are prepared and audited under both the Companies Act 2006 and the Charities Act 1993 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS AND TRUSTEES OF XYZ CHARITABLE COMPANY [LIMITED] We have audited the financial statements of (name of charitable company) for the year ended which comprise [specify the titles of the primary statements such as the Group [and Parent Charitable Company] Statement of Financial Activities, the Group [and Parent Charitable Company] Summary Income and Expenditure Account, the Group and Parent Charitable Company Balance Sheets, the Group [and Parent Charitable Company] Cash Flow Statement] and the related notes84. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of trustees and auditor As explained more fully in the Trustees’ Responsibilities Statement [set out [on page...]], the trustees (who are also the directors of the charitable company for the purposes of company law) are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. We have been appointed auditor under the Companies Act 2006 and section 43 of the Charities Act 1993 and report in accordance with those Acts. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Trustees’ Annual Report]. Or: 84 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘‘PDF’’ format may refer to the financial statements by reference to page numbers. 98 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the charitable company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the trustees; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the group’s and the parent charitable company’s affairs as at ..., and of the group’s incoming resources and application of resources, including its income and expenditure, for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006 and the Charities Act 1993. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Trustees’ Annual Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 and the Charities Act 1993 requires us to report to you if, in our opinion: the parent charitable company has not kept adequate and sufficient accounting records, or returns adequate for our audit have not been received from branches not visited by us; or the parent charitable company financial statements are not in agreement with the accounting records and returns; or certain disclosures of trustees’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. [ or THE AUDITING PRACTICES BOARD 99 Bulletin 2010/2 (Revised) February 2011 the trustees were not entitled to prepare the financial statements in accordance with the small companies regime [and] [take advantage of the small companies exemption in preparing the Trustees’ Annual Report].]85 [Signature] Address John Smith (Senior statutory auditor) Date for and on behalf of ABC LLP, Statutory Auditor ABC LLP is eligible to act as an auditor in terms of section 1212 of the Companies Act 2006. 85 Only applicable if a charitable company, below the small companies threshold, has chosen to prepare its financial statemenst in accordance with the small companies regime. 100 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 APPENDIX 11 CHARITABLE COMPANIES REGISTERED EITHER IN SCOTLAND OR IN BOTH SCOTLAND AND ENGLAND & WALES 32. Charitable company where an election has been made for audit exemption under the Companies Act 2006 33. Charitable company audited under the Charities and Trustee Investment (Scotland) Act 2005 and the Companies Act 2006 34. Large charitable company group whose consolidated financial statements are required to be prepared and audited under the Companies Act 2006 THE AUDITING PRACTICES BOARD 101 Bulletin 2010/2 (Revised) February 2011 Example 32 – Charitable company where an election has been made for audit exemption under the Companies Act 2006 INDEPENDENT AUDITOR’S REPORT TO THE TRUSTEES OF XYZ CHARITABLE COMPANY [LIMITED] We have audited the financial statements of (name of charitable company) for the year ended ... which comprise [specify the titles of the primary statements such as the Statement of Financial Activities, the Summary Income and Expenditure Account, the Balance Sheet, the Cash Flow Statement] and the related notes86. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of trustees and auditor As explained more fully in the Trustees’ Responsibilities Statement [set out [on page ... ]], the trustees (who are also the directors of the charitable company for the purposes of company law) are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view The trustees have elected for the financial statements to be audited in accordance with the Charities and Trustee Investment (Scotland) Act 2005 [and the Charities Act 1993]87 rather than also with the Companies Act 2006. Accordingly we have been appointed as auditor under section 44(1)(c) of the Charities and Trustee Investment (Scotland) Act 2005 [and under section 43 of the Charities Act 1993]88 and report in accordance with [that] [those] Act[s]. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us o comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Trustees’ Annual Report]. 86 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘‘PDF’’ format may refer to the financial statements by reference to page numbers. 87 This should only be included for cross border charitable companies registered in Scotland and England and Wales 88 This should only be included for cross border charitable companies registered in Scotland and England and Wales 102 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Or: An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the charitable company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the trustees; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the charitable company’s affairs as at ... and of its incoming resources and application of resources, including its income and expenditure, for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006, the Charities and Trustee Investment (Scotland) Act 2005 and regulation 8 of the Charities Accounts (Scotland) Regulations 2006 (as amended). Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Charities Accounts (Scotland) Regulations 2006 (as amended) [and the Charities Act 1993]89 requires us to report to you if, in our opinion: the information given in the Trustees’ Annual Report is inconsistent in any material respect with the financial statements; or the charitable company has not kept proper and adequate accounting records; or the financial statements are not in agreement with the accounting records and returns; or 89 This is only included in respect of cross border charities registered in both Scotland and in England and Wales THE AUDITING PRACTICES BOARD 103 Bulletin 2010/2 (Revised) February 2011 we have not received all the information and explanations we require for our audit. Statutory Auditor Address Date ABC LLP is eligible to act as an auditor in terms of section 1212 of the Companies Act 2006 104 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Example 33 – Charitable company audited under the Charities and Trustee Investment (Scotland) Act 2005 and the Companies Act 2006 INDEPENDENT AUDITOR’S REPORT TO THE TRUSTEES AND MEMBERS OF XYZ CHARITABLE COMPANY [LIMITED] We have audited the financial statements of (name of charitable company) for the year ended ... which comprise [specify the titles of the primary statements such as the Statement of Financial Activities, the Summary Income and Expenditure Account, the Balance Sheet, the Cash Flow Statement] and the related notes90. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of trustees and auditor As explained more fully in the Trustees’ Responsibilities Statement [set out [on page...]], the trustees (who are also the directors of the charitable company for the purposes of company law) are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. We have been appointed as auditor under section 44(1)(c) of the Charities and Trustee Investment (Scotland) Act 2005 and under the Companies Act 2006 and report in accordance with regulations made under those Acts. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Trustees’ Annual Report]. Or: 90 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘‘PDF’’ format may refer to the financial statements by reference to page numbers. THE AUDITING PRACTICES BOARD 105 Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the charitable company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the trustees; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the charitable company’s affairs as at ... and of its incoming resources and application of resources, including its income and expenditure, for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the Companies Act 2006, the Charities and Trustee Investment (Scotland) Act 2005 and regulation 8 of the Charities Accounts (Scotland) Regulations 2006 (as amended). Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Trustees’ Annual Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 and the Charities Accounts (Scotland) Regulations 2006 (as amended) requires us to report to you if, in our opinion: 106 the charitable company has not kept proper and adequate accounting records or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or certain disclosures of trustees’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit [ or THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 the trustees were not entitled to prepare the financial statements in accordance with the small companies regime [and] [take advantage of the small companies exemption in preparing the Trustees’ Annual Report.]91 [Signature] Address John Smith (Senior statutory auditor) Date for and on behalf of ABC LLP, Statutory Auditor ABC LLP is eligible to act as an auditor in terms of section 1212 of the Companies Act 2006 91 Only applicable if a charitable company, below the small companies threshold, has chosen to prepare its financial statements in accordance with the small companies regime. THE AUDITING PRACTICES BOARD 107 Bulletin 2010/2 (Revised) February 2011 Example 34 – Large charitable company group whose consolidated financial statements are required to be prepared and audited under the Companies Act 2006 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS AND TRUSTEES OF XYZ CHARITABLE COMPANY (LIMITED) We have audited the financial statements of (name of charitable company) for the year ended ... which comprise [specify the titles of the primary statements such as the Group [and Parent] Charitable Company Statements of Financial Activities, the Group [and Parent] Charitable Company Summary Income and Expenditure Accounts, the Group and Parent Charitable Company Balance Sheets, the Group [and Parent] Charitable Company Cash Flow Statements] and the related notes92. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of trustees and auditor As explained more fully in the Trustees’ Responsibilities Statement [set out [ on page ... ]], the trustees (who are also the directors of the charitable company for the purposes of company law) are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. We have been appointed as auditor under section 44(1)(c) of the Charities and Trustee Investment (Scotland) Act 2005 and under the Companies Act 2006 and report in accordance with regulations made under those Acts. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Trustees’ Annual Report]. 92 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘‘PDF’’ format may refer to the financial statements by reference to page numbers. 108 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Or: An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent charitable company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the trustees; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the group’s and the parent charitable company’s affairs as at ... and of the group’s [and the parent] charitable company’s incoming resources and application of resources, including [its] [the group’s and the parent] income and expenditure, for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the Companies Act 2006, the Charities and Trustee Investment (Scotland) Act 2005 and regulations 6 and 8 of the Charities Accounts (Scotland) Regulations 2006 (as amended). Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Trustees’ Annual Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 and the Charities Accounts (Scotland) Regulations 2006 (as amended) requires us to report to you if, in our opinion: the parent charitable company has not kept proper and adequate accounting records or returns adequate for our audit have not been received from branches not visited by us; or the parent charitable company’s financial statements are not in agreement with the accounting records or returns; or THE AUDITING PRACTICES BOARD 109 Bulletin 2010/2 (Revised) February 2011 certain disclosures of trustees’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. [Signature] Address John Smith (Senior statutory auditor) Date for and on behalf of ABC LLP, Statutory Auditor ABC LLP is eligible to act as an auditor in terms of section 1212 of the Companies Act 2006 110 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 APPENDIX 12 NON- COMPANY CHARITIES 35. Charity registered in England & Wales 36. Charity registered in Scotland THE AUDITING PRACTICES BOARD 111 Bulletin 2010/2 (Revised) February 2011 Example 35 – Charity registered in England & Wales INDEPENDENT AUDITOR’S REPORT TO THE TRUSTEES OF XYZ CHARITY We have audited the financial statements of (name of charity) for the year ended ... which comprise [specify the titles of the primary statements such as the Statement of Financial Activities, the Balance Sheet, the Cash Flow Statement] and the related notes93. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of trustees and auditor As explained more fully in the Trustees’ Responsibilities Statement [set out [on page ... ]], the trustees are responsible for the preparation of financial statements which give a true and fair view. We have been appointed as auditor under section 43 of the Charities Act 1993 and report in accordance with regulations made under section 44 of that Act. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Trustees’ Annual Report]. Or: 93 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘‘PDF’’ format may refer to the financial statements by reference to page numbers. 112 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the charity’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the trustees; and the overall presentation of the financial statements. In addition, we read all the financial and nonfinancial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the charity’s affairs as at ..., and of its incoming resources and application of resources, for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Charities Act 1993. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Charities Act 1993 requires us to report to you if, in our opinion: the information given in the Trustees’ Annual Report is inconsistent in any material respect with the financial statements; or sufficient accounting records have not been kept; or the financial statements are not in agreement with the accounting records and returns; or we have not received all the information and explanations we require for our audit. Statutory Auditor Address Date ABC LLP is eligible to act as an auditor in terms of section 1212 of the Companies Act 2006 THE AUDITING PRACTICES BOARD 113 Bulletin 2010/2 (Revised) February 2011 Example 36 – Charity registered in Scotland INDEPENDENT AUDITOR’S REPORT TO THE TRUSTEES OF XYZ CHARITY We have audited the financial statements of (name of charity) for the year ended ... which comprise [specify the titles of the primary statements such as the Statement of Financial Activities, the Balance Sheet, the Cash Flow Statement] and the related notes94. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of trustees and auditor As explained more fully in the Trustees’ Responsibilities Statement [set out [on page ... ]], the trustees are responsible for the preparation of financial statements which give a true and fair view. We have been appointed as auditor under section 44(1)(c) of the Charities and Trustee Investment (Scotland) Act 2005 and report in accordance with regulations made under that Act. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Trustees’ Annual Report]. Or: 94 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘‘PDF’’ format may refer to the financial statements by reference to page numbers. 114 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the charity’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the trustees; and the overall presentation of the financial statements. In addition, we read all the financial and nonfinancial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the charity’s affairs as at ... and of its incoming resources and application of resources, for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Charities and Trustee Investment (Scotland) Act 2005 and regulation 8 of the Charities Accounts (Scotland) Regulations 2006 (as amended). Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Charity Accounts (Scotland) Regulations 2006 (as amended) requires us to report to you if, in our opinion: the information given in the Trustees’ Annual Report is inconsistent in any material respect with the financial statements; or proper accounting records have not been kept; or the financial statements are not in agreement with the accounting records and returns; or we have not received all the information and explanations we require for our audit. Statutory Auditor Address Date ABC LLP is eligible to act as an auditor in terms of section 1212 of the Companies Act 2006 THE AUDITING PRACTICES BOARD 115 Bulletin 2010/2 (Revised) February 2011 APPENDIX 13 QUALIFIED OPINION ON FINANCIAL STATEMENTS 37. Disagreement – Inappropriate accounting treatment of debtors 38. Disagreement – Non-disclosure of a going concern problem 39. Disagreement – Non-disclosure of information required to be disclosed 40. Scope Limitation – Auditor not appointed at the time of the stocktaking 41. Scope Limitation – Directors did not prepare cash flow forecasts sufficiently far into the future to be able to assess the going concern status of the company 116 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Example 37 – Qualified opinion: Disagreement – Inappropriate accounting treatment of debtors UK non-publicly traded company prepares UK GAAP financial statements (Example 2). The debtors shown on the balance sheet include an amount of £Y due from a company which has ceased trading. XYZ Limited has no security for this debt. The auditor’s opinion is that the company is unlikely to receive any payment and full provision of £Y should have been made. The auditor believes that the effect of the disagreement is material but not pervasive to the financial statements and accordingly issues a qualified opinion – except for disagreement about the accounting treatment of debtors. EXTRACT FROM AUDITOR’S REPORT ... Basis for qualified opinion on financial statements Included in the debtors shown on the balance sheet is an amount of £Y due from a company which has ceased trading. XYZ Limited has no security for this debt. In our opinion the company is unlikely to receive any payment and full provision of £Y should have been made. Accordingly, debtors should be reduced by £Y, the deferred tax liability should be reduced by £X and profit for the year and retained earnings should be reduced by £Z. Qualified opinion on financial statements In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements: give a true and fair view of the state of the company’s affairs as at ... and of its profit [loss] for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. THE AUDITING PRACTICES BOARD 117 Bulletin 2010/2 (Revised) February 2011 Matters on which we are required to report by exception95 We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements 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. ... 95 The auditor needs to consider whether the circumstances leading to the disagreement about the accounting treatment affect the matters on which the auditor is required to report by exception. 118 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Example 38 – Qualified opinion: Disagreement – Non-disclosure of a going concern problem UK non-publicly traded company prepares UK GAAP financial statements (Example 2). The company’s year-end is 31 December 20X1 and neither the financial statements nor the directors’ report disclose that the Company’s financing arrangements expire and amounts outstanding are payable on 19 July 20X2 and that the Company has been unable to re-negotiate or obtain replacement financing. The directors continue to talk to potential alternative providers of finance. This situation indicates the existence of a material uncertainty which may cast significant doubt on the company’s ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business. The auditor concludes that there is a significant level of concern about going concern and disagrees with the failure to disclose this information in the financial statements. The auditor believes that the lack of disclosure although material is not pervasive to the financial statements and accordingly issues a qualified opinion describing the disagreement. EXTRACT FROM AUDITOR’S REPORT ... Basis for qualified opinion on financial statements The company’s financing arrangements expire and amounts outstanding are payable on 19 July 20X2. While the directors continue to investigate alternative sources of finance, the company has so far been unable to re-negotiate or obtain replacement financing. This situation indicates the existence of a material uncertainty which may cast significant doubt on the company’s ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements (and notes thereto) do not disclose this fact. Qualified opinion on financial statements In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements: give a true and fair view of the state of the company’s affairs as at 31 December 20X1 and of its profit [loss] for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. THE AUDITING PRACTICES BOARD 119 Bulletin 2010/2 (Revised) February 2011 Opinion on other matter prescribed by the Companies Act 2006 ... 120 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Example 39 – Qualified opinion: Disagreement – Non-disclosure of information required to be disclosed UK non-publicly traded company prepares UK GAAP financial statements (Example 2). The company has not disclosed that one of its bankers has a fixed and floating charge over all of the company’s assets as security for a long term loan. Such disclosure is required by paragraph 61 of Part 2 to Schedule 1 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008. EXTRACT FROM AUDITOR’S REPORT ... Basis for qualified opinion on financial statements The notes to the financial statements do not disclose that one of the company’s bankers has a fixed and floating charge over all of the company’s assets as security for a bank loan of £5 million which is included in creditors: amounts falling due after more than one year. Such disclosure is required by the Companies Act 2006 Qualified opinion on financial statements In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements: give a true and fair view of the state of the company’s affairs as at 31 December 20X1 and of its profit [loss] for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 ... THE AUDITING PRACTICES BOARD 121 Bulletin 2010/2 (Revised) February 2011 Example 40 – Qualified opinion: Limitation on scope – Auditor not appointed at the time of the stocktaking UK non-publicly traded company prepares UK GAAP financial statements (Example 2). The evidence available to the auditor was limited because they did not observe the counting of the physical stock as at 31 December 20X1, since that date was prior to the time the auditor was initially engaged as auditor for the company. Owing to the nature of the company’s records, the auditor was unable to satisfy itself as to stock quantities using other audit procedures. The limitation in audit scope causes the auditor to issue a qualified opinion ‘‘except for’’ any adjustments that might have been found to be necessary had it been able to obtain sufficient evidence concerning stock. The limitation of scope was determined by the auditor to be material but not pervasive to the financial statements. EXTRACT FROM AUDITOR’S REPORT ... Basis for qualified opinion on financial statements With respect to stock having a carrying amount of £X the audit evidence available to us was limited because we did not observe the counting of the physical stock as at 31 December 20X1, since that date was prior to our appointment as auditor of the company. Owing to the nature of the company’s records, we were unable to obtain sufficient appropriate audit evidence regarding the stock quantities by using other audit procedures. Qualified opinion on financial statements In our opinion, except for the possible effects of the matters described in the Basis for Qualified Opinion paragraph, the financial statements: give a true and fair view of the state of the company’s affairs as at 31 December 20X1 and of its profit [loss]for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. 122 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Matters on which we are required to report by exception In respect solely of the limitation on our work relating to stock, described above: we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and we were unable to determine whether adequate accounting records had been kept. We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor Address Date THE AUDITING PRACTICES BOARD 123 Bulletin 2010/2 (Revised) February 2011 Example 41 – Qualified opinion: Limitation of scope – Directors did not prepare cash flow forecasts sufficiently far into the future to be able to assess the going concern status of the company UK non-publicly traded company prepares UK GAAP financial statements (Example 2). The evidence available to the auditor was limited because the company had prepared cash flow forecasts and other information needed for the assessment of the appropriateness of the going concern basis of preparation of the financial statements only for a period of nine months from the date of approval of the financial statements and there were no sufficient alternative procedures that the auditor could perform. Although this fact is disclosed in the financial statements had the information been available the auditor might have formed a different opinion. The auditor considers that the directors have not taken adequate steps to satisfy themselves that it is appropriate for them to adopt the going concern basis. The auditor does not consider that the future period to which the directors have paid particular attention in assessing going concern is reasonable in the company’s circumstances. The auditor considers that the particular circumstances of the company and the nature of the company’s business require that such information be prepared, and reviewed by the directors and auditor for a period of at least twelve months from the date of approval of the financial statements. The auditor considers that the possible effect of the limitation of scope is material but not pervasive. The auditor issues a qualified opinion referring to the adjustments that might have been found to be necessary had they obtained sufficient evidence concerning the appropriateness of the going concern basis of preparation of the financial statements. EXTRACT FROM AUDITOR’S REPORT ... Basis for qualified opinion on financial statements The audit evidence available to us was limited because the directors of the company have prepared cash flow forecasts and other information needed for the assessment of the appropriateness of the going concern basis of preparation of the financial statements for a period of only nine months from the date of approval of these financial statements. We consider that the directors have not taken adequate steps to satisfy themselves that it is appropriate for them to adopt the going concern basis because the circumstances of the company and the nature of the business require that such information be prepared, and reviewed by the directors and ourselves, for a period of at least twelve months from the date of approval of the financial statements. Had this information been available to us we might have formed a different opinion on the financial statements. 124 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Qualified opinion on financial statements In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements: give a true and fair view of the state of the company’s affairs as at ... and of its profit [loss] for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception In respect solely of the limitation on our work relating to the assessment of the appropriateness of the going concern basis of preparation of the financial statements, described above, we have not obtained all the information and explanations that we considered necessary for the purpose of our audit. We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor Address Date THE AUDITING PRACTICES BOARD 125 Bulletin 2010/2 (Revised) February 2011 APPENDIX 14 ADVERSE OPINION ON FINANCIAL STATEMENTS 42. Adverse opinion: No provision made for losses expected to arise on long term contracts 43. Adverse opinion: Significant level of concern about going concern status that is not disclosed in the financial statements 126 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Example 42 – Adverse opinion: No provision made for losses expected to arise on long-term contracts UK non-publicly traded company prepares UK GAAP financial statements (Example 2). No provision has been made for losses expected to arise on certain long-term contracts currently in progress, as the directors consider that such losses should be off-set against amounts recoverable on other long-term contracts. In the auditor’s opinion, provision should be made for foreseeable losses on individual contracts as required by SSAP 9. In the auditor’s view, the financial effect of this disagreement in accounting treatment is both material and pervasive to the financial statements such that an ‘‘except for’’ qualification of the auditor’s opinion would not be sufficient to disclose the misleading nature of the financial statements. The auditor issues an adverse opinion due to the failure to provide for the losses and quantifies the impact on the profit for the year, the contract work in progress and the deferred tax liability at the year end. The auditor considers that notwithstanding its adverse opinion on the financial statements that adequate accounting records had been kept by the company and that it had received all the information and explanations it required for the audit. EXTRACT FROM AUDITOR’S REPORT ... Basis for adverse opinion on financial statements As more fully explained in note [x] to the financial statements no provision has been made for losses expected to arise on certain long-term contracts currently in progress, as the directors consider that such losses should be off-set against amounts recoverable on other long-term contracts. In our opinion, provision should be made for foreseeable losses on individual contracts as required by Statement of Standard Accounting Practice 9: Stocks and long-term contracts. If losses had been so recognised the effect would have been to reduce the carrying amount of contract work in progress by £X, the deferred tax liability by £Y and the profit for the year and retained earnings at 31 December 20X1 by £Z. Adverse opinion on financial statements In our opinion, because of the significance of the matter described in the Basis for Adverse Opinion paragraph, the financial statements: do not give a true and fair view of the state of the company’s affairs as at 31 December 20X1 and of its profit [loss] for the year then ended; and THE AUDITING PRACTICES BOARD 127 Bulletin 2010/2 (Revised) February 2011 have not been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice. In all other respects, in our opinion the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 Notwithstanding our adverse opinion on the financial statements, in our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception96 We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements 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. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor Address Date 96 The auditor needs to consider whether the circumstances leading to the adverse opinion on the financial statements affect the matters on which the auditor is required to report by exception. 128 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Example 43 – Adverse opinion: Significant level of concern about going concern status that is not disclosed in the financial statements UK non-publicly traded company prepares UK GAAP financial statements (Example 2). Although there is a significant level of concern about the company’s ability to continue as a going concern the financial statements and notes do not disclose this fact and the directors have prepared the financial statements on the going concern basis. The auditor considers that the financial statements should disclose that there is a material uncertainty, which may cast significant doubt on the company’s ability to continue as a going concern. As the effect of this disagreement is both material and pervasive to the amounts included within the financial statements the auditor concludes that a qualification of the opinion is not adequate to disclose the misleading and incomplete nature of the financial statements. The auditor issues an adverse audit opinion stating that, because the material uncertainty regarding going concern is not disclosed, the financial statements do not give a true and fair view. EXTRACT FROM AUDITOR’S REPORT ... Basis for adverse opinion on financial statements As explained in note [x] to the financial statements the company’s financing arrangements expired and the amount outstanding was payable on [a past date]. The company has been unable to re-negotiate or obtain replacement financing and the directors of the company are considering whether the company should enter insolvency proceedings [but are continuing to investigate alternative sources of finance]. These events indicate a material uncertainty which may cast significant doubt on the company’s ability to continue as a going concern and, therefore, it may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements (and notes thereto) do not disclose this fact and have been prepared on the going concern basis. Adverse opinion on financial statements In our opinion, because of the significance of the matter described in the Basis for Adverse Opinion paragraph: the financial statements do not give a true and fair view of the state of the company’s affairs as at ... and of its profit [loss] for the year then ended; and have not been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice. THE AUDITING PRACTICES BOARD 129 Bulletin 2010/2 (Revised) February 2011 In all other respects, in our opinion the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 Notwithstanding our adverse opinion on the financial statements, in our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements 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. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor 130 THE AUDITING PRACTICES BOARD Address Date Bulletin 2010/2 (Revised) February 2011 APPENDIX 15 DISCLAIMER OF OPINION ON FINANCIAL STATEMENTS 44. Disclaimer of opinion: Auditor unable to attend stocktaking and confirm trade debtors 45. Disclaimer of opinion: Multiple uncertainties THE AUDITING PRACTICES BOARD 131 Bulletin 2010/2 (Revised) February 2011 Example 44 – Disclaimer of opinion: Auditor unable to attend stocktaking and confirm trade debtors UK non-publicly traded company prepares UK GAAP financial statements (Example 2). The evidence available to the auditor was limited because the auditor was not able to observe all physical stock and confirm trade debtors due to limitations placed on the scope of the auditor’s work by the directors of the company. The limitation in scope is considered by the auditor to be both material and pervasive so that it is unable to form an opinion on the financial statements. As a result, the auditor issues a modified opinion disclaiming an opinion on the financial statements. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ LIMITED We were engaged to audit the financial statements of (name of entity) for the year ended ... which comprise [specify the titles of the primary statements such as the Profit and Loss Account, the Balance Sheet, the Cash Flow Statement, the Statement of Total Recognised Gains and Losses, the Reconciliation of Movements in Shareholders’ Funds] and the related notes97. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement [set out [on page ...]], the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Because of the matter described in the Basis for Disclaimer of Opinion paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. 97 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. 132 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Or: An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Basis for disclaimer of opinion on financial statements The audit evidence available to us was limited because we were unable to observe the counting of physical stock having a carrying amount of £X and send confirmation letters to trade debtors having a carrying amount of £Y due to limitations placed on the scope of our work by the directors of the company. As a result of this we have been unable to obtain sufficient appropriate audit evidence concerning both stock and trade debtors. Disclaimer of opinion on financial statements Because of the significance of the matter described in the Basis for Disclaimer of Opinion on Financial Statements paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly we do not express an opinion on the financial statements. Opinion on other matter prescribed by the Companies Act 2006 Notwithstanding our disclaimer of an opinion on the financial statements, in our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception Arising from the limitation of our work referred to above: we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and we were unable to determine whether adequate accounting records have been kept. We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: THE AUDITING PRACTICES BOARD 133 Bulletin 2010/2 (Revised) February 2011 returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor 134 THE AUDITING PRACTICES BOARD Address Date Bulletin 2010/2 (Revised) February 2011 Example 45 – Disclaimer of opinion: Multiple uncertainties As discussed in ISA (UK and Ireland) 705 paragraph 10 the auditor disclaims an opinion when, in extremely rare circumstances involving multiple uncertainties, the auditor concludes that, notwithstanding having obtained sufficient appropriate audit evidence regarding each of the individual uncertainties, it is not possible to form an opinion on the financial statements due to the potential interaction of the uncertainties and their possible cumulative effect on the financial statements. This example does not include a description of the multiple uncertainties that might lead to a disclaimer of opinion because circumstances will vary and auditors will have to use their judgment when deciding whether it is an extreme case involving multiple uncertainties that are significant to the financial statements. Often, if the matters constituting the multiple uncertainties were considered individually the auditor may be able to issue an unqualified auditor’s opinion with an emphasis of matter paragraph describing the situation giving rise to the emphasis of matter and its possible effects on the financial statements, including (where practicable) quantification but the audit opinion would be unmodified. INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF XYZ LIMITED We were engaged to audit the financial statements of (name of entity) for the year ended ... which comprise [specify the titles of the primary statements such as the Profit and Loss Account, the Balance Sheet, the Cash Flow Statement, the Statement of Total Recognised Gains and Losses, the Reconciliation of Movements in Shareholders’ Funds] and the related notes98. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement [set out [on page ...]], the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s [(APB’s)] Ethical Standards for Auditors. Because of the matters described in the Basis for Disclaimer of Opinion paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. 98 Auditor’s reports of entities that do not publish their financial statements on a website or publish them using ‘PDF’ format may refer to the financial statements by reference to page numbers. THE AUDITING PRACTICES BOARD 135 Bulletin 2010/2 (Revised) February 2011 Scope of the audit of the financial statements Either: A description of the scope of an audit of financial statements is [provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm ] / [set out [on page ...] of the Annual Report]. Or: An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the [describe the annual report] to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Basis for disclaimer of opinion on financial statements In seeking to form an opinion on the financial statements we considered the implications of the significant uncertainties disclosed in the financial statements concerning the following matters: [Describe uncertainty 1] [Describe uncertainty 2] There is potential for the uncertainties to interact with one another such that we have been unable to obtain sufficient appropriate audit evidence regarding the possible effect of the uncertainties taken together. Disclaimer of opinion on financial statements Because of the significance of the possible impact of the uncertainties, described in the Basis for Disclaimer of Opinion on Financial Statements paragraph, to the financial statements, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly we do not express an opinion on the financial statements. 136 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Opinion on other matter prescribed by the Companies Act 2006 Notwithstanding our disclaimer of an opinion on the financial statements, in our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception99 We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements 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. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor Address Date 99 The auditor needs to consider whether the circumstances leading to the disclaimer of opinion on the financial statements affects the matters on which the auditor is required to report by exception. THE AUDITING PRACTICES BOARD 137 Bulletin 2010/2 (Revised) February 2011 APPENDIX 16 MODIFIED OPINION ON OTHER REQUIREMENTS OF THE COMPANIES ACT 2006 46. Qualified opinion on the consistency of the financial statements with the directors’ report 138 THE AUDITING PRACTICES BOARD Bulletin 2010/2 (Revised) February 2011 Example 46 – Qualified opinion on the consistency of the financial statements with the directors’ report UK non-publicly traded company prepares UK GAAP financial statements (Example 2). Auditor gives an unqualified opinion on the financial statements. There is an unresolved inconsistency between the directors’ report and the financial statements. EXTRACT FROM AUDITOR’S REPORT ... Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the company’s affairs as at ........ and of its profit [loss] for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. Qualified opinion on other matter prescribed by the Companies Act 2006 In our opinion, the information given in the seventh paragraph of the Business Review in the Directors’ Report is not consistent with the financial statements. That paragraph states without amplification that ‘‘the company’s trading for the period resulted in a 10% increase in profit over the previous period’s profit’’. The profit and loss account, however, shows that the company’s profit for the period includes a profit of £Z which did not arise from trading but arose from the disposal of assets of a discontinued operation. Without this profit on the disposal of assets the company would have reported a profit for the year of £Y, representing a reduction in profit of 25% over the previous period’s profit on a like for like basis. Except for this matter, in our opinion the information given in the Directors’ Report is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or THE AUDITING PRACTICES BOARD 139 Bulletin 2010/2 (Revised) February 2011 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. [Signature] John Smith (Senior statutory auditor) for and on behalf of ABC LLP, Statutory Auditor 140 THE AUDITING PRACTICES BOARD Address Date Bulletin 2010/2 (Revised) February 2011 APPENDIX 17 DIRECTORS’ RESPONSIBILITIES STATEMENT 47. Directors’ Responsibilities Statement for a non-publicly traded company preparing financial statements under UK GAAP THE AUDITING PRACTICES BOARD 141 Bulletin 2010/2 (Revised) February 2011 Example 47 – Directors’ Responsibilities Statement for a nonpublicly traded company preparing financial statements under UK GAAP DIRECTORS’ RESPONSIBILITIES STATEMENT The directors are responsible for preparing the Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and the profit or loss of the company for that period. In preparing these financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgments and accounting estimates that are reasonable and prudent;100 state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;101 prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business102. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 100 Paragraph 13 of Part II of Schedule 2 to each of the ‘‘The Small Companies and Groups (Accounts and Reports) Regulations 2008’’ (SI 2008 No. 409) and ‘‘The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008’’ (SI 2008 No. 410) require that the amount of any item must be determined on a prudent basis. 101 This bullet does not apply to companies subject to the small companies regime and medium-sized companies as defined by CA 2006. 102 Included where no separate statement on going concern is made by the directors. 142 THE AUDITING PRACTICES BOARD Bulletin 2010_2 Cover.qxd 27/01/2011 10:55 Page 2 THE AUDITING PRACTICES BOARD The Auditing Practices Board (APB), which is part of the Financial Reporting Council (FRC), prepares for use within the United Kingdom and the Republic of Ireland: Standards and guidance for auditing; Standards and guidance for reviews of interim financial information performed by the auditor of the entity; Standards and guidance for the work of reporting accountants in connection with investment circulars; and Standards and guidance for auditor’s and reporting accountant’s integrity, objectivity and independence with the objective of enhancing public confidence in the audit process and the quality and relevance of audit services in the public interest. The APB comprises individuals who are not eligible for appointment as company auditors, as well as those who are so eligible. Those who are eligible for appointment as company auditors may not exceed 40% of the APB by number. Neither the APB nor the FRC accepts any liability to any party for any loss, damage or costs howsoever arising, whether directly or indirectly, whether in contract, tort or otherwise from any action or decision taken (or not taken) as a result of any person relying on or otherwise using this Bulletin or arising from any omission from it. The purpose of Bulletins issued by the APB is to provide auditors and, where relevant, reporting accountants, with timely guidance on new and emerging issues. They are persuasive rather than prescriptive. However, they are indicative of good practice, even though they may be developed without the full process of consultation and exposure used for auditing standards. # The Financial Reporting Council Limited 2011 The APB is part of the Financial Reporting Council Limited a company limited by guarantee. Registered in England number 2486368.Registered Office: 5th Floor, Aldwych House, 71-91 Aldwych, London WC2B 4HN
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