Tupizagram #17

The deadline for completing school audits was yesterday. We hope that all our school auditor clients met the target and are having a relaxing day today.

Compulsory Disclosures

We have had a couple of enquiries from auditors about how to deal with clients that don't want to include some compulsory information. One of these clients, showing admirable imagination and not a little presumption, argued that it was not a basis for qualifying the audit report by quoting the auditing standard, “Section 6 of ISA (NZ) 705 outlines circumstances when a modification is required and I can’t see any of points (a) or (b) being triggered. I’ve also shown sections 7-9 which outline the type of modification and none of them fit either.”

To claim that an omission is not a misstatement is absurd. On that basis there might be no notes at all and the preparer would claim that there is no misstatement. Of course paragraph 6(a) of ISA (NZ) 705 applies. Paragraph A7(a) specifically explains that "material misstatements of the financial statements may arise when ... The financial statements do not include all of the disclosures required by the applicable financial reporting framework …”

The reference to paragraphs 7-9 is a complete red herring. They describe what kind of modification is to be issued once a misstatement or lack of evidence has been identified.
Whilst it is just possible for an auditor to conclude that the omission of a compulsory disclosure is not material, it is very rare and it would normally be a very brave auditor who took that view. The disclosures are material by their nature, even though the numbers may be small.

When a Single Income Statement Won't Do

You have probably noticed that all the myriad of current reporting frameworks have one thing in common: they demand a single income statement. This may be titled Profit & Loss Account (not fashionable these days but not forbidden), Statement of Financial Performance, Statement of Comprehensive Income, Statement of Comprehensive Revenue and Expense, or even something more outlandish.

The standard setters feel, and generally I agree, that the complete picture is important. However, there are occasions when an entity has operations that really do need to be reported separately. One that came up recently is a chartered club, where the gaming has to be shown separately. And adding up the bar with the sporting activities and welfare into a single, aggregated, operating statement means that apples, oranges and watermelons are all lumped together. There are other examples, such as auto dealerships, where the sales and service divisions cannot be understood unless they are reported separately.

One solution is to present segment information, as listed companies must do under NZ IFRS 8. Another approach is to present a table in the notes that breaks down the total figures we are obliged to report in the main statement. A very simple example, ignoring comparatives, might look like this:

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The total column would, of course, equal the figures in the main statement.

What We Do


Not everyone knows the full range of our services. Briefly:

For auditors: Advice on all aspects of auditing, particularly audit reporting, auditing standards, the related professional and ethical standards, how to tackle unusual situations and how to deal with awkward clients. Training for auditors at all levels. We can also assist with document templates and texts of audit reports.

For auditees: How to deal with awkward auditors. (This is very rare!)

For publishers: Technical writing on audit and accounting topics.

For everybody: Choosing the right reporting framework, advice on financial reporting standards, comment on sufficiency of disclosures and company secretarial matters.

Disclaimer. Tupizagrams are designed to give accurate but general information. No liability is accepted in any way to any person arising out of reliance on the contents for any purpose.

Best wishes,

Bill Heritage

2471 Motueka Valley Highway, RD1, Motueka 7196

Tel: +64 3 543 3668

Mob: +64 21 141 8831
Email: 
bill.heritage@tupiza.co.nz
Web: 
www.tupiza.co.nz
Skype ID:  bill_heritage

At my age people expect me to be mature, wise and sensible.  I aim to disappoint them.
Quote of the week:

“Fortes Fortuna iuvat. (Fortune favours the brave.)” Gaius Plinius Secundus (23–79), better known as Pliny the Elder, ancient author and natural philosopher.

 (reprinted with permission - to subscribe direct to Bill's email contact him via the above)

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