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How do Accounting Standards interact with the work of an Auditor?

Updated: Jan 6


Accounting standards, such as the International Financial Reporting Standards (IFRS), Malaysian Financial Reporting Standards (MFRS) and Malaysian Private Entities Reporting Standard (MPERS), are among the most important components of a set of financial statements.


会计准则,如国际财务报告准则(IFRS)、马来西亚财务报告准则(MFRS)和马来西亚私营实体报告准则(MPERS),是一套财务报表的最重要组成部分。


As a result of its role in prescribing how the accounting treatment of material items should be handled within the financial statements, accounting standards are often regarded as the most important component of an audit of historical information.


由于其在规定财务报表中应如何处理重大项目的会计处理方面的作用,会计准则通常被视为历史信息审计的最重要组成部分。

The auditor must give an opinion on whether the financial statements "provide a True and Fair View" or "present fairly in all material aspects."


This is the objective of the auditing process.


Because of this, it is within the scope of the auditor's responsibility to report on whether or not the financial statements have been prepared in accordance with the relevant financial reporting framework (hence the question, "have the financial statements been prepared in accordance with the relevant financial reporting standards?").


This is because the technical correctness of the financial statements is implicit in an unmodified audit opinion.

审计师必须对财务报表是否 "提供了真实和公平的观点 "或 "公平地反映了所有重大方面 "发表意见。


这是审计过程的目标。


正因为如此,报告财务报表是否按照相关的财务报告框架编制属于审计师的责任范围(因此,问题是 "财务报表是否按照相关的财务报告标准编制?)


这是因为财务报表的技术正确性隐含在无保留审计意见中。


Example:

The TC Mattress Company, often known as TC, prepares its financial statements using MFRS and announces its results up to 2022.


TC allowed each of its employees to purchase company shares on January 1, 2022, in what is seen as a significant business event.

These employees' share options will become exercisable in four years (vest in four years' time).


TC has not included any accounting inputs or disclosures in the financial statements because there was no cash flow in the year that ended on December 31, 2022, and the options will not vest until 2025.


As a result, management is proposing to include the monetary amounts in the financial statements for the year that ended on December 31, 2025, rather than including them in the financial statements for the year that ended on December 31, 2022.


Currently, the auditors are doing an audit on the financial statements for the financial year that concluded on December 31st, 2022. In accordance with MFRS 2 Share-Based Payment provision, an entity is required to record an expense if it provides employees (or management) with the opportunity to purchase shares in the company (share options).

This is because the employees are benefiting from a form of remuneration, but the entity also benefits from the services.



In accordance with MFRS 2, an expense must be computed considering the fair value of the share options as of the date they were granted (1 January 2022).



Suppose TC does not include the expense (and the corresponding increase in equity) in the financial statements that cover the period ending 31 December 2022.


In that case, the auditors will be required to issue a qualified opinion on the basis that the financial statements do not comply with the requirements outlined in MFRS 2.


This is because the transaction in question is regarded as being material.

Typically, shares, share options or other equity instruments are granted to employees as part of their remuneration package, in addition to a cash salary and other employment benefits.


As can be seen from the above illustration, if the auditors were unaware of the provisions in MFRS 2, there would be a far greater possibility for them to provide an inaccurate audit opinion (which would be reckless).


通常情况下,除了现金工资和其他就业福利外,股票、股票期权或其他股权工具也经常被授予雇员,作为其薪酬方案的一部分。


从上面的例子可以看出,如果审计师不知道 MFRS 2 中的规定,他们提供不准确的审计意见的可能性就会大得多(这将是鲁莽的)。

Accounting standards outline the definitions, recognition criteria, measurement rules and disclosure requirements that reporting entities must comply with in their financial statements; hence their importance cannot be over-emphasised.

During the audit engagement, auditors will perform their duties per auditing standards, such as the International Standards on Auditing (ISAs).


The ISAs will make it possible to conduct an effective and efficient audit.


会计准则概述了报告实体在其财务报表中必须遵守的定义、确认标准、计量规则和披露要求;因此其重要性怎么强调都不为过。


在审计工作中,审计师将根据审计准则履行其职责,如《国际审计准则》(ISA)。


《国际审计准则》将使其有可能进行有效和高效的审计。

However, auditors must also ensure that their technical knowledge of accounting standards is up to scratch because otherwise, they will not be able to conclude whether or not material items within the entity's financial statements that they are auditing are correct.


At various phases of the audit, the auditor will additionally take into consideration the following issues pertaining to financial reporting:


然而,审计师也必须确保他们对会计准则的技术知识是合格的,因为否则,他们将无法得出结论,他们所审计的实体的财务报表中的重要项目是否正确。


在审计的各个阶段,审计师将额外考虑到与财务报告有关的以下问题:-


Planning

Financial statement risk is the risk that the financial statements contain material misstatements.


This may result from an incorrect interpretation of accounting standards, inaccurate recording of transactions or disclosure.

Financial statement risk might lead to an overstatement or understatement of the value of an account balance, or it could result in an item being recognised within the financial statements when it should not be recognised (or vice versa).


In addition, the Financial statement Risk may result in an item or items in the financial statements being improperly stated (or not being disclosed), respectively.


The auditor will, during the planning stage, take into consideration the accounting provisions that are relevant to the audit client. This will enable the auditor to consider the risk posed by the financial statements during the planning stage.

财务报表风险是指财务报表包含重大错报的风险。


这可能是由于对会计准则的不正确解释、交易的不准确记录或披露造成的。


财务报表风险可能导致高报或低报一个账户余额