AWP 10

​

Compliance with IFRS and Fair Presentation Case Example: ABC Manufacturing Company

Context

ABC Manufacturing Company operates in a jurisdiction where IFRS is the applicable financial reporting framework. As such, its financial statements need to be prepared according to these standards to ensure comparability, transparency, and reliability for stakeholders.

Audit Objective

To verify that ABC Manufacturing Company’s financial statements are prepared in compliance with IFRS and accurately represent the company’s financial position, performance, and cash flows, ensuring fair presentation.

Types of Audit Evidence and Documentation for Compliance and Fair Presentation

1. Review of Financial Statement Preparation Process

• Case: Assess the processes and controls the company has in place for preparing financial statements in accordance with IFRS, including the identification, measurement, and disclosure of financial information.

• Documentation: Document the assessment of the company’s financial statement preparation process, including any identified strengths and weaknesses in the process and controls.

2. Evaluation of Accounting Policies

• Case: Evaluate the accounting policies adopted by ABC Manufacturing Company to ensure they are appropriate and consistent with IFRS.

• Documentation: Prepare a summary of the company’s significant accounting policies, noting any changes from the prior year and assessing their appropriateness and consistency with IFRS.

3. Testing for Compliance with Specific IFRS Standards

• Case: Perform detailed testing on various financial statement items to verify compliance with specific IFRS standards (e.g., IAS 16 for PPE, IFRS 15 for revenue recognition).

• Documentation: Document the testing performed, including the standards tested, procedures used, findings, and any adjustments made or recommended to ensure compliance.

4. Assessment of Judgments and Estimates

• Case: Review the significant judgments and estimates made by management in preparing the financial statements, such as impairment testing, valuation of assets, and provisions for liabilities.

• Documentation: Summarize the review of judgments and estimates, including the basis and rationale for each, and assess their reasonableness and compliance with IFRS.

5. Review of Disclosures

• Case: Review the financial statement disclosures to ensure they are complete, clear, and in compliance with IFRS disclosure requirements.

• Documentation: Prepare a checklist of required disclosures based on applicable IFRS standards and document the review of disclosures against this checklist, noting any omissions or inadequacies.

6. Evaluation of Overall Fair Presentation

• Case: Evaluate whether the financial statements, as a whole, provide a fair presentation of the company’s financial position, performance, and cash flows.

• Documentation: Document the overall assessment of the financial statements’ fair presentation, including any areas of concern or where the application of IFRS has led to a departure from providing a true and fair view.

7. Management Representations

• Case: Obtain written representations from management confirming their responsibility for the preparation and fair presentation of the financial statements in accordance with IFRS.

• Documentation: Include the representation letter, highlighting sections related to compliance with IFRS and the fair presentation of financial statements.

Conclusion

For compliance with IFRS and fair presentation, auditors compile and document evidence across various aspects of financial reporting to ensure that ABC Manufacturing Company’s financial statements are prepared correctly according to IFRS and accurately reflect the company’s financial reality. Through this comprehensive documentation, auditors support their opinion on the financial statements, providing stakeholders with assurance about the reliability and comparability of the reported financial information.