Our audits of clients' financial statements are carried out in accordance with International Standards on Auditing (ISAs). These standards have recently been fully updated and revised to improve their clarity and in some cases this is accompanied by additional audit requirements. We are required to comply with them for the audit of clients' financial statements.
We plan and perform our audits to be able to provide reasonable assurance that the clients' financial statements are free from material misstatement and give a true and fair view. We use professional judgment to assess what is material. This includes consideration of the amount and nature of transactions.
Auditing standards have all changed to varying degrees, and a number have been fully revised and redrafted. In particular, the standards relating to estimates/fair values, related parties and the use of experts have been substantially revised. The areas most likely to require increased audit effort are accounting estimates/fair values and related parties. Both have an increased focus on assessing risk (including evaluating management's processes), introduce new audit requirements and may require
additional information from clients.
Our overall materiality for clients is calculated to be in the range of approximately 2% of revenue and 10% of shareholders' equity; this represents the level at which we would consider qualifying our audit opinion. Our audit work is planned to a lower materiality level.
Our audit approach is based on a thorough understanding of our clients' businesses and is risk-driven. It first identifies and then concentrates resources on areas of higher risk and issues of concern to clients. This involves breaking down the financial statements into components. We assess the risk characteristics of each component to determine the audit work required.
We plan our work to have a reasonable expectation of detecting fraud where the potential effects would be material to the financial statements of our clients. Based on the level of management's control procedures, we consider whether there are any significant risks of fraud that may have a material impact on the financial statements and adapt our audit procedures accordingly. We also consider the risk of fraud due to management override of controls and design our audit procedures to respond to this risk.
Our audit approach is based on understanding and evaluating our clients' internal control environment and where appropriate validating these controls, if we wish to place reliance on them. This work is supplemented with substantive audit procedures, which include detailed testing of transactions and balances and suitable analytical review procedures. We also aim to rely on the work done by internal audit, wherever this is appropriate or relevant. We will ensure that a continuous dialogue is maintained with internal audit throughout the year. We receive copies of all relevant internal audit reports, allowing us to understand the impact of their findings on our planned audit approach.
Our IT system and control specialists will undertake a review of the general
IT controls. The scope of this review will be to update our understanding of the key controls in place over the main financial systems.
We draw your attention to International Auditing Standard (ISA) No. 1, "Overall objectives of the independent auditor and the conduct of an audit in accordance with International Standards on Auditing", that deals with the independent auditor's overall responsibilities when conducting an audit of financial statements in accordance with ISAs. Specifically, it sets out the overall objectives of the independent auditor, and explains the nature and scope of an audit designed to enable the independent auditor to meet those objectives.
ISAs do not impose responsibilities on management or those charged with governance and do not override laws and regulations that govern their responsibilities. However, an audit in accordance with ISAs, is conducted on the premise that management and, where appropriate, those charged with governance have acknowledged certain responsibilities that are fundamental to the conduct of the audit. The audit of the financial statements does not relieve management or those charged with governance of their responsibilities.
One of the purposes of the above ISA, and ISAs generally, is to assist auditors and their clients by explaining where the responsibilities of auditors begin and end and what is to be expected of the client in certain areas.
Our reports are prepared in the context of ISAs. Reports and letters prepared by appointed auditors and addressed to client officers and / or representatives are prepared for the sole use of the client and no responsibility is taken by auditors to any client officer and / or representative in their individual capacity or to any third party.