We undertake independent examinations for charities – does ISQM1 apply to these engagements? 

No. Paragraph 5 of the International Standard on Quality Management (ISQM) (UK) 1 states that, in the UK, the standard applies to firms that perform engagements undertaken in compliance with performance standards issued by the Financial Reporting Council (FRC) – and the standard includes a specific list of such engagements. 

Independent examinations are carried out in line with the guidance ‘Independent examination of charity accounts: examiners (CC32)’, which is issued by the Charities Commission and therefore outside the scope of ISQM (UK) 1.

Despite being outside the scope of ISQM (UK) 1, the firm should still consider how they manage the quality of these engagements and may find it beneficial to borrow from ISQM (UK) 1. If the firm carries out other assignments within the scope of ISQM (UK) 1 they may find it simplest to apply this framework across all their assurance engagements – this is a consideration to be made within the firm. 

Key links

ISQM (UK) 1 (issued July 2021)

Independent examination of charity accounts (CC32)

We have an audit client that is a UK parent with two European subsidiaries, one is significant to the group. 

The significant component has gone into administration; its statutory auditor has issued a disclaimer of opinion and is refusing to provide access to their working papers.

As the UK parent doesn’t trade, its main subsidiary is in administration and the other subsidiary is insignificant, the directors feel that it is likely that the group will not be in existence next year. 

Do we disclaim the group audit report?

If the issue of not being able to audit the main subsidiary’s figures is material and pervasive, then you would need to disclaim the audit opinion, as indicated in paragraph 9 of the International Standard on Auditing (ISA) 705 ‘Modifications to the Opinion in the Independent Auditor’s Report’.

The going concern assessment for the group will need careful consideration. If the group no longer meets the definition of a going concern, the financial statements will need to be prepared on a basis other than going concern. You can draw attention to the alternative basis and the reasons for its use in the audit report using an ‘Emphasis of matter section’ [ISA 570 A27].

If the directors do not use a basis other than going concern, then the audit report should be adverse. If there is simply uncertainty over whether the group will continue, it may be sufficient to include information about the material uncertainties over the future of the group in the financial statements. 

If the audit report is being disclaimed, the conclusions relating to the going concern section is removed so the auditor will not comment on the approach taken in the accounts as it wouldn’t be appropriate to make any conclusion about the financial statements. 

Key links

Preparing an audit report with a disclaimer of opinion | ICAEW

Audit reports – modified opinions |Audit helpsheets | ICAEW

Going concern – basis other than going concern | ICAEW

Audit reports – going concern | Audit helpsheets | ICAEW

We have been approached by a company to perform its audit. It has received a letter from Companies House saying that if accounts are not filed within a week, it will start the process to strike the company off. The accounts are more than two years overdue and filing extensions have already been provided.

Can we file an audit opinion with a disclaimer of opinion, then revise the audit opinion and refile the financial statements later?

Issuing a disclaimer of opinion is a position of last resort; you need to show that you have done everything possible to be able to issue an opinion. This is not the case here. 

Equally, the route to filing revised accounts under s454 of Companies Act 2006 can be used where the accounts did not comply with the law. This would also not be the case here.

You need to consider if you have preconditions for audit (per ISA 210 para 6 & 7).

There is a strong argument that this is a management-imposed limitation of scope because they are not providing you with enough time to perform the audit. Even though this latest deadline has been set by Companies House, management have delayed in appointing an auditor, which has meant the timeframe is severely restricted. As you are anticipating a disclaimer of opinion, you should not accept the audit (per ISA 210 para 7).

Key links

ISA (UK) 210 (revised June 2016)