ACCA Strategic Professional · Advanced Audit and Assurance (International) · Reports to those charged with governance and management
Brightwell Co's auditor completes fieldwork and finds that management has adopted a change in accounting policy for revenue recognition that the auditor considers acceptable under IFRS but which is aggressive and increases reported profit. Under ISA 260 (Revised), what should the auditor do regarding this matter?
The auditor should communicate to those charged with governance its views on the qualitative aspects of accounting practices, including the aggressive policy. ISA 260 requires this even when the policy is acceptable under IFRS and no misstatement exists, and communication does not depend on a modified opinion.
- ACommunicate the auditor's views on the qualitative aspects of the entity's accounting practices, including the aggressive policy choice, to TCWGCorrect
- BSay nothing, because the policy is acceptable under IFRS and no misstatement exists
- CCommunicate only if the policy leads to a modified audit opinion
- DReport the matter directly to the securities regulator without informing TCWG
Explanation
ISA 260 requires the auditor to communicate views about significant qualitative aspects of accounting practices, including accounting policies, estimates and disclosures, even where they comply with the framework. Silence is wrong because compliance does not remove the duty. Communication is not conditional on a modified opinion, and there is no requirement to go to a regulator first.
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