Post-Audit Report Reviews

Cold File Reviews are carried out after the audit report is issued. The objective is to identify and address gaps that may exist when comparing with professional standards. Financial Statement Reviews assess compliance with the presentation and disclosure requirements of the financial reporting regime.

An audit practice is obliged to carry out cyclical inspections of a completed audit engagement (cold file review). The selection of the reviewer and the frequency of this review is determined by the size of the audit practice and should comply with the Guidance Note on Compliance Reviews under ‘Clarified’ ISQC 1 as issued by the Quality Assurance Oversight Committee (February 2011) of the Accountancy Board of Malta. A cold file review also includes the review of financial statement presentation and disclosure requirements in line with the selected financial reporting framework.

General Accounting Principles for SMEs (GAPSME) is the default financial reporting framework for small and medium sized entities, GAPSME is effective for financial reporting periods commencing on or after 1st January 2016. By law, large and Public Interest Entities fall outside the scope of GAPSME and therefore they must prepare a full set of financial statements in accordance with IFRS as adopted by the European Union.

COLD FILE REVIEW

A Cold File Review is a post mortem appraisal of an audit file with the objective of identifying gaps in audit documentation requirements. This includes a review of (i) audit planning considerations, whereby an assessment is made on client acceptance and continuance, independence and risk assessment; (ii) audit fieldwork considerations, whereby an assessment is made on risk response and adequacy of audit procedures performed and (iii) audit completion considerations whereby an assessment is made on the audit report, communication with client and justification of the audit opinion.

The auditor will be provided with an External Independent Review Report on the monitoring process’ results, including a detailed description of the monitoring process and its conclusions on the audit practice’s overall compliance and effectiveness, in a number of areas including:-

  • Evaluation of the auditor’s independence threats and safeguards implemented
  • Assessment of the auditor’s compliance with auditing standards, relevant laws and regulations, and the audit firm’s quality control procedures
  • Risk assessment carried out at planning stages of the audit including client acceptance and continuance procedures
  • Sufficiency of audit response measures implemented by the auditor during fieldwork phases of the engagement
  • Adequacy of audit reporting and other ISA audit completion considerations during audit completion phases of the engagement
  • Appropriateness of the audit opinion issued by the engagement partner
  • Assessment of the communications made by the auditor with those charged with Governance and management
  • Adequacy of the financial statements presentation and disclosure (financial statements review)

FINANCIAL STATEMENTS REVIEW

A Financial Statement Review assesses the adequacy of the financial statements presentation and disclosure. Directors of companies may present their financial reporting obligations in accordance with General Accounting Principles for SMEs (GAPSME) or else by implementing the International Financial Reporting Standards as adopted by the European Union (IFRS adopted by the EU) for Maltese registered companies. The selection of which financial reporting framework to apply is primarily determined by the thresholds stipulated in legislation. However, there is discretion for directors to opt for IFRSs as adopted by the EU through a board resolution.

The auditor will be provided with an External Independent Review Report on the monitoring process’ results, including a detailed description of the monitoring process and its conclusions on the audit practice’s overall compliance and effectiveness, in a number of areas including:-

  • Policies and procedures implemented by the auditor to ensure that the financial statement issued adheres to the financial reporting framework
  • Evaluating whether the  client is eligible to present its financial results in accordance with the selected financial reporting framework
  • The presentation and format of the different financial statements included in the Annual Report
  • Accounting policies used to ensure that financial activity is recorded accurately and consistently over a number of years
  • Disclosure notes which cannot be presented on the face of income statement, balance sheet, statement of cash flows and statement of changes in equity, but assist users in obtaining further insights on the financial performance of the Company
  • Other information contained in the Annual Report, including but not limited to the Directors’ Report and Statement of Directors’ Responsibilities

 

An External Independent Review Report will be submitted following each review process and as established in the letter of engagement agreed with the statutory auditor. The external reviewer and the statutory auditor (usually the Compliance Principal of the Audit Practice) will meet to discuss the findings of the External Independent Review Report (along with other appropriate personnel) and decide on the corrective action and/or changes to make to the system, roles and responsibilities, disciplinary action, recognition, and other matters as determined. This Report also includes developing recommendations to improve the system, especially if weaknesses are detected or if professional standards and practices have changed.