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g Estimates
11. Although the owner-manager is responsible for determining the amount of the estimate to be included in the financial report, the auditor of a small entity is often asked to assist with or advise on the preparation of any accounting estimates. By assisting with the process of preparing the accounting estimate, the auditor at the same time gains evidence relevant to meeting the requirements of AUS 516. However, assisting with this process does not relieve the auditor from obtaining sufficient and appropriate audit evidence regarding the reasonableness and appropriateness of the underlying assumptions used in arriving at the estimates.
AUS 526: Auditing Fair Value Measurements and Disclosures
12. Although the owner-manager is responsible for fair value measurements and disclosures, the auditor of a small entity may be asked to assist with the process of preparing the fair value measurements or disclosures. Management remains responsible for the reasonableness of the assumptions on which the fair value measurements and disclosures are based and, as a result, the auditor takes appropriate steps to obtain the owner-manager’s agreement and acknowledgement of responsibility.
13. By assisting with the process of preparing the fair value measurements or disclosures, the auditor at the same time gains evidence relevant to meeting the requirements of AUS 526. However, assisting with this process does not relieve the auditor from obtaining sufficient and appropriate audit evidence regarding the reasonableness and appropriateness of the underlying assumptions used in arriving at the measurements or disclosures.
AUS 518: Related Parties
14. When assessing the risk of undisclosed related party transactions, the auditor considers matters arising when preparing the accounting records or financial report of the small entity, assisting with the preparation of personal and corporate tax matters, or reviewing the owner-manager’s current accounts.
15. This, taken together with information obtained through discussion with the owner-manager, assists in the assessment of the risk in this area and may provide a reasonable basis for the risk to be assessed as low.
16. This assistance and the close relationship between the auditor and the owner-manager can assist in the identification of related parties, which, in most instances, will be with entities controlled by the owner-manager.
AUS 708: Going Concern
17. In some small entities, the auditor may be asked to assist the owner-manager with the assessment of going concern and sometimes with the preparation of any necessary cash flows or profit forecasts. In all cases, the owner-manager remains responsible for the assessment of going concern for any information prepared (even if the auditor assisted in its compilation), and for the reasonableness of the assumptions on which it is based. In such circumstances, the auditor takes appropriate steps to obtain the owner-manager’s agreement and acknowledgment of responsibility.
AUS 520: Management Representations
18. In the audit of a small entity, it is particularly important for the auditor to obtain management representations in which the owner-manager acknowledges responsibility for the fair presentation of the financial report. This is particularly necessary where the auditor has prepared the financial report, because of the danger of the auditor’s role and responsibility in relation to the financial report being mis