ISA (NZ) for LCE

1. This standard takes effect on the 28th day after the date of its publication under the Legislation Act 2019¹.

2. The accounting periods in relation to which this standard commences to apply are:

1. for an early adopter, those accounting periods, following and including, the early adoption accounting period.

2. for any other auditor, those accounting periods following, and including, the first accounting period that begins on or after the mandatory date.

3. In paragraph 2:

early adopter means an auditor that applies this standard for an early adoption accounting period.

early adoption accounting period means the accounting period:

1. that begins before the mandatory date but has not ended or does not end before this standard takes effect (and to avoid doubt, that period may have begun before this standard takes effect); and

2. for which the early adopter:

   1. first applies this standard for an audit engagement of a less complex entity; and

   2. discloses in the auditor’s report for that accounting period that this standard has been applied for that period.

mandatory date means 15 December 2025.

NZP.0. For the purposes of this standard, references to “financial statements” include “service performance information” and “entity information” where relevant.

P.1. [Amended by the NZAuASB]

NZP.1. This standard (i.e., the ISA (NZ) for LCE):

• has been designed to achieve reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, for audits of financial statements of less complex entities (LCEs) in the private and public sectors.

• has been developed to reflect the nature and circumstances of an audit of the financial statements of an LCE and result in the consistent performance of a quality audit engagement.

• is premised on the basis that the firm is subject to Professional and Ethical Standard 3² or to national requirements that are at least as demanding. A quality audit engagement is achieved by planning and performing the engagement and reporting on it in accordance with professional standards and applicable legal and regulatory requirements.

Achieving the objective of this standard involves exercising professional judgement and maintaining professional scepticism.

P.2. This standard is written in the context of an audit of a complete set of general purpose financial statements of an LCE as contemplated in Part A. It may also be adapted as necessary in the circumstances of the engagement to an audit of a complete set of special purpose financial statements, or an audit of a single financial statement or of a specific element, account or item of a financial statement, only if the entity is an LCE as set out in Part A.

P.3. When an audit engagement is undertaken using this standard, the International Standards on Auditing (New Zealand) and New Zealand Auditing Standards do not apply to the engagement.

P.4. Part A sets out the authority for determining the appropriate use of the ISA (NZ) for LCE. Decisions about the required or permitted use of this standard, including descriptions of the type of entities for which an audit in accordance with this standard may be used rest with legislative and regulatory authorities or relevant local bodies with standard-setting authority.

P.5. If this standard is used for audit engagements other than those contemplated in Part A, the auditor is not permitted to represent compliance with the ISA (NZ) for LCE in the auditor’s report.

P.6. This standard does not override local law or regulation that governs audits of financial statements in a particular jurisdiction. The ISA (NZ) for LCE does not address the responsibilities of the auditor that may exist in legislation or regulation. Such responsibilities may differ from those established in this standard and it is the responsibility of the auditor to ensure compliance with all relevant legal, regulatory, or professional obligations.

P.7. The financial statements subject to audit are those of the entity, prepared by management of the entity with oversight from those charged with governance. Law or regulation may establish the responsibilities of management, and those charged with governance, in relation to financial reporting. This standard does not impose responsibilities on management or those charged with governance and does not override law or regulation that govern their responsibilities. However, an audit in accordance with this standard 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.

NZP.7.A. In New Zealand, those charged with governance generally have responsibility for ensuring an entity meets its legal obligations in relation to the preparation of the financial statements, often delegating the process of financial reporting to management, while retaining ultimate responsibility. Auditors shall use professional judgement and knowledge of New Zealand's legal and governance standards to assess if this standard's requirements pertain to management, those charged with governance, or both. In this ISA (NZ) for LCE, "management" should be read hereafter as “management and, where appropriate, those charged with governance.”

P.8. The applicable financial reporting framework often encompasses financial reporting standards established by an authorised or recognised standard setting organisation, or legislative or regulatory requirements.

P.9. The requirements of the applicable financial reporting framework determine the form and content of the financial statements. Although the framework may not specify how to account for or disclose all transactions or events, the framework ordinarily embodies sufficiently broad principles that can serve as a basis for developing and applying accounting policies consistent with the framework’s concepts underlying the requirements.

P.10. Some financial reporting frameworks are fair presentation frameworks, while others are compliance frameworks. This standard covers both frameworks. The term “fair presentation framework” is used to refer to a financial reporting framework that requires compliance with the requirements of the framework and:

1. Acknowledges explicitly or implicitly that, to achieve fair presentation of the financial statements, it may be necessary for management to provide disclosures beyond those specifically required by the framework; or

2. Acknowledges explicitly that it may be necessary for management to depart from a requirement of the framework to achieve fair presentation of the financial statements. Such departures are expected to be necessary only in extremely rare circumstances.

The term “compliance framework” is used to refer to a financial reporting framework that requires compliance with the requirements of the framework, but does not contain the acknowledgements in (a) or (b) above.

P.11. The purpose of an audit is to enhance the degree of confidence of intended users in the financial statements. This is achieved by the expression of an opinion by the auditor on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework. As the basis for the auditor’s opinion, this standard requires the auditor to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error.

P.12. Reasonable assurance is a high level of assurance. It is obtained when the auditor has obtained sufficient appropriate audit evidence to reduce audit risk (that is, the risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated) to an acceptably low level. However, reasonable assurance is not an absolute level of assurance, because there are inherent limitations of an audit which result in most of the audit evidence on which the auditor draws conclusions and bases the auditor’s opinion being persuasive rather than conclusive.

P.13. [Amended by the NZAuASB]

NZP.13. The ISA (NZ) for LCE includes:

1. Part A, which sets out the authority for determining the appropriate use of the ISA (NZ) for LCE.

2. Part 1, which sets out the fundamental concepts, general principles and overarching requirements to be applied throughout the audit.

3. Part 2, which sets out the general requirements for audit evidence and documentation, as well as the overall objective of the audit.

4. Part 3, which sets out the auditor’s and engagement partner’s obligations and responsibilities for quality management in an audit of an LCE.

5. Parts 4 to 9, which follow the flow of an audit engagement, and set out the detailed requirements for the audit. Each of these Parts also includes specific communication and documentation requirements as necessary.

6. Part 10, which sets out the special considerations that apply to an audit of group financial statements.

7. [NZ] Part 11, which sets out the considerations that apply to an audit of service performance information.

8. Appendices, which include the glossary of terms used in this standard, assertions, illustrative engagement letters and illustrative representation letters, as well as other relevant supporting materials for implementation of the requirements within this standard.

P.14. [Amended by the NZAuASB]

NZP.14. The content of Parts 1–11 includes:

1. Introductory material in a separate box setting out the content and scope of that Part (but does not create any additional obligations for the auditor).

2. Objective(s), which link the requirements of that Part and the overall objective of the audit.

3. Requirements to be met, except where the requirement is conditional, and the condition does not exist. Requirements are expressed using “shall.”

4. Essential explanatory material (EEM) designed to provide further explanation relevant to a sub-section or a specific requirement. All EEM is presented in italics within separate blue boxes. There are two types of EEM: general introductory EEM that explains the context of the section that follows, and EEM specific to the requirement directly above it.

Certain requirements and EEM are only applicable when there are engagement team members other than the engagement partner. Such requirements and EEM are presented in a box with the header “Considerations When There Are Members of the Engagement Team Other Than the Engagement Partner”.

P.15. Definitions, describing the meanings attributed to certain terms for the purpose of this standard, can be found in the Glossary of Terms in Appendix 1. The definitions assist in the consistent application and interpretation of the requirements, and are not intended to override definitions that may be established for other purposes, whether in law or regulation.

P.16. For the purposes of this standard, the use of “LCE” or “entity” also refers to a group (i.e., where the audit is an audit of group financial statements).

Non-Authoritative Support Materials

P.17. [Amended by the NZAuASB]

P.18. [Amended by the NZAuASB]

NZP.18. This standard is relevant to engagements in the public sector, when the considerations set out in the Authority in Part A apply. The public sector auditor’s responsibilities, however, may be affected by the audit mandate, or by obligations on public sector entities arising from law, regulation or other authority (such as ministerial directives, or government policy requirements), which may encompass a broader scope than an audit of financial statements in accordance with this standard. These additional responsibilities are not dealt with in this standard. They may be dealt with in the Auditor-General’s Auditing Standards.

P.19. [Amended by the NZAuASB]

NZP.19. The applicable financial reporting framework used by a public sector entity is determined by the legislative and regulatory frameworks. Matters that may be considered in the entity’s application of the applicable financial reporting requirements, and how it applies in the context of the nature and circumstances of the entity and its environment, include whether the entity applies a full accrual basis of accounting or a cash basis of accounting in accordance with the Public Sector PBE Accounting Standards issued by the New Zealand Accounting Standards Board, or a hybrid.

P.20. Ownership of a public sector entity may not have the same relevance as in the private sector because decisions related to the entity may be made outside of the entity as a result of political processes. Therefore, management may not have control over certain decisions that are made. Matters that may be relevant include understanding the ability of the entity to make unilateral decisions, and the ability of other public sector entities to control or influence the entity’s mandate and strategic direction.

P.21. When appropriate, additional considerations specific to public sector entities have been included in EEM.

A.1. The ISA (NZ) for LCE shall not be used if:

1. Law or regulation prohibits the use of the ISA (NZ) for LCE or specifies the use of auditing standards other than the ISA (NZ) for LCE for the audit of the financial statements in that jurisdiction.

2. The entity is a listed entity.

3. The entity falls into one of the following classes:

   1. An entity one of whose main functions is to take deposits from the public;

   2. An entity one of whose main functions is to provide insurance to the public;

   3. [NZ] It is an FMC reporting entity or a class of FMC reporting entities that is considered to have a “higher level of public accountability” than other FMC reporting entities under section 461K of the Financial Markets Conduct Act 2013;

   4. [NZ] It is an FMC reporting entity or a class of FMC reporting entities that is considered to have a “higher level of public accountability” by a notice issued by the Financial Markets Authority (FMA) under section 461L(1)(a) of the Financial Markets Conduct Act 2013; or

   5. A class of entities where use of the ISA (NZ) for LCE is prohibited for that specific class of entity by a legislative or regulatory authority or relevant local body with standard-setting authority in the jurisdiction.

4. The audit is an audit of group financial statements (group audit) and:
   1. Any of the group’s individual entities or business units meet the criteria as described in paragraph A.1.(b) or A.1.(c); or

   2. Component auditors are involved, except when the component auditor’s involvement is limited to circumstances in which a physical presence is needed for a specific audit procedure for the group audit (e.g., attending a physical inventory count or physically inspecting assets or documents).

A.3. The following list describes characteristics of an LCE for the purpose of determining the appropriate use of the ISA (NZ) for LCE. The list is not exhaustive nor intended to be absolute (including numerical indicators), and other relevant matters may also need to be considered. Each of the qualitative characteristics may not, on its own, be sufficient to determine whether the ISA (NZ) for LCE is appropriate or not in the circumstances. Therefore, the matters described in the list are intended to be considered both individually and in combination. For the purpose of group audits, these considerations shall apply to both the group and each of its individual entities and business units.

A.4. [Amended by the NZAuASB]

NZA.5. The XRB permits the application of the ISA (NZ) for LCE in specific circumstances. The auditor may use this standard:

1. On or after the mandatory date, or early adoption accounting period, as defined in the Commencement and Application section of this standard; and
2. If the auditor determines that the audit engagement can be undertaken using the ISA (NZ) for LCE in accordance with Part A of this standard. (see paragraphs 3.2.9., 4.3.1., 6.5.1., 8.5.1.).

1.1.1. [Deleted by NZAuASB, refer to the Commencement and Application section]

1.2.1. The auditor shall comply with relevant ethical requirements, including those pertaining to independence, for financial statement audit engagements.

1.2.2. The engagement partner shall be a member of a firm that applies PES 3⁵ and PES 4⁶, or national requirements that are at least as demanding as PES 3 and PES 4.

1.3.1. The overall objectives of the auditor when conducting an audit of financial statements using the ISA (NZ) for LCE are to:

1. Obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, to enable the auditor to express an opinion on whether the financial statements are prepared, in all material respects in accordance with an applicable financial reporting framework; and

2. Report on the financial statements, and communicate as required by this standard, in accordance with the auditor’s findings.

1.3.2. The auditor shall obtain an understanding of the entire text of this standard to understand its objectives and to apply its requirements properly.

1.3.3. To achieve the overall objectives, the auditor shall use the objectives stated in the relevant Parts in planning and performing the audit, to:

1. Determine whether any audit procedures in addition to those required by the relevant Part are necessary to achieve the objectives stated in this standard; and

2. Evaluate whether sufficient appropriate audit evidence has been obtained.

1.3.4. If an objective in a Part cannot be achieved, the auditor shall evaluate whether this prevents the auditor from achieving the overall objectives of the auditor and thereby requires the auditor to:

1. Modify the terms of engagement and perform the audit and report in accordance with the International Standards on Auditing (New Zealand); or
2. Modify the auditor’s opinion or withdraw from the engagement (where withdrawal is possible under applicable law or regulation).

Failure to achieve an objective represents a significant matter requiring documentation.

1.4.1. The auditor shall comply with all relevant requirements unless, in exceptional circumstances, the auditor judges it necessary to depart from a relevant requirement. In such circumstances the auditor shall perform alternative procedures to achieve the aim of that requirement. The need for the auditor to depart from a relevant requirement is expected to arise only where the requirement is for a specific procedure to be performed and, in the specific circumstances of the audit, that procedure would be ineffective in achieving the aim of the requirement.

1.4.3. The auditor shall exercise professional judgement in planning and performing the audit.

1.4.4. The auditor shall plan and perform the audit with professional scepticism recognising that circumstances may exist that cause the financial statements to be materially misstated.

1.4.5. The auditor shall design and perform procedures in a way that is not biased towards obtaining audit evidence that may be corroborative or towards excluding audit evidence that may be contradictory.

1.5.1. The auditor shall address the risk of fraud when:

1. Identifying and assessing risks of material misstatement, whether due to fraud or error. In doing so, the auditor shall evaluate whether information obtained from the procedures to identify and assess risks, and related activities, indicates that one or more fraud risk factors are present;⁷
2. Obtaining sufficient appropriate audit evidence through designing and implementing appropriate responses to assessed risks of material misstatement, including risks of material misstatement due to fraud; and
3. Responding appropriately to fraud or suspected fraud identified during the audit.

1.5.2. If, as a result of a misstatement resulting from fraud or suspected fraud, the auditor encounters exceptional circumstances that bring into question the auditor’s ability to continue performing the audit, the auditor shall determine the legal and professional responsibilities applicable in the circumstances or consider whether it is appropriate to withdraw, where withdrawal is possible under law or regulation.

1.6.1. During the audit, the auditor shall remain alert to the possibility that performing audit procedures may bring instances of non-compliance or suspected non-compliance with laws and regulations to the auditor’s attention.

1.6.2. If the auditor has identified or suspects non-compliance with laws and regulations, including fraud, the auditor shall determine whether law, regulation or relevant ethical requirements:

1. Require the auditor to report to an appropriate authority outside the entity.

2. Establish responsibilities under which reporting to an appropriate authority outside the entity may be appropriate in the circumstances.

1.7.1. During the audit, the auditor shall remain alert for:

1. Information about the entity’s related parties, including circumstances involving a related party with dominant influence;

2. Arrangements or other information that may indicate the existence of related party relationships or transactions that management has not previously identified or disclosed to the auditor; and

3. Significant transactions outside the entity’s normal course of business.

1.8.1. The auditor shall determine the appropriate person(s) within the entity’s governance structure with whom to communicate.

1.8.2. The auditor shall communicate with those charged with governance the relevant ethical requirements, including those related to independence, that the auditor applies for the audit engagement.

1.8.3. The auditor shall communicate, on a timely basis, with management and, where appropriate, those charged with governance.

1.8.4. Specific matters to be communicated are required throughout this standard. The auditor shall use professional judgement in determining the appropriate form, timing, and general content of the communications with management, and where appropriate, those charged with governance. When determining the form and timing of communication, the auditor shall consider:

1. Legal requirements for communication; and

2. The significance of the matters to be communicated.

1.8.5. In some cases, all of those charged with governance are involved in managing the entity, for example, an LCE where a single owner manages the entity and no one else has a governance role. In these cases, if matters required by this standard are communicated with person(s) with management responsibilities, and those person(s) also have governance responsibilities, the matters need not be communicated again with those same person(s) in their governance role. The auditor shall nonetheless be satisfied that communication with person(s) with management responsibilities adequately informs all of those with whom the auditor would otherwise communicate in their governance capacity.

1.8.7. If the auditor has identified fraud or has obtained information that indicates that fraud may exist, the auditor shall communicate these matters, unless prohibited by law or regulation, on a timely basis to the appropriate level of management in order to inform those with primary responsibility for the prevention and detection of fraud of matters relevant to their responsibilities.

1.8.8. Unless prohibited by law or regulation, the auditor shall communicate with those charged with governance, on a timely basis, if the auditor has identified or suspects fraud involving:

1. Management, unless those charged with governance are involved in managing the entity;

2. Employees who have significant roles in the entity’s system of internal control; or

3. Others where the fraud results in a material misstatement in the financial statements.

1.8.9. If the auditor suspects fraud involving management, the auditor shall discuss with those charged with governance the nature, timing and extent of audit procedures necessary to complete the audit.

1.9.1. The auditor shall include in the audit documentation communications about fraud made to management, those charged with governance, regulators and others.

2.1.1. The objectives of the auditor are to:

1. Design and perform audit procedures in such a way as to enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion; and

2. Prepare documentation that provides a sufficient and appropriate record of the basis for the auditor’s report and provides evidence that the audit was planned and performed in accordance with the ISA (NZ) for LCE and applicable law or regulation.

2.2.1. To obtain reasonable assurance, the auditor shall obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level thereby enabling the auditor to draw reasonable conclusions on which to base the auditor’s opinion.

2.2.2. The auditor shall design and perform audit procedures that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence.

2.3.1. When designing and performing audit procedures, the auditor shall consider the relevance and reliability of the information to be used as audit evidence, including information from external information sources.

2.3.2. When using information produced by the entity, the auditor shall evaluate whether the information is sufficiently reliable for the auditor’s purposes including, as necessary in the circumstances:

1. Obtaining evidence about the accuracy and completeness of the information; and

2. Evaluating whether the information is sufficiently precise and detailed for the auditor’s purposes.

2.3.3. Unless the auditor has reason to believe the contrary, the auditor may accept records and documents as genuine. If conditions identified during the audit cause the auditor to believe that a document may not be authentic or that terms in a document have been modified but not disclosed to the auditor, the auditor shall investigate further and determine the effect on the rest of the audit evidence obtained.

2.3.4. The auditor shall determine what modifications or additions to audit procedures are necessary if:

1. Audit evidence obtained from one source is inconsistent with that obtained from another; or

2. The auditor has doubts about the reliability of information to be used as audit evidence.

2.4.1. The auditor shall prepare audit documentation on a timely basis that is sufficient to enable an experienced auditor, having no previous connection with the audit, to understand:

1. The nature, timing and extent of the audit procedures performed in accordance with this standard and applicable legal and regulatory requirements, including recording:

   1. The identifying characteristics of the specific items or matters tested;

   2. Who performed the work and the date such work was completed;

   3. Who reviewed the audit work performed and the date and extent of such review.

2. The results of the audit procedures performed, and the audit evidence obtained; and

3. Significant matters arising during the audit, the conclusions reached thereon, and significant professional judgements made in reaching those conclusions.

2.4.2. If the auditor identified information that is inconsistent with the auditor’s conclusion regarding a significant matter, the auditor shall document how the inconsistency was addressed by the auditor.

2.4.3. If, in exceptional circumstances, the auditor judges it necessary to depart from a relevant requirement of this standard, the auditor shall document how the alternative audit procedures performed achieve the aim of that requirement, and the reasons for the departure.

2.4.4. The auditor shall document discussions of significant matters with management, and where appropriate, those charged with governance, and others, including the nature of the significant matters discussed and when and with whom the discussions took place.

2.4.5. Where matters required to be communicated by this standard are communicated orally, the auditor shall include them in the audit documentation, and when and to whom they were communicated.

2.4.6. Where matters have been communicated in writing, the auditor shall retain a copy of the communication as part of the audit documentation. Written communications need not include all matters that arose during the audit.

3.1.1. The objective of the auditor is to manage quality at the engagement level to obtain reasonable assurance that quality has been achieved such that:

1. The auditor has fulfilled the auditor’s responsibilities, and has conducted the audit, in accordance with this standard and applicable legal and regulatory requirements; and

2. The auditor’s report issued is appropriate in the circumstances.

3.2.1. The engagement partner shall take:

1. Overall responsibility for managing and achieving quality on the audit engagement, including being sufficiently and appropriately involved throughout the audit engagement such that the engagement partner has the basis for determining whether the significant judgements made, and conclusions reached are appropriate in the circumstances; and

2. Responsibility for clear, consistent and effective actions being taken that reflect the firm’s commitment to quality.

3.2.4. The engagement partner shall have an understanding of the relevant ethical requirements, including those related to independence, that are applicable given the nature and circumstances of the audit engagement.

3.2.5. If matters come to the engagement partner’s attention that indicate that a threat to compliance with relevant ethical requirements exists or relevant ethical requirements have been breached, the engagement partner shall take action, including:

1. Following the firm’s policies or procedures to evaluate the threat; and

2. Consulting with others in the firm.

3.2.7. Taking into account the nature and circumstances of the audit and the firm’s related policies or procedures, the engagement partner shall:

1. Determine that:

   1. Sufficient and appropriate resources are assigned or made available to the engagement team in a timely manner; and

   2. Members of the engagement team, and any auditor’s external experts, collectively have the appropriate competence and capabilities, including sufficient time, to perform the audit engagement.

2. If the conditions in (a) are not met, the engagement partner shall take appropriate action.

3.2.8. The engagement partner shall:

1. Obtain an understanding of the information from the firm’s monitoring and remediation process, as communicated by the firm, including, as applicable, the information from the monitoring and remediation process of the network and across the network firms, and:

   1. Determine the relevance and effect of that information on the audit engagement; and

   2. Take appropriate action; and

2. Remain alert for matters that may be relevant to the firm’s monitoring and remediation process and communicate to those responsible for the process.

3.2.9. The engagement partner shall:

1. Take responsibility for differences of opinion being addressed and resolved in accordance with the firm’s policies or procedures;

2. Take responsibility for consultations being undertaken in accordance with the firm’s related policies or procedures, or where deemed necessary on difficult or contentious matters;

3. Determine that conclusions reached with respect to differences of opinion and difficult or contentious matters are documented, agreed with the party consulted, and implemented; and

4. Not date the auditor’s report until any differences of opinion are resolved.

3.2.10. For audit engagements for which an engagement quality review is required, the engagement partner shall determine that an engagement quality reviewer has been appointed and:

1. Cooperate with the engagement quality reviewer;

2. Discuss significant matters and significant judgements arising during the audit with the engagement quality reviewer; and

3. Not date the auditor’s report before the engagement quality review is complete.

3.3.1. The auditor shall include in the audit documentation:

1. Matters identified, relevant discussions, and conclusions reached with respect to fulfilment of responsibilities for relevant ethical requirements, including applicable independence requirements.

2. If the audit engagement is subject to an engagement quality review, that the engagement quality review has been completed on or before the date of the auditor’s report.

4.1.1. The objectives of the auditor are:

1. To accept or continue an audit engagement only when the basis upon which it is to be performed has been agreed, through:

   1. Establishing whether the preconditions for an audit are present; and

   2. Confirming that there is a common understanding between the auditor and management, and where appropriate, those charged with governance, of the terms of the audit engagement.

2. For initial audit engagements, to obtain sufficient appropriate audit evidence about whether:

   1. Opening balances contain misstatements that materially affect the current period’s financial statements, and

   2. Appropriate accounting policies reflected in the opening balances have been consistently applied in the current period’s financial statements, or changes thereto are appropriately accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework.

4.2.1. [Amended by the NZAuASB]

NZ4.2.1. In order to establish whether the preconditions for an audit are present, the auditor shall:

1. Determine whether the financial reporting framework to be applied in the preparation of the financial statements is acceptable;

2. Obtain the agreement of those charged with governance that they acknowledge and understand their responsibility on behalf of the entity:

   1. For the preparation of the financial statements in accordance with the applicable financial reporting framework, including where relevant their fair presentation;

   2. For such controls as those charged with governance, and where appropriate management, determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; and

   3. To provide the auditor with:

a. Access to all information of which those charged with governance, and where appropriate management, is aware that is relevant to the preparation of the financial statements such as records, documentation and other matters;

b. Additional information that the auditor may request from those charged with governance, and where appropriate management for the purpose of the audit; and

c. Unrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence.

4.2.2. [Amended by the NZAuASB]

NZ4.2.2. If the preconditions for an audit are not present the auditor shall discuss the matter with those charged with governance. Unless required by law or regulation to do so, the auditor shall not accept the proposed audit engagement:

1. If the auditor has determined that the financial reporting framework to be applied in the preparation of the financial statements is unacceptable; or

2. If the agreement of those charged with governance that it acknowledges and understands its responsibility has not been obtained.

4.2.3. If management or those charged with governance impose a limitation on the scope of the auditor’s work such that the auditor believes that the limitation will result in the auditor disclaiming the opinion on the financial statements, the auditor shall not accept such a limited engagement as an audit engagement, unless required by law or regulation to do so.

4.3.1. The engagement partner shall determine that:

1. The firm’s policies or procedures regarding acceptance and continuance of the audit engagement have been followed;⁸ and

2. Conclusions reached regarding acceptance and continuance of the audit engagement are appropriate, including that the audit engagement can be undertaken using the ISA (NZ) for LCE in accordance with Part A of this standard.

4.3.2. In some cases, law or regulation of the relevant jurisdiction prescribes the layout or wording of the auditor’s report in a form or in terms that are significantly different from the requirements of this standard. In these circumstances, the auditor shall evaluate:

1. Whether users may misunderstand the assurance obtained from the audit of the financial statements, and, if so,

2. Whether additional explanation in the auditor’s report can mitigate possible misunderstanding.

4.3.3. If the auditor concludes that additional explanation in the auditor’s report cannot mitigate possible misunderstanding, the auditor shall not accept the audit engagement, unless required by law or regulation to do so. An audit conducted in accordance with such law or regulation does not comply with the ISA (NZ) for LCE. Accordingly, the auditor shall not include any reference within the auditor’s report to the audit having been conducted in accordance with this ISA (NZ) for LCE.

NZ4.3.4. Professional and Ethical Standard 1⁹, requires assurance practitioners to comply with Auditing Standards; therefore, auditors shall not sign an audit report that does not conform to the requirements of this ISA (NZ) for LCE. In the extremely rare situation described in paragraph 4.3.2., the auditor shall attach a separate report that conforms to the requirements of this ISA (NZ) for LCE.

4.4.1. [Amended by the NZAuASB]

NZ4.4.1. The auditor shall agree the terms of the audit engagement with those charged with governance.

4.4.2. On recurring audits, the auditor shall assess whether circumstances require the terms of the audit engagement to be revised and whether there is a need to remind the entity of the existing terms of the audit engagement.

4.4.3. The auditor shall not agree to a change in the terms of the audit engagement where there is no reasonable justification for doing so.

4.4.4. If, prior to completing the audit engagement, the auditor is requested to change the audit engagement to an engagement that conveys a lower level of assurance, the auditor shall determine whether there is reasonable justification for doing so.

4.4.5. [Amended by the NZAuASB]

NZ4.4.5. If the terms of the audit engagement are changed, the auditor and those charged with governance shall agree on and record the new terms of the engagement in an engagement letter or other suitable form of written agreement.

4.4.6. [Amended by the NZAuASB]

NZ4.4.6. If the auditor is unable to agree to a change of the terms of the audit engagement and is not permitted by management or those charged with governance to continue the original audit engagement, the auditor shall:

1. Withdraw from the audit engagement, where possible under applicable law or regulation; and

2. Determine whether there is any obligation, either contractual or otherwise, to report the circumstances to other parties, such as those charged with governance, owners, or regulators.

4.5.1. If the engagement is an initial audit and there has been a change in auditor, the auditor shall communicate with the predecessor auditor, in compliance with relevant ethical requirements.

4.5.2. The auditor shall read the most recent financial statements, if any, and the auditor’s report thereon, if any, for information relevant to opening balances, including disclosures.

4.5.3. If the prior period’s financial statements were audited by a predecessor auditor and there was a modification to the opinion, the auditor shall evaluate the effect of the matter giving rise to the modification in assessing the risks of material misstatement in the current period’s financial statements.¹⁰

4.5.4. The auditor shall obtain sufficient appropriate audit evidence ¹¹ about whether the opening balances contain misstatements that materially affect the current period’s financial statements by:

1. Determining whether the prior period’s closing balances have been correctly brought forward to the current period or, when appropriate, have been restated;

2. Determining whether the opening balances reflect the application of appropriate accounting policies; and

3. Performing one or more of the following:

   1. Where the prior year financial statements were audited, inspecting the predecessor auditor’s working papers to obtain evidence regarding the opening balances;

   2. Evaluating whether audit procedures performed in the current period provide evidence relevant to the opening balances; or

   3. Performing specific audit procedures to obtain evidence regarding the opening balances.

4.5.5. If the auditor obtains audit evidence that the opening balances contain misstatements that could materially affect the current period’s financial statements, the auditor shall perform such additional audit procedures as are appropriate in the circumstances to determine the effect on the current period’s financial statements.¹²

4.5.6 The auditor shall obtain sufficient appropriate audit evidence about whether the accounting policies reflected in the opening balances have been consistently applied in the current period’s financial statements, and whether any changes in accounting policies have been appropriately accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework.¹³

4.6.1. The auditor shall communicate with those charged with governance:

1. The auditor’s responsibilities for forming and expressing an opinion on the financial statements prepared by management; and

2. That the auditor’s responsibilities do not relieve management or those charged with governance of their responsibilities for oversight of the preparation of the financial statements.

4.7.1. The auditor shall include in the audit documentation matters identified, relevant discussions with personnel, and conclusions reached with respect to the acceptance and continuance of the client relationship and audit engagement.

4.7.2. The auditor shall document the basis for the determination made for using the ISA (NZ) for LCE.

4.7.3. The auditor shall document changes, if any, to the determination of the use of the ISA (NZ) for LCE if further information comes to the auditor’s attention during the audit that may change the professional judgement made in this regard.

4.7.4 [Amended by the NZAuASB]

NZ4.7.4. The auditor shall record in an audit engagement letter or other suitable form of written agreement:

1. That the audit will be undertaken using the ISA (NZ) for LCE;

2. The objective and scope of the audit of the financial statements;

3. The respective responsibilities of the auditor and those charged with governance;

4. Identification of the applicable financial reporting framework for the preparation of the financial statements;

5. Reference to the expected form and content of any reports to be issued by the auditor; and

6. A statement that there may be circumstances in which a report may differ from its expected form and content.

4.7.5. [Amended by the NZAuASB]

NZ4.7.5 If law or regulation prescribes in sufficient detail the terms of the audit engagement referred to in this standard, the auditor need not record them in a written agreement, except for the fact that such law or regulation applies, and that those charged with governance acknowledges and understands its responsibilities.

5.1.1. The objectives of the auditor are to:

1. Plan the audit so that it will be performed in an effective manner; and

2. Apply the concept of materiality appropriately in planning and performing the audit.

5.2.1. The auditor shall set the scope, timing and direction of the audit and:

1. Identify the characteristics of the engagement that define its scope;

2. Ascertain the reporting objectives of the engagement to plan the timing of the audit and the nature of the communications required;

3. Consider the factors that, in the auditor’s professional judgement, are significant in directing the engagement team’s efforts;

4. Consider the results of preliminary engagement activities and, where applicable, whether knowledge gained on other engagements performed by the engagement partner for this entity is relevant; and

5. Ascertain the nature, timing and extent of procedures to be performed and the resources necessary to perform the audit, including determining whether experts are needed.

5.2.4. The engagement partner shall consider information obtained in the acceptance and continuance process in planning and performing the audit.

5.2.5. When information used to plan and perform the audit has been obtained from the previous experience with the entity, or prior audits, the auditor shall evaluate whether such information remains relevant and reliable as audit evidence in the current period.

5.2.9. If information to be used as audit evidence has been prepared using the work of management’s expert, the auditor shall, having regard to the significance of that expert’s work for the auditor’s purpose:

1. Evaluate the competence, capabilities, and objectivity of that expert; and

2. Obtain an understanding of the work of that expert.

5.2.10. If expertise in a field other than accounting or auditing is necessary to obtain sufficient appropriate audit evidence, the auditor shall determine whether to use the work of an auditor’s expert.

5.2.11. The auditor shall consider the following when determining the nature, timing and extent of procedures related to the auditor’s expert:

1. The nature of the matter to which that expert’s work relates;

2. The risks of material misstatement in the matter to which that expert’s work relates;

3. The significance of that expert’s work in the context of the audit;

4. The auditor’s knowledge of and experience with previous work performed by that expert; and

5. Whether that expert is subject to the auditor’s firm’s quality management policies or procedures.

5.2.12. If the auditor is using the work of an auditor’s expert, the auditor shall:

1. Evaluate whether the auditor’s expert has the necessary competence, capabilities and objectivity for the auditor’s purposes. In the case of an auditor’s external expert, the evaluation of objectivity shall include enquiry regarding interests and relationships that may create a threat to that expert’s objectivity;

2. Obtain sufficient understanding of the field of expertise of the expert to enable the auditor to determine the nature, scope and objectives of the expert’s work for the auditor’s purpose, and evaluate the adequacy of that work for the auditor’s purpose; and

3. Agree, in writing when appropriate, the nature, scope and objectives of the expert’s work, the respective roles and responsibilities of the auditor and that expert, the nature, timing and extent of communications and the need for the expert to observe confidentiality requirements.

5.3.1. The auditor shall determine materiality for the financial statements as a whole.

5.3.2. The auditor shall also determine the materiality level or levels to be applied to particular classes of transactions, account balances or disclosures if, in the specific circumstances of the entity, there is one or more particular classes of transactions, account balances or disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

5.3.3. The auditor shall determine performance materiality for the purposes of assessing the risks of material misstatement, and determining the nature, timing, and extent of further audit procedures.

5.3.4. If the auditor becomes aware of information during the audit that would have caused the auditor to have determined a different amount (or amounts) initially, the auditor shall revise materiality for the financial statements as a whole (and, if applicable, the materiality level or levels for particular classes of transactions, account balances or disclosures).

5.3.5. If the auditor concludes that a lower materiality for the financial statements as a whole (and, if applicable, materiality level or levels for particular classes of transactions, account balances or disclosures) than that initially determined is appropriate, the auditor shall determine whether it is necessary to revise performance materiality, and whether the nature, timing and extent of the further audit procedures remain appropriate.

5.4.1. The auditor shall communicate with management, and where appropriate, those charged with governance an overview of the planned scope, timing and direction of the audit.

5.5.1. The auditor shall include in the audit documentation a description of the scope, timing and direction of the audit, including the nature, timing and extent of procedures to be performed, and significant changes made during the audit, together with the reasons for such changes.

5.5.3. The auditor shall include in the audit documentation the:

1. Following amounts and the factors considered in their determination (including any revisions as applicable):

   1. Materiality for the financial statements as a whole;

   2. If applicable, the materiality level or levels for particular classes of transactions, account balances or disclosures; and

   3. Performance materiality.

2. Amount below which misstatements would be considered clearly trivial.

6.1.1. The objectives of the auditor are to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and assertion levels, thereby providing a basis for designing and implementing responses to the assessed risks of material misstatement (the assessed risks).

6.2.1. The auditor shall design and perform procedures to obtain audit evidence that provides an appropriate basis for:

1. The identification and assessment of risks of material misstatement, whether due to fraud or error, at the financial statement and assertion levels; and

2. The design of further audit procedures.

6.2.2. When obtaining audit evidence to identify and assess risks of material misstatement and design further audit procedures, the auditor shall consider information from:

1. The acceptance or continuance procedures; and

2. When applicable, other engagements performed by the engagement partner for the entity.

6.2.3. The procedures to identify and assess risks of material misstatement shall include:

1. Enquiries of management, and other appropriate individuals within the entity;

2. Analytical procedures; and

3. Observation and inspection.

6.2.4. In designing and performing procedures to identify and assess risks of material misstatement, the auditor shall consider possible risks of material misstatement arising from:

1. Fraud or error;

2. Related party relationships and transactions; and

3. Events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern.

6.2.5. If the audit opinion on the prior period’s financial statements was modified, the auditor shall evaluate the effect on the current year’s financial statements when identifying and assessing risks of material misstatement.

6.3.1. The auditor shall enquire of management and, where appropriate, those charged with governance, regarding:

1. How the entity identifies business risks relevant to the preparation of the financial statements and how they are addressed;

2. The risks of fraud in the entity and the controls that management has established to mitigate these risks;

3. The nature and extent of management’s direct involvement in operations or other activities that may help management to prevent or detect misstatements in accounting information or identify controls that are not operating as intended;

4. The identity of the entity’s related parties, including:

   1. Changes from the prior period;

   2. The nature of the relationships between the entity and these related parties; and

   3. Whether the entity entered into any transactions with these related parties during the period and, if so, the type and purpose of the transactions;

5. Whether the entity is in compliance with laws or regulations that may have an effect on the financial statements, and if there has been any correspondence with relevant licensing or regulatory authorities that may be relevant to the financial statements; and

6. The basis for the intended use of the going concern basis of accounting, whether events or conditions exist that, individually or collectively, may cast significant doubt on the entity’s ability to continue as a going concern and, if so, management’s plans to address them.

6.4.1. The auditor shall identify and assess the risks of material misstatement, due to fraud or error, at:

1. The financial statement level. In doing so, the auditor shall determine whether they affect risks at the assertion level and consider the nature and extent of the pervasive effect of identified risks on the financial statements; and

2. The assertion level for classes of transactions, account balances, and disclosures. In doing so, the auditor shall:

   1. Determine the relevant assertions and related significant classes of transactions, account balances and disclosures; and

   2. Assess inherent risk for identified risks of material misstatement at the assertion level by assessing the likelihood and magnitude of misstatement.

6.4.2. In identifying and assessing the risks of material misstatement due to fraud, the auditor shall, based on a presumption that there are risks of fraud in revenue recognition, evaluate which types of revenue, revenue transactions, or assertions give rise to such risks.

6.4.3. In identifying and assessing risks of material misstatement relating to an accounting estimate and related disclosure at the assertion level, the auditor shall consider the degree to which the accounting estimate is subject to estimation uncertainty, and the degree to which the following are affected by complexity, subjectivity, change or management bias:

1. The selection and application of the method, the assumptions and data used; and

2. The selection of management’s point estimate and related disclosures.

6.4.4. The auditor shall determine whether any of the assessed risks of material misstatement are, in the auditor’s professional judgement, a significant risk.

6.4.5. The auditor shall determine whether the assessed risks associated with related party relationships and transactions, and assessed risks relating to accounting estimates are significant risks.

6.4.6. The auditor shall treat the following as significant risks:

1. Risk of material misstatement from management override of controls;

2. Any other risks of material misstatement due to fraud, including risks that the auditor identified in accordance with paragraph 6.4.2.; or

3. Identified significant related party transactions outside the entity’s normal course of business.

6.4.7. The auditor shall assess control risk if:

1. The auditor has determined that substantive procedures alone cannot provide sufficient appropriate audit evidence for any of the risks of material misstatement at the assertion level; or

2. The auditor otherwise plans to test the operating effectiveness of controls.

Otherwise, the assessed risk of material misstatement is the same as the assessment of inherent risk.

6.4.8. The auditor shall evaluate whether the audit evidence obtained from procedures to identify and assess the risks of material misstatement provides an appropriate basis for the identification and assessment of the risks of material misstatement. If not, the auditor shall perform additional procedures until audit evidence has been obtained to provide such a basis. In identifying and assessing the risks of material misstatement, the auditor shall consider all audit evidence obtained from the procedures to identify and assess the risks of material misstatement, whether corroborative or contradictory to assertions made by management.

6.4.9. The auditor’s assessment of the risks of material misstatement at the assertion level may change during the course of the audit as additional audit evidence is obtained. In circumstances where the auditor obtains audit evidence from performing further audit procedures, or if new information is obtained, either of which is inconsistent with the audit evidence on which the auditor originally based the assessment, the auditor shall revise the assessment and modify the further planned audit procedures accordingly.

6.4.10. The auditor shall remain alert throughout the audit for audit evidence of events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern.

6.5.1. Based on the procedures performed to identify and assess the risks of material misstatement, the engagement partner shall evaluate whether the ISA (NZ) for LCE continues to be appropriate for the nature and circumstances of the entity being audited.

6.6.1. The auditor shall communicate with management, and where appropriate, those charged with governance, the significant risks identified by the auditor.

6.7.1. The auditor shall include the following in the audit documentation:

1. Key elements of the understanding obtained regarding each of the aspects of the entity and its environment, the applicable financial reporting framework, the entity’s system of internal control, and the procedures performed to identify and assess risks of material misstatement;

2. The names of the identified related parties (including changes from prior period) and the nature of the related party relationships;

3. The identified and assessed risks of material misstatement, including risks due to fraud, at the financial statement level and at the assertion level, including significant risks and risks for which substantive procedures alone cannot provide sufficient appropriate audit evidence, and the rationale for the significant judgements made;

4. If applicable, the reasons for the conclusion that there is not a risk of material misstatement due to fraud related to revenue recognition;

5. The controls set out in paragraphs 6.3.12. and 6.3.13. and the evaluation whether the control is designed effectively and determination whether the control has been implemented; and

6. For accounting estimates, key elements of the auditor’s understanding of the accounting estimates, including controls as appropriate, the linkage of the assessed risks of material misstatements to the auditor’s further procedures, and any indicators of management bias and how those were addressed.

6.7.2. The auditor shall document the basis for the evaluation about whether the ISA (NZ) for LCE continues to be appropriate for the nature and circumstances of the entity being audited.

7.1.1. The objectives of the auditor are to:

1. Obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement, through designing and implementing responses to those risks;

2. Respond appropriately to risks of material misstatement arising from fraud or suspected fraud;

3. Obtain sufficient appropriate audit evidence regarding management’s use of the going concern assumption and related disclosures; and

4. Respond appropriately to identified or suspected non-compliance with law or regulation that have been identified during the audit.

7.2.1. The auditor shall design and implement overall responses to address the assessed risks of material misstatement at the financial statement level, whether due to fraud or error.

7.2.2. In determining overall responses to address the assessed risks of material misstatement due to fraud at the financial statement level, the auditor shall:

1. Evaluate whether the selection and application of accounting policies by the entity, particularly those related to subjective measurements, may be indicative of fraudulent financial reporting resulting from management’s effort to manage earnings; and

2. Incorporate an element of unpredictability in the selection of the nature, timing and extent of audit procedures.

7.3.1. The auditor shall design and perform further audit procedures whose nature, timing and extent are based on, and responsive to, assessed risks, whether due to fraud or error, at the assertion level.

7.3.2. In designing the further audit procedures, the auditor shall:

1. Consider the reasons for the assessment given to the risk of material misstatement at the assertion level for each significant class of transactions, account balance, or disclosure, including:

   1. The likelihood and magnitude of misstatement due to the characteristics of the significant class of transactions, account balance, or disclosure (that is, the inherent risk); and

   2. Whether the risk assessment takes account of controls that address the risk of material misstatements (that is, the control risk), thereby requiring the auditor to obtain audit evidence to determine whether the controls are operating effectively (where the auditor plans to test the operating effectiveness of controls in determining the nature, timing and extent of substantive procedures);

2. Obtain more persuasive audit evidence the higher the auditor’s assessment of risk;

3. In designing and performing tests of controls, obtain more persuasive audit evidence the greater the reliance the auditor places on the operating effectiveness of controls; and

4. If the auditor intends to test the operating effectiveness of controls or when substantive procedures alone cannot provide sufficient appropriate audit evidence at the assertion level, design and perform tests of controls, to obtain sufficient appropriate audit evidence as to the operating effectiveness of such controls.

7.3.3. When designing tests of controls and tests of details, the auditor shall determine the means of selecting items for testing that are effective in meeting the purpose of the audit procedure.

7.3.4. In designing and performing tests of controls, the auditor shall perform audit procedures in combination with enquiry to obtain audit evidence about the operating effectiveness of controls, including:

1. How the controls were applied at relevant times during the period;

2. The consistency with which they were applied; and

3. By whom or by what means they were applied.

7.3.5. The auditor shall determine whether the controls to be tested depend on other controls (indirect controls), and, if so, consider whether it is necessary to obtain evidence about the effective operation of the indirect controls.

7.3.6. The auditor shall test controls for the period of time, or throughout the period, for which the auditor intends to rely on those controls in order to provide an appropriate basis for the auditor’s reliance.

7.3.7. If the auditor obtains audit evidence about the operating effectiveness of controls in the interim period, the auditor shall obtain additional audit evidence about any subsequent significant changes and determine the additional audit evidence to be obtained for the remaining period.

7.3.8. If the auditor intends to use audit evidence about the operating effectiveness of controls obtained in previous periods, the auditor shall:

1. Consider:

   1. The effectiveness of the system of internal control;

   2. The risks from the characteristics of the control (e.g., manual or automated);

   3. The effectiveness of general IT controls;

   4. The effectiveness of the control and its application by the entity;

   5. Whether the lack of a change in a particular control poses a risk due to changing circumstances; and

   6. The risk of material misstatement and the extent of reliance on the control planned; and

2. Establish the continuing relevance of that evidence by obtaining audit evidence about whether significant changes in those controls have occurred subsequent to the previous audit. If there have been significant changes the auditor shall test the control in the current period, otherwise at least once every third audit.

7.3.9. If the auditor intends to rely on a control that is a control over a significant risk, the auditor shall test the control in the current period.

7.3.10. When evaluating the operating effectiveness of controls upon which the auditor intends to rely, the auditor shall evaluate whether misstatements that have been detected by substantive procedures indicate that controls are not operating effectively. The absence of misstatements detected by substantive procedures, however, does not provide audit evidence that controls related to the assertion being tested are effective.

7.3.11. If deviations from controls upon which the auditor intends to rely are detected, the auditor shall make specific enquiries to understand these matters and their potential consequences, and shall determine whether:

1. The tests of controls provide an appropriate basis for reliance on the controls;

2. Additional tests of control are necessary; or

3. The risks of material misstatement need to be addressed using substantive procedures.

7.3.12. The auditor’s substantive procedures shall include substantive procedures specifically responsive to significant risks. When the response to a significant risk consists only of substantive procedures, those procedures shall include tests of details.

7.3.13. The auditor’s substantive procedures shall include audit procedures related to the financial statement closing process, including:

1. Agreeing or reconciling information in the financial statements with the underlying accounting records, including agreeing or reconciling information in disclosures, whether such information is obtained from within or outside of the general and subsidiary ledgers; and

2. Examining material journal entries and other adjustments made during the course of preparing the financial statements.

7.3.14. Irrespective of the assessed risks, substantive procedures shall be performed for each material class of transactions, account balance, and disclosure.

7.3.15. If the auditor performed substantive procedures at an interim date, the auditor shall cover the remaining period by performing:

1. Substantive procedures, combined with tests of controls for the intervening period; or

2. If the auditor determines that it is sufficient, further substantive procedures only, that provide a reasonable basis for extending the audit conclusions from the interim date to the period end.

7.3.16. If the auditor uses substantive analytical procedures to obtain audit evidence, the auditor shall:

1. Determine the suitability of the substantive analytical procedure for the purpose of the test and for the given assertion(s);

2. Evaluate the reliability of data from which the auditor’s expectation of recorded amounts or ratios is developed, taking account of source, comparability, and nature and relevance of information available, and controls over its preparation;

3. Develop an expectation of recorded amounts or ratios and evaluate whether the expectation is sufficiently precise to identify material misstatements;

4. Determine the amount of any difference of recorded amounts from expected values that is acceptable without further investigation being required; and

5. Investigate fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount by enquiring of management and obtaining appropriate audit evidence relevant to management’s responses and performing additional audit procedures as necessary in the circumstances.

7.3.17. If the auditor uses audit sampling when responding to assessed risks of material misstatement as a means for selecting items for testing, the auditor shall:

1. Consider the purpose of the audit procedures and the characteristics of the population from which the sample will be drawn.

2. Determine a sample size sufficient to reduce sampling risk to an acceptably low level.

3. Select items in a way that each sampling unit in the population has a chance of selection.

4. Perform audit procedures, appropriate to the purpose, on each item selected. If the procedure is not applicable to the selected item, the auditor shall perform the procedure on a replacement item. If the auditor is unable to apply the designed audit procedures, or suitable alternative procedures, to a selected item, the auditor shall treat that item as a deviation from the prescribed control (in the case of tests of controls) or a misstatement (in the case of tests of details).

5. Investigate the nature and cause of any deviations or misstatements identified and evaluate their possible effect on the purpose of the audit procedure and on other areas of the audit.

7.3.18. In the extremely rare circumstances when the auditor considers a misstatement or deviation discovered in a sample to be an anomaly, the auditor shall obtain a high degree of certainty that such misstatement or deviation is not representative of the population. The auditor shall obtain this degree of certainty by performing additional audit procedures to obtain sufficient appropriate audit evidence that the misstatement or deviation does not affect the remainder of the population.

7.3.19. For tests of details, the auditor shall project misstatements found in the sample to the population.

7.3.20. The auditor shall evaluate:

1. The results of the sample; and

2. Whether the use of audit sampling has provided a reasonable basis for conclusions about the population that has been tested.

7.3.21. The auditor shall consider whether external confirmation procedures are to be performed as substantive procedures.

7.3.22. When using external confirmation procedures, the auditor shall maintain control over:

1. Determining the information to be confirmed or requested and selecting the appropriate confirming party;

2. Designing the confirmation requests, including determining that requests are properly addressed and contain return information for responses to be sent directly to the auditor; and

3. Sending the requests, including follow-up requests when applicable, to the confirming party.

7.3.23. If management refuses to allow the auditor to send a confirmation request, the auditor shall:

1. Enquire as to management’s reasons for the refusal, and seek audit evidence as to their validity and reasonableness;

2. Evaluate the implications of management’s refusal on the auditor’s assessment of the relevant risks of material misstatement, including the risk of fraud, and on the nature, timing and extent of other audit procedures; and

3. Perform alternative audit procedures designed to obtain relevant and reliable audit evidence.

7.3.24. If the auditor concludes that management’s refusal to allow the auditor to send a confirmation request is unreasonable, or the auditor is unable to obtain relevant and reliable audit evidence from alternative audit procedures, the auditor shall communicate with those charged with governance. The auditor also shall determine the implications for the audit and the auditor’s opinion.¹⁴

7.3.25. If the auditor identifies factors that give rise to doubts about the reliability of the response to a confirmation request, the auditor shall obtain further audit evidence to resolve those doubts. If the auditor determines that a response to a confirmation request is not reliable, the auditor shall evaluate the implications on the assessment of the relevant risks of material misstatement, including the risk of fraud, and on the related nature, timing, and extent of other audit procedures.

7.3.26. In the case of each non-response, the auditor shall perform alternative audit procedures to obtain relevant and reliable audit evidence.

7.3.27. The auditor shall investigate exceptions to determine whether they are indicative of misstatements.

7.3.28. The auditor shall evaluate whether the results of the external confirmation procedures, if any, provide relevant and reliable audit evidence, or whether further audit evidence is necessary.

7.4.1. The auditor shall evaluate management’s assessment of the entity’s ability to continue as a going concern.¹⁵

7.4.2. [Amended by the NZAuASB]

NZ7.4.2. In evaluating management’s assessment of the entity’s ability to continue as a going concern, the auditor shall:

1. Cover the same period as used by management, as required by the applicable financial reporting framework. If that period is less than twelve months from the date of the auditor’s current report, the auditor shall ask management to extend the period. If management does not make or extend its assessment, the auditor shall consider the implications for the auditor’s report. ¹⁶

1. Consider whether management’s assessment includes all relevant information of which the auditor is aware of as a result of the audit.

7.4.3. The auditor shall enquire of management as to its knowledge of events or conditions beyond the period of management’s assessment that may cast significant doubt on the entity’s ability to continue as a going concern.

7.4.4. If events or conditions have been identified that may cast significant doubt on the entity’s ability to continue as a going concern, the auditor shall obtain sufficient appropriate audit evidence to determine whether a material uncertainty exists through performing additional procedures, including consideration of mitigating factors. These procedures shall include:

1. Where management has not yet performed an assessment of the entity’s ability to continue as a going concern, requesting management to make its assessment.

2. Evaluating management’s plans for future actions in relation to its going concern assessment, whether the outcome of these plans is likely to improve the situation, and whether management’s plans are feasible in the circumstances.

3. Where the entity has prepared a cash flow forecast, and analysis of the forecast is a significant factor in considering the future outcome of events or conditions in the evaluation of management’s plans for future actions:

   1. Evaluating the reliability of the underlying data generated to prepare the forecast; and

   2. Determining whether there is adequate support for the assumptions underlying the forecast.

4. Considering whether any additional facts or information have become available since the date on which management made its assessment.

7.4.5. If there is significant delay in the approval of the financial statements by management or those charged with governance after the date of the financial statements, the auditor shall enquire as to the reasons for the delay. If the auditor believes that the delay could be related to events or conditions relating to the going concern assessment, the auditor shall perform additional audit procedures as necessary, as well as consider the effect on the auditor’s conclusion regarding the existence of a material uncertainty.

7.4.6. The auditor shall design and perform audit procedures to:

1. Test the appropriateness of manual and automated journal entries recorded in the general ledger and other adjustments made in the preparation of the financial statements, including:

   1. Making enquiries of individuals involved in the financial reporting process about inappropriate or unusual activity relating to the processing of journal entries and other adjustments;

   2. Selecting journal entries and other adjustments made at the end of a reporting period; and

   3. Considering the need to test journal entries and other adjustments throughout the period.

2. Review accounting estimates for biases and evaluate whether the circumstances producing the bias, if any, represent a risk of material misstatement due to fraud. In performing the review, the auditor shall:

   1. Evaluate whether the judgements and decisions made by management indicate a possible bias on the part of the entity’s management, even if they are individually reasonable, that may represent a risk of material misstatement due to fraud. If so, the auditor shall re-evaluate the accounting estimates taken as a whole; and

   2. Perform a retrospective review of management judgements and assumptions related to significant accounting estimates reflected in the financial statements of the prior year.

3. For significant unusual transactions outside the normal course of business for the entity or that otherwise appear to be unusual, evaluate whether the business rationale (or the lack thereof) of the transactions suggests that they may have been entered into to engage in fraudulent financial reporting or to conceal misappropriation of assets.

4. Respond to the identified risks of management override of controls to the extent not already addressed by (a) to (c).

7.4.7. The auditor shall design and perform further audit procedures to obtain sufficient appropriate audit evidence about the assessed risks of material misstatement associated with related party relationships and transactions, including inspecting:

1. Bank and legal confirmations obtained as part of the auditor’s procedures;

2. Minutes of meetings of shareholders and of those charged with governance; and

3. Such other records or documents as the auditor considers necessary in the circumstances of the entity.

7.4.8. If the auditor identifies arrangements or information that suggests the existence of related party relationships or transactions that management has not previously identified or disclosed to the auditor, the auditor shall determine whether the underlying circumstances confirm the existence of those relationships or transactions.

7.4.9. If the auditor identifies related parties or significant related party transactions that management has not previously identified or disclosed to the auditor, the auditor shall:

1. Where the applicable financial reporting framework establishes related party requirements:

   1. Request management to identify all transactions with the newly identified related parties for the auditor’s further evaluation;

   2. Enquire as to why the entity’s controls over related party relationships and transactions failed to enable the identification or disclosure of the related party relationships or transactions;

2. Perform appropriate substantive audit procedures for such newly identified related parties or significant related party transactions;

3. Reconsider the risk that other related parties or significant related party transactions may exist that management has not previously identified or disclosed to the auditor, and perform additional audit procedures as necessary; and

4. If the non-disclosure by management appears intentional (and therefore indicative of a risk of material misstatement due to fraud), evaluate the implications for the audit.

7.4.11. For identified significant related party transactions outside of the entity’s normal course of business the auditor shall:

1. Inspect the underlying contracts or agreements, if any, and evaluate whether:

   1. The business rationale (or lack thereof) of the transactions suggests that they may have been entered into to engage in fraudulent financial reporting or to conceal misappropriation of assets;

   2. The terms of transactions are consistent with management’s explanations; and

   3. The transactions have been appropriately accounted for, presented and disclosed in accordance with the applicable financial reporting framework.

2. Obtain audit evidence that transactions have been appropriately authorised and approved.

7.4.12. If the auditor identifies significant transactions outside the entity’s normal course of business, the auditor shall enquire of management about the nature of these transactions and whether related parties could be involved.

7.4.13. If management has made an assertion in the financial statements to the effect that a related party transaction was conducted on terms equivalent to those prevailing in an arm’s length transaction, the auditor shall obtain sufficient appropriate audit evidence about the assertion.

7.4.14. The auditor shall design and perform further audit procedures related to accounting estimates to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement at the assertion level, including for related disclosures.

7.4.15. The auditor’s further audit procedures to respond to assessed risks of material misstatement at the assertion level relating to an accounting estimate shall include one or more of the following approaches:

1. Obtaining audit evidence from events occurring up to the date of the auditor’s report (see paragraph 7.4.16.).

2. Testing how management made the accounting estimate (see paragraphs 7.4.17.–7.4.18.).

3. Developing an auditor’s point estimate or range (see paragraph 7.4.19.).

7.4.16. When the auditor’s further audit procedures include obtaining audit evidence from events occurring up to the date of the auditor’s report, the auditor shall evaluate whether the audit evidence is sufficient and appropriate, taking into account any changes in circumstances and other relevant conditions between the event and the measurement date that may affect the relevance of such evidence.

7.4.17. When testing how management made the accounting estimate, the auditor’s further audit procedures shall address whether:

1. The method selected is appropriate;

2. The significant assumptions and data are consistent and appropriate, and their integrity maintained in applying the method;

3. Changes from prior periods in the method, significant assumptions and data are appropriate;

4. Management has the intent to carry out specific courses of actions;

5. The judgements made in selecting the method, significant assumptions and data, give rise to indicators of possible management bias. When indicators of possible management bias are identified, the auditor shall evaluate the implications for the audit. Where there is intention to mislead, management bias is fraudulent in nature;

6. The data is relevant and reliable in the circumstances; and

7. Calculations are mathematically accurate and whether judgements have been applied consistently.

7.4.18. The auditor’s further audit procedures shall address whether, in the context of the applicable financial reporting framework, management has taken appropriate steps to understand estimation uncertainty and address estimation uncertainty by selecting appropriate point estimates and developing related disclosures. When management has not undertaken appropriate steps, the auditor shall:

1. Request management to perform additional procedures to understand estimation uncertainty or to address it by reconsidering the selection of management’s point estimate or considering providing additional disclosures related to the estimation uncertainty; and

2. If the auditor determines that management’s response to the auditor’s request does not sufficiently address estimation uncertainty, to the extent practicable, develop an auditor’s point estimate or range.

7.4.19. When the auditor develops a point estimate or range to evaluate management’s point estimate, the auditor’s further audit procedures shall include audit procedures to:

1. Evaluate whether the methods, assumptions or data used are appropriate in the context of the applicable financial reporting framework; and

2. Determine that the range includes only amounts that are supported by sufficient appropriate audit evidence.

7.4.20. If inventory is material to the financial statements, the auditor shall obtain sufficient appropriate audit evidence regarding the existence and condition of inventory by:

1. Unless impracticable, attendance at physical inventory counting, to:

   1. Evaluate management’s instructions and procedures for recording and controlling the results of the entity’s physical inventory counting;

   2. Observe the performance of management’s count procedures;

   3. Inspect the inventory; and

   4. Perform test counts;

2. Performing audit procedures over the entity’s final inventory records to determine whether they accurately reflect actual inventory count results; and

3. If the physical inventory counting is at a date other than the date of the financial statements, performing audit procedures to obtain audit evidence about whether changes in inventory between the count date and the date of the financial statements are properly recorded.

7.4.21. If the auditor has not attended the inventory count due to unforeseen circumstances, the auditor shall make or observe some physical counts on an alternative date, and perform audit procedures on intervening transactions. If attendance at physical inventory counting is impracticable, the auditor shall perform alternative audit procedures to obtain sufficient appropriate audit evidence regarding the existence and condition of inventory, or if not possible, determine the effect on the auditor’s report.¹⁷

7.4.22. If inventory under the custody and control of a third party is material to the financial statements, the auditor shall obtain sufficient appropriate audit evidence regarding the existence and condition of that inventory through confirmation as to the quantities and condition, or performing inspection or other audit procedures appropriate in the circumstances.

7.4.23. The auditor shall design and perform further audit procedures in order to identify litigation and claims involving the entity which may give rise to a risk of material misstatement, including:

1. Enquiry of management and, where applicable, others within the entity, including in-house legal counsel;

2. Inspecting minutes of meetings of those charged with governance and correspondence between the entity and its external legal counsel; and

3. Inspecting legal expense accounts.

7.4.24. If the auditor assesses a risk of material misstatement regarding litigation or claims that have been identified, or when audit procedures performed indicate that other material litigation or claims may exist, the auditor shall, in addition to the procedures required by this standard, seek direct communication with the entity’s external legal counsel. The auditor shall do so through a letter of enquiry, prepared by management and sent by the auditor, requesting the entity’s external legal counsel to communicate directly with the auditor. ¹⁸

NZ7.4.24.1. Where in-house legal counsel has the primary responsibility for litigation and claims and is in the best position to corroborate representations from management and those charged with governance, the auditor shall, in addition to the procedures required by this standard, request written representation from in-house legal counsel, seeking information similar to that sought from the entity’s external legal counsel.

7.4.25. The auditor shall modify the opinion in the auditor’s report, ¹⁹ if:

1. Management refuses to give the auditor permission to communicate or meet with the entity’s external legal counsel, or the entity’s external legal counsel refuses to respond appropriately to the letter of enquiry, or is prohibited from responding; and

2. The auditor is unable to obtain sufficient appropriate audit evidence by performing alternative audit procedures.

7.4.26. The auditor shall obtain sufficient appropriate audit evidence regarding compliance with the provisions of those laws and regulations generally recognised to have a direct effect on the determination of material amounts and disclosures in the financial statements.²⁰

7.4.27. If the auditor becomes aware of information concerning an instance of non-compliance or suspected non-compliance with laws or regulations, the auditor shall:

1. Understand the nature and circumstances, and obtain further information necessary to evaluate the possible effect on the financial statements;

2. Discuss the non-compliance with management, and where appropriate, those charged with governance, unless prohibited to do so by law or regulation;

3. If sufficient information about suspected non-compliance cannot be obtained, evaluate the effect of the lack of sufficient appropriate audit evidence on the auditor’s opinion; and

4. Evaluate the implications on other aspects of the audit, including the auditor’s risk assessment and the reliability of written representations and take appropriate action.²¹

7.4.28. If the entity is using the services of a service organisation, the auditor shall:

1. Determine whether sufficient appropriate audit evidence concerning the relevant financial statement assertions is available at the entity; and, if not,

2. Perform further audit procedures to obtain sufficient appropriate audit evidence.

7.4.29. If information to be used as audit evidence has been prepared using the work of management’s expert, the auditor shall, having regard to the significance of that expert’s work for the auditor’s purpose, evaluate the appropriateness of the expert’s work as audit evidence for the relevant assertion.

7.4.30. When the auditor has determined to use the work of an auditor’s expert, the auditor shall evaluate the adequacy of the auditor’s expert’s work, including:

1. The relevance and reasonableness of that expert’s findings or conclusions, and their consistency with other audit evidence;

2. If that expert’s work involves use of significant assumptions and methods, the relevance and reasonableness of those assumptions and methods in the circumstances; and

3. If that expert’s work involves the use of source data that is significant to that expert’s work, the relevance, completeness, and accuracy of that source data.

7.4.31. If the auditor determines that the work of the auditor’s expert is not adequate for the auditor’s purposes, the auditor shall agree on further work to be done by that expert or perform additional audit procedures appropriate to the circumstances.

7.5.1. The auditor shall accumulate misstatements identified during the audit, other than those that are clearly trivial.

7.5.2. The auditor shall request management to correct all misstatements accumulated during the audit.

7.5.3. If, at the auditor’s request, management has examined a class of transactions, account balance or disclosure and corrected misstatements that were detected, the auditor shall perform additional audit procedures to determine whether misstatements remain.

7.5.4. If the auditor identifies a misstatement during the audit, the auditor shall evaluate whether the misstatement is indicative of fraud. If there is such an indication, the auditor shall determine the implications on other aspects of the audit, including on the identified and assessed risks of material misstatement and the reliability of management representations.

7.5.5. If the auditor identifies a misstatement that may be the result of fraud, and suspects that management is involved, the auditor shall:

1. Re-evaluate the risks of material misstatement due to fraud and the auditor’s responses thereto; or

2. Consider whether circumstances or conditions indicate possible collusion involving employees, management or third parties when reconsidering the reliability of evidence previously obtained.

7.5.6. The auditor shall determine whether the scope, timing and direction of the audit needs to be revised if:

1. The nature of identified misstatements and the circumstances of their occurrence indicate that other misstatements may exist that, when aggregated with misstatements accumulated during the audit, could be material; and

2. The aggregate of misstatements accumulated during the audit approaches materiality.

7.6.1. On a timely basis, the auditor shall communicate:

1. To those charged with governance, in writing, significant deficiencies in the entity’s system of internal control identified during the audit.

2. To management:

   1. In writing, matters that have been communicated to those charged with governance (unless it would be inappropriate to communicate directly with management in the circumstances); and

   2. Other deficiencies in internal control identified that have not been communicated but are of sufficient importance to merit management’s attention.

7.6.2. In respect of communication of significant deficiencies to those charged with governance, the auditor shall include a description and explanation of the potential impact of the deficiencies, and sufficient information to understand the context of the communication.

7.6.3. In communicating with management and, where appropriate, those charged with governance, the auditor shall consider if there are any matters to communicate regarding accounting estimates. In doing so, the auditor shall consider whether the reasons given to the risks of material misstatement relate to estimation uncertainty, or the effects of complexity, subjectivity, change, or management bias in making accounting estimates and related disclosures.

7.7.1. The auditor shall include the following in the audit documentation:

1. The overall responses to the assessed risks of material misstatement at the financial statement level;

2. The linkage between the procedures performed and the assessed risks at the assertion level;

3. The results of the audit procedures, including the conclusions where these are not otherwise clear;

4. The results of audit procedures designed to address the risk of management override of controls;

5. All misstatements accumulated during the audit and whether they have been corrected; and

6. If the auditor plans to use audit evidence about the operating effectiveness of controls obtained in previous audits, the conclusions reached about relying on such controls that were tested in a previous audit.

7.7.2. Where the assessed risk of material misstatement is due to fraud, the auditor’s documentation shall include the specific fraud response.

7.7.3. Where the auditor has identified or suspected non-compliance with laws and regulations, the auditor shall document:

1. The results of discussion with management, and where appropriate, those charged with governance and others; including how the matter has been responded to; and

2. The audit procedures performed, the significant professional judgements made, and the conclusions reached thereon.

7.7.4. In respect of accounting estimates, the auditor shall document significant judgements relating to the auditor’s determination of whether the accounting estimates and related disclosures are reasonable in the context of the applicable financial reporting framework, or are misstated.

8.1.1. The objectives of the auditor are to:

1. Evaluate, the effect of identified misstatements on the audit and the effect of any uncorrected misstatements on the financial statements;

2. Conclude, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern; and

3. Conclude on whether sufficient appropriate audit evidence has been obtained on which to base the auditor’s opinion.

8.2.1. If management refuses to correct some or all of the misstatements communicated by the auditor, the auditor shall obtain an understanding of management’s reasons for not making the corrections and shall take that understanding into account when evaluating whether the financial statements as a whole are free from material misstatement.

8.2.2. Prior to evaluating the effect of uncorrected misstatements, the auditor shall reassess materiality to confirm whether it remains appropriate in the context of the entity’s actual financial results.

8.2.3. The auditor shall determine whether uncorrected misstatements are material, individually or in aggregate, by considering the:

1. Nature and size of the misstatements, both in relation to particular classes of transactions, account balances or disclosures and the financial statements as a whole, and the particular circumstances of their occurrence; and

2. Effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole.

8.3.1. The auditor shall design and perform analytical procedures near the end of the audit that assist the auditor when forming an overall conclusion as to whether the financial statements are consistent with the auditor’s understanding of the entity, and to identify any indications of a previously unidentified risk of material misstatement due to fraud.

8.3.2. The auditor shall investigate fluctuations or relationships that are inconsistent with other relevant information obtained during the course of the audit, by enquiring of management and performing other audit procedures as necessary in the circumstances.

8.4.1. The auditor shall perform audit procedures designed to obtain sufficient appropriate audit evidence that all events occurring between the date of the financial statements and the date of the auditor’s report that require adjustment of, or disclosure in, the financial statements have been identified.

8.4.2. The auditor shall perform those procedures in accordance with paragraph 8.4.1. for the period from the date of the financial statements to the date of the auditor’s report, or as near as practicable thereto, including:

1. Obtaining an understanding of any procedures management has established to ensure that subsequent events are identified.

2. Enquiring of management, and where appropriate, those charged with governance, as to whether any subsequent events have occurred that may affect the financial statements.

3. Reading minutes of meetings of the owners, management and those charged with governance held after the balance sheet date and enquiring about matters discussed at any such meetings for which minutes are not yet available.

4. Reading the entity’s monthly or quarterly financial information, if available.

8.4.3. If the auditor has identified events that require adjustment to the financial statements or disclosures therein to comply with the entity’s applicable financial reporting framework when performing the procedures in paragraphs 8.4.1. and 8.4.2, the auditor shall determine whether each such event is appropriately reflected in the financial statements.

8.4.4. The auditor has no obligation to perform any audit procedures regarding the financial statements after the date of the auditor’s report. However, if the auditor becomes aware of facts or events that, had it been known to the auditor at the date of the auditor’s report but before the financial statements are issued, may have caused the auditor to amend the auditor’s report, the auditor shall discuss with management, and where appropriate, those charged with governance, and determine whether the financial statements need amendment and, if so, enquire how management intends to address the matter.

8.4.5. If management amends the financial statements, the auditor shall carry out the audit procedures necessary in the circumstances on the amendment, including extending the audit procedures performed to the date of the new auditor’s report and providing a new auditor’s report on the amended financial statements.

8.4.6. In jurisdictions where management is not required by law, regulation or the financial reporting framework to issue amended financial statements, the auditor need not provide an amended or new auditor’s report. However, if management does not amend the financial statements in circumstances where the auditor believes they need to be amended, then the auditor shall:

1. If the auditor’s report has not yet been provided to the entity modify the opinion and then provide the auditor’s report;²² or

2. If the auditor’s report has already been provided to the entity, notify management and those charged with governance not to issue the financial statements to third parties before the necessary amendments have been made. If the financial statements are nevertheless subsequently issued without the necessary amendments, the auditor shall take appropriate action to seek to prevent reliance on the auditor’s report.

8.4.7. [Amended by the NZAuASB]

NZ8.4.7. After the financial statements have been issued, the auditor has no obligation to perform any audit procedures regarding such financial statements. However, if, after the financial statements have been issued, a fact becomes known to the auditor that, had it been known to the auditor at the date of the auditor’s report, may have caused the auditor to amend the auditor’s report, the auditor shall:

1. Discuss the matter with management and, where appropriate, those charged with governance within a reasonable period of time;

2. Determine whether the financial statements need amendment; and, if so,

3. Enquire how management intends to address the matter in the financial statements.

8.4.8. If management amends the financial statements, the auditor shall:

1. Carry out the audit procedures necessary in the circumstances on the amendment, including:

   1. Extending the audit procedures referred to in paragraphs 8.4.1. and 8.4.2. to the date of the new auditor’s report, and date the new auditor’s report no earlier than the date of approval of the amended financial statements; and

   2. Providing a new auditor’s report²³ on the amended financial statements; and

2. Review the steps taken by management to ensure that anyone in receipt of the previously issued financial statements together with the auditor’s report thereon is informed of the situation.

8.4.9. If management does not take the necessary steps to ensure that anyone in receipt of the previously issued financial statements is informed of the situation and does not amend the financial statements in circumstances where the auditor believes they need to be amended, the auditor shall take appropriate action to seek to prevent reliance on the auditor’s report.

8.5.1. Based on the audit procedures performed and the audit evidence obtained, the auditor shall evaluate whether the assessments of the risks of material misstatement at the financial statement and assertion levels remain appropriate.

8.5.2. For accounting estimates, the auditor shall evaluate, based on the audit procedures performed and audit evidence obtained, whether:

1. The assessments of the risks of material misstatement at the assertion level remain appropriate, including when indicators of possible management bias have been identified; and

2. Management’s decisions about the recognition, measurement, presentation, and disclosure of accounting estimates in the financial statements are reasonable in the context of the applicable financial reporting framework.

8.5.3. The auditor shall evaluate whether two-way communication between the auditor and those charged with governance has been adequate for the purpose of the audit. If it has not, the auditor shall evaluate the effect, if any, on the audit and take action as appropriate.

8.5.4. The auditor shall perform audit procedures to evaluate whether the overall presentation of the financial statements is in accordance with the applicable financial reporting framework. In making this evaluation, the auditor shall consider whether the financial statements are presented in a manner that reflects the appropriate:

1. Classification and description of financial information and the underlying transactions, events and conditions; and

2. Presentation, structure and content of the financial statements.

8.5.5. The auditor shall conclude whether sufficient appropriate audit evidence has been obtained. In forming an opinion, the auditor shall consider all relevant audit evidence, regardless of whether it appears to be corroborative or contradictory.

8.5.6. If the auditor has not obtained sufficient appropriate audit evidence as to a relevant assertion, the auditor shall attempt to obtain additional audit evidence. If the auditor is unable to obtain sufficient appropriate audit evidence, the auditor shall express a qualified opinion or disclaim an opinion on the financial statements. ²⁴

8.5.7. The auditor shall evaluate whether sufficient appropriate audit evidence has been obtained regarding, and shall conclude on, the appropriateness of management’s use of the going concern basis of accounting in the preparation of the financial statements.²⁵

8.5.8. The auditor shall conclude, based on the audit evidence obtained, whether in the auditor’s professional judgement, a material uncertainty exists related to events or conditions that, individually or collectively, may cast significant doubt on the entity’s ability to continue as a going concern.²⁶

8.5.9. If the auditor concludes that management’s use of the going concern basis of accounting is appropriate in the circumstances but a material uncertainty exists, the auditor shall determine whether the financial statements:

1. Adequately disclose the principal events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern and management’s plans to deal with these events or conditions; and

2. Disclose clearly that there is a material uncertainty related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.

In such cases, the auditor shall express an unmodified opinion and the auditor’s report shall include a separate section under the heading “Material Uncertainty Relating to Going Concern”.

8.5.10. If events or conditions have been identified that may cast significant doubt on the entity’s ability to continue as a going concern but, based on the audit evidence obtained the auditor concludes that no material uncertainty exists, the auditor shall evaluate whether, in view of the requirements of the applicable financial reporting framework, the financial statements provide adequate disclosures about these events or conditions.

8.5.11. If the auditor confirms that, or is unable to conclude whether, the financial statements are materially misstated as a result of fraud, the auditor shall evaluate the implications on the audit including on the assessed risks of material misstatement and the auditor’s report.

8.6.1. [Amended by the NZAuASB]

NZ8.6.1. The auditor shall obtain written representations from those charged with governance who have appropriate knowledge of the matters concerned and responsibility for the financial statements, about the following matters:

1. That they have fulfilled their responsibility for the preparation of the financial statements in accordance with the applicable financial reporting framework, including where relevant their fair presentation. The responsibilities shall be described in the same way in the representation as described in the terms of engagement;

2. That they have provided the auditor with all relevant information and access as agreed in the terms of the audit engagement;

3. That all transactions are recorded and are reflected in the financial statements;

4. That they acknowledge their responsibility for the design, implementation and maintenance of controls to prevent and detect fraud;

5. That they have disclosed to the auditor the result of its assessment of the risk that the financial statements may be materially misstated because of fraud;

6. That their knowledge of fraud, or suspected fraud, or allegations of fraud or suspected fraud has been disclosed to the auditor;

7. That they have disclosed to the auditor the identity of the entity’s related parties and all the related party relationships and transactions of which they are aware;

8. That they have appropriately accounted for and disclosed related party relationships and transactions in accordance with the requirements of the financial reporting framework;

9. That all known instances of non-compliance or suspected non-compliance with laws and regulations whose effects should be considered when preparing financial statements have been disclosed to the auditor;

10. That all known actual or possible litigation and claims whose effects should be considered when preparing the financial statements have been disclosed to the auditor and accounted for and disclosed in accordance with the applicable financial reporting framework;

11. With respect to accounting estimates, whether the methods, significant assumptions and data used in making the accounting estimates and disclosures are appropriate to achieve recognition, measurement or disclosure is in accordance with the applicable financial reporting framework;

12. That all events occurring subsequent to the date of the financial statements and for which the applicable financial reporting framework requires adjustment or disclosure have been adjusted or disclosed;

13. With respect to going concern, if a material uncertainty exists, information about their plans for future actions and the feasibility of these plans;

14. Regarding any restatement made to correct a material misstatement in prior period financial statements that affect the comparative information; and

15. Other representations the auditor determines necessary to support other audit evidence relevant to the financial statements or one or more specific assertions in the financial statements, including where necessary to support oral representations.

8.6.2. The auditor shall consider the need to obtain representations about specific accounting estimates.

8.6.3. The written representation shall be in the form of a representation letter addressed to the auditor.

8.6.4. [Amended by the NZAuASB]

NZ8.6.4. The auditor shall request a written representation from those charged with governance, whether they believe the effects of uncorrected misstatements are immaterial, individually or in aggregate, to the financial statements as a whole. A summary of such items shall be included in or attached to the written representation.

8.6.5. [Amended by the NZAuASB]

NZ8.6.5. If the auditor has concerns about the competence, integrity, ethical values, or diligence of management or those charged with governance, or about its commitment to or enforcement of these, or representations received are inconsistent with other audit evidence, the auditor shall determine the effect on audit evidence more generally and take appropriate actions, including considering the possible effect on the opinion in the auditor’s report ²⁷ having regard to the requirement in paragraph 8.6.7.

8.6.6. [Amended by the NZAuASB]

NZ8.6.6. If management or those charged with governance does not provide one or more of the requested written representations, the auditor shall:

1. Discuss the matter with management;

2. Re-evaluate the integrity of management and evaluate the effect this may have on the reliability of oral and written representations and audit evidence in general; and

3. Take appropriate actions, including determining the possible effect on the opinion in the auditor’s report²⁸ having regard to the requirement in paragraph 8.6.7.

8.6.7. [Amended by the NZAuASB]

NZ8.6.7. If the auditor concludes that there is sufficient doubt about the integrity of those charged with governance such that the written representations required by paragraphs 8.6.1.(a)–(c) are not reliable²⁹ or management does not provide the written representations required by paragraphs 8.6.1.(a)–(c),³⁰ the auditor shall disclaim an opinion on the financial statements.

8.6.8. The date of the written representations shall be as near as practicable to, but not after, the date of the auditor’s report on the financial statements. The written representations shall be for all financial statements and period(s) referred to in the auditor’s report.

8.7.1. Prior to dating the auditor’s report, the engagement partner shall determine that the engagement partner has taken overall responsibility for managing and achieving quality on the audit engagement. In doing so, the engagement partner shall determine that:

1. The engagement partner’s involvement has been sufficient and appropriate throughout the audit engagement such that the engagement partner has the basis for determining that the significant judgements made, and the conclusions reached, are appropriate given the nature and circumstances of the engagement; and

2. The nature and circumstances of the audit engagement, any changes thereto, and the firm’s related policies or procedures have been taken into account.

8.7.2. On or before the date of the auditor’s report, the engagement partner shall determine that sufficient appropriate audit evidence has been obtained to support the conclusions reached and for the auditor’s report to be issued.

8.7.3. Prior to dating the auditor’s report, the engagement partner shall review the financial statements and the auditor’s report to determine that the report to be issued is appropriate in the circumstances.

8.8.1. The auditor shall communicate, on a timely basis, all misstatements accumulated during the audit with the appropriate level of management, unless prohibited by law or regulation.

8.8.2. The auditor shall communicate with those charged with governance:

1. Uncorrected misstatements and the effect that they, individually or in aggregate, may have on the auditor’s opinion, unless prohibited by law or regulation. The auditor’s communication shall identify the material uncorrected misstatements individually.

2. The effect of uncorrected misstatements from prior periods on the current year’s financial statements.

3. The auditor’s views about significant qualitative aspects of the entity’s accounting practices, including accounting policies, accounting estimates, and financial statement disclosures.

4. Significant difficulties, if any, encountered during the audit.

5. Significant matters arising during the audit, including in connection to the entity’s related parties, that were discussed, or subject to correspondence, with management.

6. Significant findings from the audit. If, in the auditor’s professional judgement, oral communications would not be adequate this communication shall be in writing.

7. Other matters not already reported related to fraud that may be relevant to the responsibilities of those charged with governance, unless prohibited by law or regulation.

8. Circumstances, if any, that affect the form and content of the auditor’s report. 

9. Written representations the auditor is requesting.

10. Other significant matters, if any, arising from the audit that, in the auditor’s professional judgement, are relevant to the oversight of the financial reporting process.

11. The expectation thereof and the wording if the auditor expects to include an Emphasis of Matter or Other Matter Paragraph in the auditor’s report.

8.8.3. Unless all those charged with governance are involved in managing the entity, the auditor shall communicate with those charged with governance events or conditions identified that may cast significant doubt on the entity’s ability to continue as a going concern, including:

1. Whether the events or conditions constitute a material uncertainty;

2. Whether management’s use of the going concern basis of accounting is appropriate in the preparation of the financial statements;

3. The adequacy of related disclosures in the financial statements; and

4. Where applicable, the implications for the auditor’s report.

8.9.1. The auditor shall include the following in the audit documentation:

1. All misstatements accumulated during the audit and whether they have been corrected, and the auditor’s conclusion as to whether the uncorrected misstatements are material, individually or in aggregate, and the basis for that conclusion; and

2. The nature and scope of, and conclusions from, consultations undertaken during the audit, including how such conclusions were implemented.

8.9.2. The auditor’s documentation shall demonstrate that information in the financial statements agrees or reconciles with the underlying accounting records, including agreeing or reconciling disclosures, whether such information is obtained from within or outside of the general and subsidiary ledgers.

8.9.3. The auditor shall assemble the audit documentation in an audit file and complete the administrative process of assembling the final audit file on a timely basis after the date of the auditor’s report.

8.9.4. After assembly of the final audit file is complete, the auditor shall not delete or discard audit documentation of any nature before the end of its retention period.

8.9.5. If applicable, the auditor shall document the failure to meet an objective of any Part of the ISA (NZ) for LCE, and the resulting action (such as the effect on the auditor’s opinion or withdrawal from the engagement if the overall objective of the auditor cannot be met).

8.9.6. If the auditor finds it necessary to modify existing audit documentation or add new audit documentation after the assembly of the final audit file has been completed, the auditor shall, regardless of the nature of the modifications or additions, document:

1. The specific reasons for making them; and

2. When and by whom they were made and reviewed.

9.1.1. The objectives of the auditor are to:

1. Form an opinion on the financial statements based on an evaluation of the conclusions drawn from the audit evidence obtained and to express clearly that opinion through a written report; and

2. Consider whether there is a material inconsistency between the other information, if any, and the:

   1. Financial statements; and

   2. Auditor’s knowledge obtained in the audit.

9.2.1. The auditor shall form an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.

9.2.2. In order to form that opinion, the auditor shall conclude as to whether the auditor has obtained reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. That conclusion shall take into account:

1. Whether sufficient appropriate audit evidence has been obtained;

2. Whether uncorrected misstatements are material, individually or in aggregate; and

3. The evaluations required by paragraphs 9.2.3. to 9.2.6.

9.2.3. The auditor shall evaluate whether the financial statements are prepared, in all material respects, in accordance with the requirements of the applicable financial reporting framework. This evaluation shall include consideration of the qualitative aspects of the entity’s accounting practices, including indicators of possible bias in management’s judgements.

9.2.4. In performing the evaluation in paragraph 9.2.3., the auditor shall evaluate, in view of the requirements of the applicable financial reporting framework, whether:

1. The financial statements appropriately disclose the entity’s significant accounting policies, and whether they have been presented in an understandable way;

2. The entity’s accounting policies selected and applied are consistent with the applicable financial reporting framework and are appropriate;

3. The accounting estimates and related disclosures made by management are reasonable;

4. The identified related party relationships and transactions have been appropriately accounted for, presented and disclosed in accordance with the applicable financial reporting framework;

5. The information presented in the financial statements is relevant, reliable, comparable and understandable including whether:

   1. The information that should have been included has been included;

   2. Such information is appropriately classified, aggregated or disaggregated, and characterised; and

   3. The overall presentation of the financial statements has been undermined by including information that is not relevant or that obscures a proper understanding of the matters disclosed;

6. The financial statements provide adequate disclosures to enable intended users to understand the effect of material transactions and events on the information conveyed in the financial statements; and

7. The terminology used in the financial statements, including the title of each financial statement, is appropriate.

9.2.5. When the financial statements are prepared in accordance with a fair presentation framework, the auditor shall also evaluate whether the financial statements achieve fair presentation. This evaluation shall include consideration of:

1. The overall presentation, structure and content of the financial statements; and

2. Whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

9.2.6. The auditor shall evaluate whether the financial statements adequately refer to or describe the applicable financial reporting framework.

9.3.1. The auditor shall express an unmodified opinion when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.

9.3.2. If financial statements prepared in accordance with the requirements of a fair presentation framework do not achieve fair presentation, the auditor shall discuss the matter with management and, depending on the requirements of the applicable financial reporting framework and how the matter is resolved, determine whether to modify the opinion. ³⁵

9.3.3. If the financial statements are prepared in accordance with a compliance framework, the auditor is not required to evaluate whether the financial statements achieve fair presentation. However, if in extremely rare circumstances the auditor concludes, based on the audit evidence obtained, that such financial statements are misleading, the auditor shall discuss the matter with management and, depending on how it is resolved, shall determine whether, and how, to communicate it in the auditor’s report. ³⁶

9.4.1. [Amended by the NZAuASB]

NZ9.4.1. The auditor shall report in accordance with the specified format and content below, or paragraph 11.14.1., unless:

1. Amendment to the auditor’s report is required for compliance with a specific layout or wording of the auditor’s report required by law or regulation or by the Auditor-General’s Auditing Standards. When the layout or wording of the auditor’s report is prescribed by law or regulation or by the Auditor-General’s Auditing Standards, the auditor’s report shall refer to this ISA (NZ) for LCE only if the elements of the specified format and content illustrated below are included; or

2. The auditor’s report includes a modified opinion, emphasis of matter paragraph, other matter paragraph, material uncertainty related to going concern, other reporting responsibilities, or a separate section dealing with Other Information, in which case the auditor shall modify the auditor’s opinion (according to Part 9.5.) or amend the auditor’s report (according to Part 9.8.).

NZ9.4.1.A. An auditor, when applying this standard, is required to conduct an audit in accordance with the ISA (NZ) for LCE. Compliance with the ISA (NZ) for LCE will also mean the auditor has complied with the ISA for LCE in the conduct of the audit. In this case, the auditor’s report may refer to the ISA for LCE in addition to the ISA (NZ) for LCE only if the auditor’s report includes the elements of the specified format and content illustrated below.

INDEPENDENT AUDITOR’S REPORT

To the [Shareholders of ABC Company or Other Appropriate Addressee]³⁷

Opinion

We have audited³⁸ the financial statements of [ABC Company (the Entity), which comprise the statement of financial position as at December 31, 20XX, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies (replace these report names with the appropriate titles)].³⁹

In our opinion, the accompanying financial statements [“present fairly, in all material respects” or “give a true and fair view of”]⁴⁰ the financial position of the [Entity] as at [December 31, 20XX], and [of] its financial performance and its cash flows for the year then ended in accordance with [applicable financial reporting framework] issued by the New Zealand Accounting Standards Board.⁴¹

Basis for Opinion

We conducted our audit in accordance with the International Standard on Auditing (New Zealand) for Audits of Financial Statements of Less Complex Entities (the ISA (NZ) for LCE). Our responsibilities under the ISA (NZ) for LCE are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.⁴² We are independent of the [Entity] in accordance with Professional and Ethical Standard 1 International Code of Ethics for Assurance Practitioners (including International Independence Standards (New Zealand) issued by the New Zealand Auditing and Assurance Standards Board, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.⁴³

Other than in our capacity as auditor we have no relationship with, or interests in, the [Entity].⁴⁴

Responsibilities of [Those Charged with Governance] for the Financial Statements⁴⁵

[Those Charged with Governance] are responsible on behalf of the [Entity] for the preparation [and fair presentation] of the financial statements in accordance with [applicable financial reporting framework],⁴⁶ and for such internal control as [Those Charged with Governance] determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, [Those Charged with Governance] are responsible on behalf of the [Entity] for assessing the [Entity’s] ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless [Those Charged with Governance] either intends to liquidate the [Entity] or to cease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Statements^{47 48}

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the ISA (NZ) for LCE will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with the ISA (NZ) for LCE, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the [Entity’s] internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by [management and Those Charged with Governance].

• Conclude on the appropriateness of [Those Charged with Governance’s] use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the [Entity’s] ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the [Entity] to cease to continue as a going concern.

• [Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.]⁴⁹

We communicate with [management, and where appropriate, those charged with governance] regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

[Signature in the name of the audit firm⁵⁰]

[Auditor Address: name the location in the jurisdiction where the auditor practices]

[Date: No earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the auditor’s opinion on the financial statements, including evidence that (i) All the statements and disclosures that comprise the financial statements have been prepared; and (ii) Those with the recognised authority have asserted that they have taken responsibility for those financial statements.]

9.4.2. When the financial statements are prepared in accordance with a fair presentation framework, the auditor shall refer to “the preparation and fair presentation of these financial statements” or “the preparation of financial statements that give a true and fair view,” as appropriate in the circumstances, in the description of responsibilities for the financial statements in the auditor’s report.

9.4.3. The auditor shall not refer to the work of an auditor’s expert in an auditor’s report containing an unmodified opinion unless required by law or regulation to do so. If such reference is required by law or regulation, the auditor shall indicate in the auditor’s report that the reference does not reduce the auditor’s responsibility for the auditor’s opinion.

9.5.1. The auditor shall modify the opinion in the auditor’s report according to Tables A–C below when:

1. The auditor concludes that, based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement; or

2. The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement.

9.5.2. When the auditor modifies the audit opinion, the auditor shall:

1. Amend the heading “Basis for Opinion” to “Basis for Qualified Opinion,” “Basis for Adverse Opinion,” or “Basis for Disclaimer of Opinion” as set out in Tables A–C; and

2. Within the basis for opinion section, include a description of the matter giving rise to the modification.