It may be discovered after the audited financial statements have been presented to members and/or filed that they are defective. This is a relatively rare event.
Depending on the particular national requirements such as ‘defective’ accounts must be, may be or may not be, revised. Where revision is required or permitted the revisions should relate only to matters arising before the original accounts were approved and in respect of fundamental errors of fact (and not for changes in accounting policies).
Revision of accounts may be by way of:
Revision by replacement (in which case the original version is withdrawn) or
Revision by supplementary note.
The main duties of the auditor are to cover the following points:
Ensure that revisions are properly prepared in accordance with the applicable reporting framework
The revised accounts show a ‘true and fair view’/’are presented fairly’, as seen at the date when the original accounts were approved.
Ensure that the original accounts failed to comply with the local or national requirements/applicable accounting standards. A company cannot revise accounts without good reasons.
Typical audit procedures should include
Review the original audit plan and consider what further audit evidence may be required
Reassess the matters of judgment involved
Obtain specific evidence in respect of the adjustments required to the original accounts
Extend the post balance sheet review period (from the date on which the original accounts were approved)
Perform a ‘final review’ on the revised accounts
Consider any legal or regulatory consequence of the version.
An example of an opinion paragraph included in the auditor’s report revised accounts is as follows:
‘In our opinion, the revised financial statements give a true and fair view (or ‘present fairly, in all material respects’) as at the date the original financial statements were approved, of the financial position of the Company as of December 31 20x1 and of the results of its operations and its cash flows for the year then ended in accordance with (national legislation).
In our opinion, the original financial statements for the year ended December 31 20x1 failed to comply with (relevant national standards or legislation)
Distributions following an audit qualification
A company is limited in the amount of dividends it can pay to its shareholders by the total distributable profits available. These can be defined as:
Accumulated realized profits, so far as not previously utilized by distributor or capitalization, less accumulated realized losses.
In some countries there are additional restrictions for public companies.
In order to determine the amount of distributable profits, reference is made to the latest audited accounts. If those accounts have been qualified, and directors want to pay a dividend, auditors are normally required (under national legislation) to state in writing whether in their opinion the qualification is material for determining whether the proposed distribution is legal.