There is significant amount of discretion allowed to the directors in applying IAS 14. The auditor will need to establish the basis for the analysis provided by the directors and check whether they have followed the guidance given in IAS 14 regarding significant segments. The segments need to be consistent with previous periods but there can be valid reasons for changes as the relative importance of different sectors changes.

Test checks to source documentation will need to be made of the analyses supplied and then reconciled to the aggregate figures in the financial statements.

 IAS 7 Cash Flow Statements

The amounts appearing in the cash flow statement are derived mainly from the balance sheet and the income statement particularly where the indirect method has been used and verified accordingly. Where the direct method has been used the amounts should be verified by reference to the source accounting records (for example the cash book). The auditor should also ensure that the items have been properly classified and that cash and cash equivalents fall within the definition in the standard. Arithmetical tests should be performed on the cash flow statement and it should be reviewed for compliance with the disclosure requirements of IAS 7.

Thus if the auditor has qualified because of a disagreement over the accounting treatment, the auditor will adjust the accounts for his own preferred accounting treatment and compute whether the proposed dividend would be affected.

An example of a report (based on UK legislation) is as follows:


We have audited the financial statements of XYZ plc for the year ended 31 December 20.. in accordance with Auditing Standards issued by the Auditing Practices Board and have expressed a qualified opinion thereon in our report dated …..

 Basis of opinion

 We have carried out such procedures as we considered necessary to evaluate the effect qualified opinion has for the determination of profits available for distribution.


 In our opinion, this qualification is not material for the purpose of determining whether the distribution of £….. proposed by the company is permitted under section 263 of the Companies Act 1985.

 Certified Accountants and Address

Registered Auditor