accounting&auditing

The price of gasoline at the pump fell slightly this week in line with drastic drops in the price of international crude oil, though Phnom Penh residents and taxi drivers asked local oil companies to cut prices faster.

Caltex dropped its price of super quality petrol to 4,700 Riel per liter, down from 5,100 Riel per liter last week, while Sokimex's prices fell 500 Riel across the board this week, with super-grade gasoline now at 4,600 Riel per liter, regular-grade at 4,400 Riel per liter and diesel at 4,300 Riel per liter.

Sokimex petroleum company Deputy Director-General Heu Heng said he is working with the Finance Ministry to coordinate a continuous drop in petrol prices, which he expects to soon hit 4,000 per liter.

"We do not intend or want to sell at a higher price," he said Wednesday by telephone. "We are hopeful that the price of gasoline can drop to 4,000 riel or less per liter. But the price of crude oil in the international market is not stable."

Crude plunged 52 percent to $70.89 Tuesday from its July 11 record high of $147.27 on the New York Mercantile Exchange, Bloomberg reported Wednesday.

Tuk-tuk and motorbike taxi drivers said Wednesday they were still felling the pinch from the past year's skyrocketing price of petrol.

"It seiously increased, like the jump of a rabbit, but it has dropped like the walk of a turtle. There is an imbalance between the increase and decrease in gas prices," said motorbike taxi driver Hab Buntep, 39.

Such swings in international oil prices prevent the government from guaranteeing the petrol prices will continue to fall, Finance Ministry Secretary - General Hang Chuon Naron said Wednesday.

The government has forgone $250 million in tax revenue from the industry this year in an effort to keep gas prices stable, Hang Chuon Naro said, while in 2007 it forwent $170 million in gas taxes.

"Our government has tried its best to curb the price of gasoline through forgoing revenues on petroleum products. It is part of a subsidy to keep the price stable," he said.

Source: The Cambodia Daily issued on 23 October 2008

SHANGHAI - As shock waves from the credit crisis began to spread around the world last month, China scrambled to protect itself. Among the most extreme measures it took was to impose new export taxes to keep critical supplies such as grains and fertilizer from leaving the country.

About 9,000 km away, in Nairobi, Kenya, farmer Stephen Muchiri is suffering the consequences.
It's planting season now, but he can afford to sow amaranthus and haricot beans on only haft of the 4 hectares he owns because the cost of the fertilizer he needs has shot up nearly $50 a bag in a matter of weeks. Muchiri said nearly everyone he knows is cutting back on planting, which means even less food for a Continent where the supply has already been weakened by drought, political unrest and rising prices.

While the world's attention has been focused on the rescuing investment back and stock markets from collapse, the global food crisis has worsened, a casualty of the growing financial tumult.

Oxfam, the Britain-based aid group, estimates that economic chaos this year has pulled the incomes of an additional 119 million people below the poverty line. Richer countries from the US to the Persian Gulf are busy helping themselves and have been slow to lend a hand.

The contrast between the rapid fire reaction by Western authorities to the financial crisis and their comparatively modest response to soaring food prices earlier this year has triggered anger among aid and farming groups.

"The amount of money used for the bailouts in the US and Europe - people here are saying that money is enough to feed the poor in Africa for the next three years," said Muchiri, head of the Eastern Africa Farmers Federation.

The UN Food and Agriculture Organization estimates that 923 million people were seriously undernourished in 2007. Its director general, Jacques Diouf, said in a recent speech that he worries about cuts in aid to agriculture in developing countries. He said he is also concerned by protectionist trade measures intended to counteract the financial turmoil.

Although the price of commodities has come down in the past few months, Diouf said, 36 countries still need emergency assistance for food, and security a top priority.

"The global financial crisis should not make us forget the food crisis," Diouf said.

Commodity prices have plummeted in recent weeks as investors have shown increasing concern about a global recession and a drop in the demand for goods. Wheat futures for December delivery closed at $5.1625 on Friday - down 62 percent from a record set in February. Corn futures are down 53 percent from their all-time high, and soybean futures are 47 percent lower.

Such declines, while initially welcomed by consumers, could eventually increase deflationary pressure - lower prices could mean less incentive for farmers to cultivate crops. That, in turn, could exacerbate the global food shortage.

In June, governments, donors and agencies gathered in Rome to pledge $12.3 billion to address the worlds' worst food crisis in a generation. But only $1 billion has been disbursed. An additional $1.3 billion, which had been earmarked by the European Commission for helping African farmer, is tied up in bureaucracy, with some governments now arguing that they can no longer afford to give up that money.

"The financial crisis is providing an excuse for people across the spectrum - governments, multilateral organizations, companies - to not do the right thing," said Oxfam spokeswoman Amy Barry.

The precarious aid situation is compounded by export taxes and bans imposed this year by a number of grain and fertilizer producing nations, including China, India, Pakistan, Ukraine and Argentina.

EU Trade Commissioner Peter Mandelson has criticized export restrictions because they "drive up world prices and cut off supplies of raw materials." Such restrictions, he said, "invite a cycle of retaliation that is as economically hard to resist," Mandelson said last month.

China - the world's biggest grain and rice producer and the biggest exporter of certain types of fertilizer - could see its moves having ripple effects on vulnerable countries.

"The world relies on China for food security," said Anthea Webb, China country director for the UN World Food Program. "The world supply and demand is a big equation, and China is a big part of that."

China's new taxes on fertilizer exports, which went into effect Sept 1, range from 150 to 185 percent. Chinese authorities said they need to ensure that prices are low at home to protect their own farmers and ensure an adequate supply of food for their residents.

Although the measure has been good for China, it has been devastating to other countries. A dozen Chinese fertilizer companies said they had stopped exporting this month.

"If we export abroad, we can make zero profit or even a loss," said Liu Chengyong, the sales manager at Henon Yuzhongao Technological Agricultural Co., which produces about 150,000 tons of fertilizer a year.

It is unclear whether the export taxes are legal under the World Trade Organization's rules. Technically, the WTO bans all export taxes as barriers to free trade but allows for exceptions in emergency situations.

Soaring fertilizer prices triggered by China's taxes are deepening the food crisis in parts of Kenya, Tanzania, Ethiopia and Somalia.

Eustace Muriuki, general manager of Mea Ltd, the second-largest fertilizer importer for East Africa, said the price of a bag of fertilizer is about five times what it was a little more than a year ago.

Muriuki imports about a quarter of his fertilizer from China. He said losing China as a supplier would be particularly painful because it has been a relatively cheap and easy option, with so many shipping vessels traveling between China and Africa.

Bety Kibaara, an analyst with the Tegemeo Institute of Agricultural Policy and Development in Nairobi, said China's decision is only going to make a bad situation worse in Kenya.

Kenya's post-election crisis this year displaced hundreds of thousands of farmers who planted their cornfields late or not at all, and often without fertilizer because the price was too high.

The current harvest, which continues through November, is producing a yield that is worse than expected. And if fertilizer prices are still soaring during the next planting season, the country's deficit of corn - its staple food - will only grow.

"We are in big trouble," Kibaara said.

Source: The Cambodia Daily issed on 27 October 2008.

Cambodia rubber producers are faced with a sharp drop in prices for their product after a slump in the international rubber price during recent months, Agriculture Ministry officials and rubber plantation owner said Tuesday.

Ly Phalla, director-general of the Agriculture Ministry's rubber plantation department, said the price of rubber resin in Cambodia had almost halved during the past few months and is now at a two-year low.

He attributed that sharp drop in rubber prices to decline in demand on global markets, large stockpiles in China - the main end-market for Cambodian rubber - and a seasonal drop in demand from factories in the US.

Ly Phalla went on to say the recent lowering of crude oil prices is boosting the sales of synthetic rubber, which is made from petroleum, thereby lowering the cost of natural rubber.

"I hope and expect that rubber prices will go up again in January and February," Ly Phalla said, adding that US demand usually increases again in November.

Rubber plantation owners in Kompong Cham province said prices had started dropping in the past two month, falling from about $3,000 per ton of rubber in lat August and early September to $1,200 per ton earlier this month.

Mok Kimhong, director-general of Chup Rubber Plantation, said only in recent days had prices risen again slightly, bringing the resin price to $1,610 per ton Tuesday.

His company is keeping 700 tons of rubber in stock until prices rise to about $1,900 per ton, Mok Kimhong said, adding that they were forced to sell 200 tons at low prices in order to pay their workers.

Na Marady, director-general of Memot Plantation, said that in early October, Chinese and Vietnamese companies stopped buying his rubber resin and he had since stockpiled 200 to of resin. "We will sell our rubber resin when we have markets," he said. He added that he fears the price may yet drop below $1,000 per ton.

Source: The Cambodia Daily issued on 22 October 2008.

Accounting Policies

Accounting policies are the principles, bases, conventions, rules and practices applied by an entity which specify how the effects of transactions and other events are reflected in the financial statements.

International Accounting Standards (IAS 8) requires an entity to select and apply appropriate accounting policies complying with International Financial Reporting Standards (IFRSs) and interpretations to ensure that the financial statements provide information that is:

• relevant to the decision-making needs of users.
• reliable.

Changing Accounting Policies

The general rule is that accounting policies are normally kept that same from period to period to ensure comparability of financial statements over time.

IAS 8 requires accounting policies to be changed only if the change:

• is required by IFRSs or
• will result in a reliable and more relevant presentation of evens or transaction.

A change in accounting policy occurs if there has been a change in:

• recognition, e.g. an expense in now recognized rather than an asset.
• presentation, e.g depreciation is now included in cost of sales rather that administrativ expenses, or
• measurement basis, e.g stating assets at replacement cost rather than historical cost

Accounting for Change in Accounting Policy

The required accounting treatment is that:

• the change should be applied retrospectively, with an adjustment to the opening balance of retained earnings in the statement of changes in equity.
• comparative information should be restated unless it is impracticable to do so.
• there will be a prior adjustment to the balance of retained earnings brought forward in the statement of changes in equity
• if the adjustment to opening retained earnings cannot be reasonably determined, the change should be adjusted prospectively, i.e. included in the current period's income statement.

Disclosure

When a change in accounting policy has material effect on the current period or any period presented, or may have a material effect in the subsequent periods, the following disclosures should be made:

• the reasons for the change
• the amounts of the adjustments recognized in the current period and the previous period presented (i.e. the comparative figures)
• the amount of the adjustment relating to periods prior to those included in the financial statement.

Introduction

The purpose of this ISA is to establish standards and provide guidance on the auditor’s use of external confirmations as a means of obtaining audit evidence.

The auditor should determine whether the use of external confirmations is necessary to obtain sufficient appropriate audit evidence at the assertion level.

It indicates that, while recognizing exceptions may exist, the following generalization about the reliability of audit evidence may be useful:

• Audit evidence is more reliable when it is obtained from independent sources outside the entity.


• Audit evidence obtained directly by the auditor is more reliable than audit evidence obtained indirectly or by inference.


• Audit evidence is more reliable when it exists in documentary form.


• Audit evidence provided by original documents is more reliable than audit evidence provided by photocopies or facsimiles

External confirmation is the process of obtaining and evaluating audit evidence through a representation of information or an existing condition directly from a third party in response to a request for information about a particular item affecting assertions in the financial statements or related disclosures.

External confirmations are frequently used in relation to account balances and their components, but need not be restricted to these items. The following are examples of situations where external confirmations may be used include the following:

• Bank balances and other information from bankers.


• Accounts receivable balances.


• Stocks held by third parties at bonded warehouses for processing or on consignment.


• Property title deeds held by lawyers or financiers for safe custody or as security.


• Investments purchased from stockbrokers but not delivered at the balance sheet date.


• Loans from lenders.


• Accounts payable balances.

Assertions Addressed by External Confirmations

External confirmation of an account receivable provides reliable and relevant audit evidence regarding the existence of the account as at a certain date.

Confirmation also provides audit evidence regarding the operation of cutoff procedures. However, such confirmation does not ordinarily provide all the necessary audit evidence relating to the valuation assertion, since it is not
practicable to ask the debtor to confirm detailed information relating to its ability to pay the account.

Similarly, in the case of goods held on consignment, external confirmation is likely to provide reliable and relevant audit evidence to support the existence and the rights and obligations assertions, but might not provide audit evidence that supports the valuation assertion.

Design of the External Confirmation Request

The auditor should tailor external confirmation requests to the specific audit objective. When designing the request, the auditor considers the assertions being addressed and the factors that are likely to affect the reliability of the confirmations.

Factors such as the form of the external confirmation request, prior experience on the audit or similar engagements, the nature of the information being confirmed, and the intended respondent, affect the design of the requests because these factors have a direct effect on the reliability of the audit evidence obtained through external confirmation procedures.

Use of Positive and Negative Confirmations

A positive external confirmation request asks the respondent to reply to the auditor in all cases either by indicating the respondent’s agreement with the given information, or by asking the respondent to fill in information

A negative external confirmation request asks the respondent to reply only in the event of disagreement with the information provided in the request.

Management Requests

When the auditor seeks to confirm certain balances or other information, and management requests the auditor not to do so, the auditor should consider whether there are valid grounds for such a request and obtain audit evidence to support the validity of management’s requests. If the auditor agrees to management’s request not to seek external confirmation regarding a particular matter, the auditor should apply alternative audit procedures to obtain sufficient appropriate audit evidence regarding that matter.

If the auditor does not accept the validity of management’s request and is prevented from carrying out the confirmations, there has been a limitation on the scope of the auditor’s work and the auditor should consider the possible impact on the auditor’s report.

Characteristics of Respondents

The reliability of audit evidence provided by a confirmation is affected by the respondent’s competence, independence, authority to respond, knowledge of the matter being confirmed, and objectivity.

The External Confirmation Process

When performing confirmation procedures, the auditor should maintain control over the process of selecting those to whom a request will be sent, the preparation and sending of confirmation requests, and the responses to those requests. Control is maintained over communications between the intended recipients and the auditor to minimize the possibility that the results of the confirmation process will be biased because of the interception and alteration of confirmation requests or responses.

No Response to a Positive Confirmation Request

The auditor should perform alternative audit procedures where no response is received to a positive external confirmation request. The alternative audit procedures should be such as to provide audit evidence about the assertions that the confirmation request was intended to provide.

Causes and Frequency of Exceptions

When the auditor forms a conclusion that the confirmation process and alternative audit procedures have not provided sufficient appropriate audit evidence regarding an assertion, the auditor should perform additional audit procedures to obtain sufficient appropriate audit evidence.

In forming the conclusion, the auditor considers the:

1. Reliability of the confirmations and alternative audit procedures;


2. Nature of any exceptions, including the implications, both quantitative and qualitative of those exceptions; and


3. Audit evidence provided by other audit procedures.

Evaluating the Results of the Confirmation Process

The auditor should evaluate whether the results of the external confirmation process together with the results from any other audit procedures performed, provide sufficient appropriate audit evidence regarding the assertion being audited.

External Confirmations Prior to the Year-end

When the auditor uses confirmation as at a date prior to the balance sheet to obtain audit evidence to support an assertion, the auditor obtains sufficient appropriate audit evidence that transactions relevant to the assertion in the intervening period have not been materially misstated. Depending on the assessed risk of material misstatement, the audit or may decide to confirm balances at a date other than the period end, for example, when the audit is to be completed within a short time after the balance sheet date. As with all types of pre-year-end work, the auditor considers the need to obtain further audit evidence relating to the remainder of the period. ISA 330 provides additional guidance when audit procedures are performed at an interim date.

You can download full text from this link ISA 505-External Confirmation

1. Objective

The primary objectives of not-for-profit organization is not to make money but to benefit prescribed groups of people.

1.1. Planning influences

A number of factors influence the way in which management objectives are determined in this organization, which distinguish them from commercial businesses:

- Wide range of stakeholders
- High level of interest from stakeholder groups
- Significant degree of involvement from funding bodies and sponsors
- Little or not financial input from the ultimate recipients of the service
- Funding often provided as a series of advances rather than as lump sum
- Projects typically have a longer-term planning horizon
- May be subject to government influence.

1.2 Non-financial Objectives

As with any organization, NFP will use a mixture of financial and non-financial objectives. However, with NFPs the non-financial objectives are often more important and more complex because of the followings:

- Most key objectives are very difficult to quantify, especially in financial terms, e.g. quality of care given to patients in a hospital.
- Multiple and conflicting objectives are more common in NFPs, e.g. quality of patient care versus number of patients treated..

1.3 Financial Objectives

Because the services provided are limited primarily by the funds available,
key objectives for NFPs will be to:

- Raise as large a sum as possible.
- Spend funds as effectively as possible.

2. Value for money (VFM)

VFM can be defined as "achieving the desired level and quality of service at the most economical cost. The concept of VFM is of particular important in NFPs (particularly those in the public sector) because they:

- Often use public funds raised through taxation or donation
- Don not produce financial results such as profit figures.
- Have no clear priority of objectives
- Face an increasing demand for accountability.

3. Measuring Objectives in NFPs

3.1 Systems Analysis

A more detailed analysis of what is meant by VFM can be achieved by viewing the organization as a system set up to achieve its objectives by means of processing inputs into outputs.

3.2 The Three Es

Assessing whether the organization provides value for money involves looking at the functioning of all aspects of the system. Performance measures have developed to permit evaluation of each part separately.

The three Es consist of the following:

Economy: Minimizing the cost of input required to achieve a defined level of output.

Efficiency: Ratio of outputs to inputs - achieving a high level of output in relation to the resources put in (input driven) or providing a particular level of service at reasonable input cost (output-driven).

Effectiveness: Whether outputs are achieved that match the predetermined objectives.

Reperform ageing of accounts receivable

• Introduction

Reperform ageing of accounts receivable is one of the important tests that auditor need to perform to ensure the valuation of account receivable.

The ageing report is normally automatically generated from the accounting software. The auditor can obtain both soft copy in Excel format or test directly in the client database.

I will show you how to reperform ageing using Excel.

• Step in Reperforming

1. Obtain soft copy of sale invoice report, invoices that are not yet paid, from client.

2. Reconcile total on sale invoice report with account receivable on balance sheet to ensure the completeness. If differences, auditor should request explanation from client.

3. Copy invoice date, customer code, and invoice amount from soft copy to new Excel. Please refer the example below.

4. In the next following column, put title Cut-off Date. The cut-off date is normally the balance sheet date. For example, if auditor is auditing the financial statement for the year ended 31 December 2008, then the cut-off date is 31 December 2008.

5. In the next following column, put title Num of Day. Num of Day = Cut-off Date - Invoice Date.

6.The next following 3 columns are the ageing day. I show you the first row and you can do the reaming. In cell F2 this function: =if (E2<=30,C2,""), in cell G2: =if(and(E2>30,E2<=60),C2,""), in cell He: =if(E2>60,C2,"").

Please refer to the picture below for your reference.

I strongly suggest you to download this book http://rapidshare.com/files/150449865/XAudi.pdf so that you can learn more on how to use Excel to perform the audit more effectively and effeciently.

LONDON - Oil was near $90 a barrel Monday after falling to its lowest in eight months earlier in the session, pressured by expectations the global credit crisis will bring a sharp drop in oil demand.

US light crude from November delivery fell by $3.84 a barrel to $90.04, its fourth day of losses. It touched a session low of $88.89, its lowest since early February. Prices have dropped by nearly 40 percent from a peak of $147.27 on July 11.

London Brent crude was down $3.86 at $86.39 a barrel. "The prevailing macro sentiment is now crystallizing around the notion that we are heading into a synchronized global slow-down, a mirror image of the across-the-board expansion we saw from 2004 to early 2007," said Edward Meir of broker MF Global.

An external audit program encompasses engaging an independent auditor to perform a full-scope financial statement audit, a balance-sheet-only audit, an attestation of internal controls over financial reporting, or other agreed-upon external audit procedures. Outsourced or co-sourced internal audit activities are not considered part of an external audit program.
An effective external audit function often provides the board of directors and management with:

• Reasonable assurance about the effectiveness of internal controls over financial reporting, the accuracy and timeliness in recording transactions, and the accuracy and completeness of financial and regulatory reports.

• An independent and objective view of a bank’s activities, including processes relative to financial reporting.

• Information useful to directors and management in maintaining a bank’s risk management processes.

The primary role of internal auditors is to independently and objectively review and evaluate bank activities to maintain or improve the efficiency and effectiveness of a bank’s risk management, internal controls, and corporate governance. They do this by:

• Evaluating the reliability, adequacy, and effectiveness of accounting, operating, and administrative controls.

• Ensuring that bank internal controls result in prompt and accurate recording of transactions and proper safeguarding of assets.

• Determining whether a bank complies with laws and regulations and adheres to established bank policies.

• Determining whether management is taking appropriate steps to address current and prior control deficiencies and audit report recommendations.
Internal auditors must understand a bank’s strategic direction, objectives, products, services, and processes to conduct these activities. The auditors then communicate findings to the board of directors or its audit committee and senior management.

In addition, internal auditors often have a role in merger, acquisition, and transition activities. This role may include such duties as helping the board and management evaluate safeguards and controls, including appropriate documentation and audit trails, during the bank’s acquisition planning and implementation processes.

The National Bank of Cambodia has tripled the minimum capital requirement for commercial banks in Cambodia in an effort to tighten and strengthen the banking sector.

According to a copy of an NBC directive dated Friday, commercial banks in Cambodia are now required to have a minimum capital of 150 billion riel (about $36.50 million).

Commercial banks will be allowed to maintain the current capital requirement of 50 billion riel (about 12 million) if they have an "influential shareholder" that is a bank or financial institution with an "investment grade" rating from a "reputable rating agency," according to the directive.

While the country's four main banks - Acleda, ANZ Royal, Canadia and the Cambodian Public Bank - are likely to be unaffected by the change in conditions, it remains to be seen how many of the country's 17 other commercial banks will measure up to the new rules.

The country's six specialized banks, which only make loans and do not take deposits, must also increase their minimum capital to 30 billion riel (about $7.30 million) unless they have a bank or financial institution "influential shareholder" with an "investment grade" rating, according to the NBC directive.

All existing bank have until 2010 to meet the new requirements , the directive states.

National Bank of Cambodia Director - General Tal Nai Im said Monday morning that the new commercial bank requirements are aimed at making it more difficult for prospective bank to enter the sector in Cambodia.

"We will increase the minimum capital for commercial banks," Tal Nai Im said by telephone. "The reason is to limit the number," she said.

"Some banks that don't have the minimum might have to withdraw," she added.

The NBC's 2007 Supervision Report measured that general health of the country's banking sector by the increasing number of bank customers, which grew from 285,639 in 2006 to 456,026 in 2007, and the increase in deposits from $1.4 billion in 2006 to $2.5 billion in 2007.

Finance Ministry Secretary - General Hang Chuon Naron said that bank deposits had grown another $1 billion in the first half of 2008 and that he thought the banking sector was doing quite well in general, mainly due to increased customer confidence.

The new NBC protocol will go further to "make the banking system healthy," he said by telephone Monday.

"We have 21 [commercial] banks, which is enough for the size of the market," he said. "If we have to many banks, then existing ones won't make any money."

He declined to speculate as to whether smaller banks would fold or consolidate in the coming months, but said that "if they want to continue, they have to increase their minimum capital. If they don't have it, they will have to voluntarily close down."

Following the introduction of banking law in 1999, which raised minimum capital requirements for commercial banks from $5 million to $12 million, 14 banks were forced to close their doors - reducing the number of banks in Cambodia at that time from 31 to 17.

In the last few years, the number of banks has shot up again, which is something that the International Monetary Fund's Resident Representative John Nelmes warned puts undue strain on banking supervision.

"Banking supervision capacity has been improving, however there remains room for further improvement, and the increasing number of banks heightens demands on bank supervision," Nemes wrote by email.

"I think what is perhaps more important than the number of banks in Cambodian, is the quality of banks... Banks need to be well capitalized, well run and have solid banking knowledge and experience in providing banking services so that problems down the road are avoided, " he added.

ANZ Royal CEO Stephen Higgins expressed concern over the proliferation of banks at private equity firm Leopard Fund's investor conference last week.

He said by telephone Monday that the new measure announced by the NBC was probably good news for the country as well as that sector.

"For the big four [banks] that already qualify, it's probably goods news. From the perspective of the country and risk of the backing sector, it's good new", he said.

"I would imagine some of the smaller banks are rather concerned," he added.

Acleda CEO In Channy siad Monday that the new restrictions were a positive development because they allow the sector an opportunity to fine tune sound banking principles and bolster its reputation among customers.

"We need banks with a strong capital base operating in Cambodia," In Channy said.

In Channy added that at the end of 2007, the top four banks in Cambodian accounted for more than 80 percent of deposits.

Paul Freer, vice precedent of the Japanese-backed Maruhan Bank, which opened its doors earlier this year, said the new measure would not negatively affect his institution.

"It won't affect us too much... We have the funds available to inject," he said, adding that they will simple add another $15 million to their existing capital of $25 million.

The minimum capital in Vietnam, he said, is about $100 million and is about to be raised an additional $60 million.

"If you put it into perspective [Cambodia's new terms are] not that high. But it will shrink that number of banks. Smaller banks will either consolidate or move out," he said.

Vicente Contreras, operations manager at Cambodian Asia Bank, said he hadn't yet received information on the new requirements, but was mildly concerned at the news.

"Yes, I am concerned, but I think we can meet this [new requirement]," he said, adding that their current capital is about $13 million.

Contreras said he believed that, realistically speaking, only one or two banks would be in trouble as a result of NBC directive.


Source: The Cambodia Daily issued on 23 September 2008.

Introduction

1. The purpose of this InternationalCambodian Standard on Auditing (ICSA) is to establish standards and provide guidance on the auditor's responsibility in the audit of financial statements with respect to the going concern assumption used in the preparation of the financial statements, including considering management's assessment of the entity's ability to continue as a going concern.

2. When planning and performing audit procedures and in evaluating the results thereof, the auditor should consider the appropriateness of management's use of the going concern assumption in the preparation of the financial statements.

Management's Responsibility

3. The going concern assumption is a fundamental principle in the preparation of financial statements. Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws or regulations. Accordingly, assets and liabilities are recorded on the basis that the entity will be able to realizse its assets and discharge its liabilities in the normal course of business.

4. Some financial reporting frameworks contain an explicit requirement1 for mAn entity’s management is required by Accounting Standards to make a specific assessment of the entity's ability to continue as a going concern., and standards regarding matters to be considered and disclosures to be made in connection with going concern. For example, International Accounting Standard 1 (revised 1997), 'Presentation of Financial Statements' requires management to make an assessment of an enterprise's ability to continue as a going concern.2

5. In other financial reporting frameworks, there may be no explicit requirement for management to make a specific assessment of the entity's ability to continue as a going concern. Nevertheless, since the going concern assumption is a fundamental principle in the preparation of the financial statements, management has a responsibility to assess the entity's ability to continue as a going concern even if the financial reporting framework does not include an explicit responsibility to do so.

65. When there is a history of profitable operations and a ready access to financial resources, management may make its assessment without detailed analysis.

76. Management's assessment of the going concern assumption involves making a judgment, at a particular point in time, about the future outcome of events or conditions which are inherently uncertain. The following factors are relevant:

· In general terms, the degree of uncertainty associated with the outcome of an event or condition increases significantly the further into the future a judgment is being made about the outcome of an event or condition. For that reason, Accounting Standards most financial reporting frameworks that require an explicit management assessment specify the period for whichthat management is required to take into account all available information for at least twelve months from the balance sheet date.

· Any judgment about the future is based on information available at the time at which the judgment is made. Subsequent events can contradict a judgment which was reasonable at the time it was made.

· The size and complexity of the entity, the nature and condition of its business and the degree to which it is affected by external factors all affect the judgment regarding the outcome of events or conditions.

87. Examples of events or conditions, which individually or collectively, may cast significant doubt about the going concern assumption are set out below. This listing is not all-inclusive nor does the existence of one or more of the items always signify that a material uncertainty3 exists.
_______________________
1The detailed requirements regarding management's responsibility to assess the entity's ability to continue as a going concern and related financial statement disclosures may be set out in accounting standards, legislation or regulation.

IAS 1, "Presentation of Financial Statements", paragraphs 23 and 24 state: "When preparing financial statements, management should make an assessment of an enterprise's ability to continue as a going concern. Financial statements should be prepared on a going concern basis unless management intends to liquidate the enterprise or to cease trading, or has no realistic alternative but to do so. When management is aware, in making its assessment, of material uncertainties related to events or conditions which may cast significant doubt upon the enterprise's ability to continue as a going concern, those uncertainties should be disclosed. When the financial statements are not prepared on a going concern basis, that fact should be disclosed, together with the basis on which the financial statements are prepared and the reasons why the enterprise is not considered to be a going concern.

In assessing whether the going concern assumption is appropriate, management takes into account all available information for the foreseeable future, which should be at least, but is not limited to, twelve months from the balance sheet date. The degree of consideration depends on the facts in each case. When an enterprise has a history of profitable operations and ready access to financial resources, a conclusion that the going concern basis of accounting is appropriate can be reached without detailed analysis. In other cases, management may need to consider a wide range of factors surrounding current and expected profitability, debt repayment schedules and potential sources of replacement financing before it can satisfy itself that the going concern basis is appropriate.".

3 The phrase "material uncertainty" is used in IAS 1 in discussing the uncertainties related to events or conditions which may cast significant doubt on the enterprise's ability to continue as a going concern that should be disclosed in the financial statements. In other financial reporting frameworks, and elsewhere in the ISA's the phrase "significant uncertainties" is used in similar circumstances.

Management's Responsibility Financial

· Net liability or net current liability position.

· Fixed-term borrowings approaching maturity without realistic prospects of renewal or repayment; or excessive reliance on short-term borrowings to finance long-term assets.

· Indications of withdrawal of financial support by debtors and other creditors.

· Negative operating cash flows indicated by historical or prospective financial statements.

· Adverse key financial ratios.

· Substantial operating losses or significant deterioration in the value of assets used to generate cash flows.

· Arrears or discontinuance of dividends.

· Inability to pay creditors on due dates.

· Inability to comply with the terms of loan agreements.

· Change from credit to cash-on-delivery transactions with suppliers.

· Inability to obtain financing for essential new product development or other essential investments.

Management's Responsibility Operating

· Loss of key management without replacement.

· Loss of a major market, franchise, license, or principal supplier.

· Labour difficulties or shortages of important supplies.

Management's Responsibility Other

· Non-compliance with capital or other statutory requirements.

· Pending legal or regulatory proceedings against the entity that may, if successful, result in claims that are unlikely to be satisfied.

· Changes in legislation or government policy expected to adversely affect the entity.

The significance of such events or conditions often can be mitigated by other factors. For example, the effect of an entity being unable to make its normal debt repayments may be counter-balanced by management's plans to maintain adequate cash flows by alternative means, such as by disposal of assets, rescheduling of loan repayments, or obtaining additional capital. Similarly, the loss of a principal supplier may be mitigated by the availability of a suitable alternative source of supply.

Auditor's Responsibility

98. The auditor's responsibility is to consider the appropriateness of management's use of the going concern assumption in the preparation of the financial statements, and consider whether there are material uncertainties about the entity's ability to continue as a going concern that need to be disclosed in the financial statements. The auditor considers the appropriateness of management's use of the going concern assumption even if the financial reporting framework used in the preparation of the financial statements does not include an explicit requirement for management to make a specific assessment of the entity's ability to continue as a going concern.

109. The auditor cannot predict future events or conditions that may cause an entity to cease to continue as a going concern. Accordingly, the absence of any reference to going concern uncertainty in an auditor's report cannot be viewed as a guarantee as to the entity's ability to continue as a going concern.

Planning Considerations

1110. In planning the audit, the auditor should consider whether there are events or conditions which may cast significant doubt on the entity's ability to continue as a going concern.

112. The auditor should remain alert for evidence of events or conditions which may cast significant doubt on the entity's ability to continue as a going concern throughout the audit. If such events or conditions are identified, the auditor should, in addition to performing the procedures in paragraph 256, consider whether they affect the auditor's assessments of the components of audit risk.

123. The auditor considers events and conditions relating to the going concern assumption during the planning process, because this consideration allows for more timely discussions with management, review of management's plans and resolution of any identified going concern issues.

134. In some cases, management may have already made a preliminary assessment at the early stages of the audit. If so, the auditor reviews that assessment to determine whether management has identified events or conditions, such as those discussed in paragraph 78, and management's plans to address them.

145. If management has not yet made a preliminary assessment, the auditor discusses with management the basis for their intended use of the going concern assumption, and inquires of management whether events or conditions, such as those discussed in paragraph 78, exist. The auditor may request management to begin making its assessment, particularly when the auditor has already identified events or conditions relating to the going concern assumption.

156. The auditor considers the effect of identified events or conditions when making preliminary assessments of the components of audit risk and, therefore, their existence may affect the nature, timing and extent of the auditor's procedures.

Evaluating Management's Assessment

167. The auditor should evaluate management's assessment of the entity's ability to continue as a going concern.

178. The auditor should consider the same period as that used by management in making its assessment as required by Accounting Standards.under the financial reporting framework. If management's assessment of the entity's ability to continue as a going concern covers less than twelve months from the balance sheet date, the auditor should ask management to extend its assessment period to twelve months from the balance sheet date.

189. Management's assessment of the entity's ability to continue as a going concern is a key part of the auditor's consideration of the going concern assumption. As noted in paragraph 67, Accounting Standards specify that management is required to take into account all available information for at least twelve months from the balance sheet date. most financial reporting frameworks requiring an explicit management assessment specify the period for which management is required to take into account all available information.4

1920. In evaluating management's assessment, the auditor considers the process management followed to make its assessment, the assumptions on which the assessment is based and management's plans for future action. The auditor considers whether the assessment has taken into account all relevant information of which the auditor is aware as a result of the audit procedures.

201. As noted in paragraph 56, when there is a history of profitable operations and a ready access to financial resources, management may make its assessment without detailed analysis. In such circumstances, the auditor's conclusion about the appropriateness of this assessment normally is also made without the need for performing detailed procedures. When events or conditions have been identified which may cast significant doubt about the entity's ability to continue as a going concern, however, the auditor performs additional audit procedures, as described in paragraph 256.
______________
4 For example, IAS 1 defines this as a period that should be at least, but is not limited to, twelve months from the balance sheet date.

Period Beyond Management's Assessment

212. The auditor should inquire of management as to its knowledge of events or conditions beyond the period of assessment used by management that may cast significant doubt on the entity's ability to continue as a going concern.

223. The auditor is alert to the possibility that there may be known events, scheduled or otherwise, or conditions that will occur beyond the period of assessment used by management that may bring into question the appropriateness of management's use of the going concern assumption in preparing the financial statements. The auditor may become aware of such known events or conditions during the planning and conduct of the audit, including subsequent events procedures.

234. Since the degree of uncertainty associated with the outcome of an event or condition increases as the event or condition is further into the future, in considering such events or conditions, the indications of going concern issues will need to be significant before the auditor considers taking further action. The auditor may need to ask management to determine the potential significance of the event or condition on their going concern assessment.

245. The auditor does not have a responsibility to design procedures other than inquiry of management to test for indications of events or conditions which cast significant doubt on the entity's ability to continue as a going concern beyond the period assessed by management which, as discussed in paragraph 178, would be at least twelve months from the balance sheet date.

Additional Audit Procedures When Events or Conditions are Identified

256. When events or conditions have been identified which may cast significant doubt on the entity's ability to continue as a going concern, the auditor should:

(a) review management's plans for future actions based on its going concern assessment;

(b) gather sufficient appropriate audit evidence to confirm or dispel whether or not a material uncertainty exists through carrying out procedures considered necessary, including considering the effect of any plans of management and other mitigating factors; and

(c) seek written representations from management regarding its plans for future action.

267. Events or conditions which may cast significant doubt on the entity's ability to continue as a going concern may be identified during the planning of the engagement or in the course of performing audit procedures. The process of considering events or conditions continues as the audit progresses. When the auditor believes such events or conditions may cast significant doubt on the entity's ability to continue as a going concern, certain procedures may take on added significance. The auditor inquires of management as to its plans for future action, including its plans to liquidate assets, borrow money or restructure debt, reduce or delay expenditures, or increase capital. The auditor also considers whether any additional facts or information are available since the date on which management made its assessment. The auditor obtains sufficient appropriate audit evidence that management's plans are feasible and that the outcome of these plans will improve the situation.

278. Procedures that are relevant in this regard may include:

· Analyzing and discussing cash flow, profit and other relevant forecasts with management.
· Analyzing and discussing the entity's latest available interim financial statements.
· Reviewing the terms of debentures and loan agreements and determining whether any have been breached.
· Reading minutes of the meetings of shareholders, the board of directors and important committees for reference to financing difficulties.
· Inquiring of the entity's lawyer regarding the existence of litigation and claims and the reasonableness of management's assessments of their outcome and the estimate of their financial implications.
· Confirming the existence, legality and enforceability of arrangements to provide or maintain financial support with related and third parties and assessing the financial ability of such parties to provide additional funds.
· Considering the entity's plans to deal with unfilled customer orders.
· Reviewing events after period end to identify those that either mitigate or otherwise affect the entity's ability to continue as a going concern.

289. When analysis of cash flow is a significant factor in considering the future outcome of events or conditions the auditor considers:

· the reliability of the entity's system for generating such information, and

· whether there is adequate support for the assumptions underlying the forecast.

In addition the auditor compares:

(a) the prospective financial information for recent prior periods with historical results, and

(b) the prospective financial information for the current period with results achieved to date.

Audit Conclusions and Reporting

2930. Based on the audit evidence obtained, the auditor should determine if, in the auditor's judgment, a material uncertainty exists related to events or conditions that alone or in aggregate, may cast significant doubt on the entity's ability to continue as a going concern.

301. A material uncertainty exists when the magnitude of its potential impact is such that, in the auditor's judgment, clear disclosure of the nature and implications of the uncertainty is necessary for the presentation of the financial statements not to be misleading.

Audit Conclusions and Reporting

Going Concern Assumption Appropriate but a Material Uncertainty Exists

312. If the use of the going concern assumption is appropriate but a material uncertainty exists, the auditor considers whether the financial statements:

(a) adequately describe the principal events or conditions that give rise to the significant doubt on the entity's ability to continue in operation and management's plans to deal with these events or conditions.
(b) state clearly that there is a material uncertainty related to events or conditions which may cast significant doubt on the entity's ability to continue as a going concern and, therefore, that it may be unable to realize its assets and discharge its liabilities in the normal course of business.

323. If adequate disclosure is made in the financial statements, the auditor should express an unqualified opinion but modify the auditor's report by adding an emphasis of matter paragraph that highlights the existence of a material uncertainty relating to the event or condition that may cast significant doubt on the entity's ability to continue as a going concern and draws attention to the note in the financial statements that discloses the matters set out in paragraph 312. In assessing the adequacy of the financial statement disclosure, the auditor considers whether the information explicitly draws the reader's attention to the possibility that the entity may be unable to continue realiszing its assets and discharging its liabilities in the normal course of business. The following is an example of such a paragraph when the auditor is satisfied as to the adequacy of the note disclosure:

"Without qualifying our opinion, we draw attention to Note X in the financial statements which indicates that the Company incurred a net loss of ZZZ during the year ended December 31, 20X1 and, as of that date, the Company's current liabilities exceeded its total assets by ZZZ. These conditions, along with other matters as set forth in Note X, indicate the existence of a material uncertainty which may cast significant doubt about the Company's ability to continue as a going concern."

In extreme cases, such as situations involving multiple material uncertainties that are significant to the financial statements, the auditor may consider it appropriate to express a disclaimer of opinion instead of adding an emphasis of matter paragraph.

334. If adequate disclosure is not made in the financial statements, the auditor should express a qualified or adverse opinion, as appropriate (see ICSA 700, 'The Auditor's Report on Financial Statements', paragraphs 45-46). The report should include specific reference to the fact that there is a material uncertainty that may cast significant doubt about the entity's ability to continue as a going concern. The following is an example of the relevant paragraphs when a qualified opinion is to be expressed:

"The Company's financing arrangements expire and amounts outstanding are payable on March 19, 20X1. The Company has been unable to re-negotiate or obtain replacement financing. This situation indicates the existence of a material uncertainty which may cast significant doubt on the Company's ability to continue as a going concern and therefore it may be unable to realisze its assets and discharge its liabilities in the normal course of business. The financial statements (and notes thereto) do not disclose this fact.


In our opinion, except for the omission of the information included in the preceding paragraph, the financial statements give a true and fair view of (present fairly, in all material respects,) the financial position of the Company at December 31, 20X0 and the results of its operations and its cash flows for the year then ended in accordance with Cambodian Accounting Standards. "

The following is an example of the relevant paragraphs when an adverse opinion is to be expressed:

"The Company's financing arrangements expired and the amount outstanding was payable on December 31, 20X0. The Company has been unable to re-negotiate or obtain replacement financing and is considering filing for bankruptcy. These events indicate a material uncertainty which may cast significant doubt on the Company's ability to continue as a going concern and therefore it may be unable to realisze its assets and discharge its liabilities in the normal course of business. The financial statements (and notes thereto) do not disclose this fact.

In our opinion, because of the omission of the information mentioned in the preceding paragraph, the financial statements do not give a true and fair view of (or do not present fairly) the financial position of the Company as at December 31, 20X0, and of its results of operations and its cash flows for the year then ended in accordance with Cambodian Accounting Standards.....(and do not comply with )"

Audit Conclusions and Reporting Going Concern Assumption Inappropriate

345. If, in the auditor's judgment, the entity will not be able to continue as a going concern, the auditor should express an adverse opinion if the financial statements have been prepared on a going concern basis. If, on the basis of the additional procedures carried out and the information obtained, including the effect of management's plans, the auditor's judgment is that the entity will not be able to continue as a going concern, the auditor concludes, regardless of whether or not disclosure has been made, that the going concern assumption used in the preparation of the financial statements is inappropriate and expresses an adverse opinion.

356. When the entity's management has concluded that the going concern assumption used in the preparation of the financial statements is not appropriate, the financial statements need to be prepared on an alternative authoritative basis. If on the basis of the additional procedures carried out and the information obtained the auditor determines the alternative basis is appropriate, the auditor can issue an unqualified opinion if there is adequate disclosure but may require an emphasis of matter in the auditor's report to draw the user's attention to that basis.

Audit Conclusions and Reporting Management Unwilling to Make or Extend its Assessment

367. If management is unwilling to make or extend its assessment when requested to do so by the auditor, the auditor should consider the need to modify the auditor's report as a result of the limitation on the scope of the auditor's work. In certain circumstances, such as those described in paragraphs 145, 178 and 234, the auditor may believe that it is necessary to ask management to make or extend its assessment. If management is unwilling to do so, it is not the auditor's responsibility to rectify the lack of analysis by management, and a modified report may be appropriate because it may not be possible for the auditor to obtain sufficient appropriate evidence regarding the use of the going concern assumption in the preparation of the financial statements.

378. In some circumstances, the lack of analysis by management may not preclude the auditor from being satisfied about the entity's ability to continue as a going concern. For example, the auditor's other procedures may be sufficient to assess the appropriateness of management's use of the going concern assumption in the preparation of the financial statements because the entity has a history of profitable operations and a ready access to financial resources. In other circumstances, however, the auditor may not be able to confirm or dispel, in the absence of management's assessment, whether or not events or conditions exist which indicate there may be a significant doubt on the entity's ability to continue as a going concern, or the existence of plans management has put in place to address them or other mitigating factors. In these circumstances, the auditor modifies the auditor's report as discussed in ICSA 700 "The Auditor's Report on Financial Statements" paragraphs 36 - 44.

Significant Delay in the Signature or Approval of Financial Statements

389. When there is significant delay in the signature or approval of the financial statements by management after the balance sheet date, the auditor considers the reasons for the delay. When the delay could be related to events or conditions relating to the going concern assessment, the auditor considers the need to perform additional audit procedures, as described in paragraph 256, as well as the effect on the auditor's conclusion regarding the existence of a material uncertainty, as described in paragraph 2930.

Effective Date

40. This ISA is effective for audits of financial statements for periods ending on or after December 31, 2000.


Public Sector Perspective

1. The appropriateness of the use of the going concern assumption in the preparation of the financial statements is generally not in question when auditing either a central government or those public sector entities having funding arrangements backed by a central government. However, where such arrangements do not exist, or where central government funding of the entity may be withdrawn and the existence of the entity may be at risk, this ICSA will provide useful guidance. As governmentsIf government entities are corporatizsed andor privatiszed government entities, going concern issues will become increasinglymore relevant to the public sector.

Introduction

1. The purpose of this InternationalCambodian Standard on Auditing (ICSA) is to establish standards and provide guidance on the auditor’s responsibility regarding subsequent events. In this ICSA, the term 'subsequent events' is used to refer to both events occurring between period end and the date of the auditor’s report, and facts discovered after the date of the auditor’s report.
2. The auditor should consider the effect of subsequent events on the financial statements and on the auditor’s report.
3. The CambodianInternational Accounting Standard on10, Contingencies and Events Occurring After the Balance Sheet Date, deals with the treatment in financial statements of events, both favourable and unfavourable, occurring after period end and identifies two types of events:
(a) those that provide further evidence of conditions that existed at period end; and
(b) those that are indicative of conditions that arose subsequent to period end.
Events Occurring up to the Date of the Auditor’s Report

4. The auditor should perform procedures designed to obtain sufficient appropriate audit evidence that all events up to the date of the auditor’s report that may require adjustment of, or disclosure in, the financial statements have been identified. These procedures are in addition to routine procedures which may be applied to specific transactions occurring after period end to obtain audit evidence as to account balances as at period end, for example, the testing of inventory cut-off and payments to creditors. The auditor is not, however, expected to conduct a continuing review of all matters to which previously applied procedures have provided satisfactory conclusions.
5. The procedures to identify events that may require adjustment of, or disclosure in, the financial statements would be performed as near as practicable to the date of the auditor’s report and ordinarily include the following:
· Reviewing procedures management has established to ensure that subsequent events are identified.
· Reading minutes of the meetings of shareholders, the board of directors and audit and executive committees held after period end and inquiring about matters discussed at meetings for which minutes are not yet available.
· Reading the entity’s latest available interim financial statements or management accounts and, as considered necessary and appropriate, budgets, cash flow forecasts and other related management reports.
· Inquiring, or extending previous oral or written inquiries, of the entity’s lawyers concerning litigation and claims.
· Inquiring of management as to whether any subsequent events have occurred which might affect the financial statements. Examples of inquiries of management on specific matters are:
– The current status of items that were accounted for on the basis of preliminary or inconclusive data.
– Whether new commitments, borrowings or guarantees have been entered into.
– Whether sales of assets have occurred or are planned.
– Whether the issue of new shares or debentures or an agreement to merge or liquidate has been made or is planned.
– Whether any assets have been appropriated by government or destroyed, for example, by fire or flood.
– Whether there have been any developments regarding risk areas and contingencies.
– Whether any unusual accounting adjustments have been made or are contemplated.
– Whether any events have occurred or are likely to occur which will bring into question the appropriateness of accounting policies used in the financial statements as would be the case, for example, if such events call into question the validity of the going concern assumption.
6. When a component, such as a division, branch or subsidiary, is audited by another auditor, the auditor would consider the other auditor’s procedures regarding events after period end and the need to inform the other auditor of the planned date of the auditor’s report.
7. When the auditor becomes aware of events which materially affect the financial statements, the auditor should consider whether such events are properly accounted for and adequately disclosed in the financial statements.
Facts Discovered After the Date of the Auditor’s Report but Before the Financial Statements are Issued

8. The auditor does not have any responsibility to perform procedures or make any inquiry regarding the financial statements after the date of the auditor’s report. During the period from the date of the auditor’s report to the date the financial statements are issued, the responsibility to inform the auditor of facts which may affect the financial statements rests with management.
9. When, after the date of the auditor’s report but before the financial statements are issued, the auditor becomes aware of a fact which may materially affect the financial statements, the auditor should consider whether the financial statements need amendment, should discuss the matter with management, and should take the action appropriate in the circumstances.
10. When management amends the financial statements, the auditor would carry out the procedures necessary in the circumstances and would provide management with a new report on the amended financial statements. The new auditor’s report would be dated not earlier than the date the amended financial statements are signed or approved and, accordingly, the procedures referred to in paragraphs 4 and 5 would be extended to the date of the new auditor’s report.
11. When management does not amend the financial statements in circumstances where the auditor believes they need to be amended and the auditor’s report has not been released to the entity, the auditor should express a qualified opinion or an adverse opinion.
12. When the auditor’s report has been released to the entity, the auditor would notify those persons ultimately responsible for the overall direction of the entity not to issue financial statements and the auditor’s report thereon to third parties. If the financial statements are subsequently released, the auditor needs to take action to prevent reliance on the auditor’s report. The action taken will depend on the auditor’s legal rights and obligations and the recommendations of the auditor’s lawyer.
Facts Discovered After the Financial Statements Have Been Issued

13. After the financial statements have been issued, the auditor has no obligation to make any inquiry regarding such financial statements.
14. When, after the financial statements have been issued, the auditor becomes aware of a fact which existed at the date of the auditor’s report and which, if known at that date, may have caused the auditor to modify the auditor’s report, the auditor should consider whether the financial statements need revision, should discuss the matter with management, and should take the action appropriate in the circumstances.
15. When management revises the financial statements, the auditor would carry out the audit procedures necessary in the circumstances, would 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, and would issue a new report on the revised financial statements.
16. The new auditor’s report should include an emphasis of a matter paragraph referring to a note to the financial statements that more extensively discusses the reason for the revision of the previously issued financial statements and to the earlier report issued by the auditor. The new auditor’s report would be dated not earlier than the date the revised financial statements are approved and, accordingly, the procedures referred to in paragraphs 4 and 5 would ordinarily be extended to the date of the new auditor’s report. Local regulations of some countries permit the auditor to restrict the audit procedures regarding the revised financial statements to the effects of the subsequent event that necessitated the revision. In such cases, the new auditor’s report would contain a statement to that effect.
17. When management does not take the necessary steps to ensure that anyone in receipt of the previously issued financial statements together with the auditor’s report thereon is informed of the situation and does not revise the financial statements in circumstances where the auditor believes they need to be revised, the auditor would notify those persons ultimately responsible for the overall direction of the entity that action will be taken by the auditor to prevent future reliance on the auditor’s report. The action taken will depend on the auditor’s legal rights and obligations and the recommendations of the auditor’s lawyers.
18. It may not be necessary to revise the financial statements and issue a new auditor’s report when issue of the financial statements for the following period is imminent, provided appropriate disclosures are to be made in such statements.
Offering of Securities to the Public

19. In cases involving the offering of securities to the public, the auditor should consider any legal and related requirements applicable to the auditor in all jurisdictions in which the securities are being offered. For example, the auditor may be required to carry out additional audit procedures to the date of the final offering document. These procedures would ordinarily include carrying out the procedures referred to in paragraphs 4 and 5 up to a date at or near the effective date of the final offering document and reading the offering document to assess whether the other information in the offering document is consistent with the financial information with which the auditor is associated.

Introduction

1. The purpose of this InternationalCambodian Standard on Auditing (ICSA) is to establish standards and provide guidance on the quantity and quality of audit evidence to be obtained when auditing financial statements, and the procedures for obtaining that audit evidence.
2. The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion.
3. Audit evidence is obtained from an appropriate mix of tests of control and substantive procedures. In some circumstances, evidence may be obtained entirely from substantive procedures.
4. 'Audit evidence' means the information obtained by the auditor in arriving at the conclusions on which the audit opinion is based. Audit evidence will comprise source documents and accounting records underlying the financial statements and corroborating information from other sources.
5. 'Tests of control' means tests performed to obtain audit evidence about the suitability of design and effective operation of the accounting and internal control systems.
6. 'Substantive procedures' means tests performed to obtain audit evidence to detect material misstatements in the financial statements, and are of two types:
(a) tests of details of transactions and balances; and
(b) analytical procedures.
Sufficient Appropriate Audit Evidence

7. Sufficiency and appropriateness are interrelated and apply to audit evidence obtained from both tests of control and substantive procedures. Sufficiency is the measure of the quantity of audit evidence; appropriateness is the measure of the quality of audit evidence and its relevance to a particular assertion and its reliability. Ordinarily, the auditor finds it necessary to rely on audit evidence that is persuasive rather than conclusive and will often seek audit evidence from different sources or of a different nature to support the same assertion.
8. In forming the audit opinion, the auditor does not ordinarily examine all of the information available because conclusions can be reached about an account balance, class of transactions or control by way of using judgmental or statistical sampling procedures.
9. The auditor’s judgment as to what is sufficient appropriate audit evidence is influenced by such factors as the:
· Auditor’s assessment of the nature and level of inherent risk at both the financial statement level and the account balance or class of transactions level.
· Nature of the accounting and internal control systems and the assessment of control risk.
· Materiality of the item being examined.
· Experience gained during previous audits.
· Results of audit procedures, including fraud or error which may have been found.
· Source and reliability of information available.
10. When obtaining audit evidence from tests of control, the auditor should consider the sufficiency and appropriateness of the audit evidence to support the assessed level of control risk.
11. The aspects of the accounting and internal control systems about which the auditor would obtain audit evidence are:
(a) design: the accounting and internal control systems are suitably designed to prevent and/or detect and correct material misstatements; and
(b) operation: the systems exist and have operated effectively throughout the relevant period.
12. When obtaining audit evidence from substantive procedures, the auditor should consider the sufficiency and appropriateness of audit evidence from such procedures together with any evidence from tests of control to support financial statement assertions.
13. Financial statement assertions are assertions by management, explicit or otherwise, that are embodied in the financial statements. They can be categorized as follows:
(a) existence: an asset or a liability exists at a given date;
(b) rights and obligations: an asset or a liability pertains to the entity at a given date;
(c) occurrence: a transaction or event took place which pertains to the entity during the period;
(d) completeness: there are no unrecorded assets, liabilities, transactions or events, or undisclosed items;
(e) valuation: an asset or liability is recorded at an appropriate carrying value;
(f) measurement: a transaction or event is recorded at the proper amount and revenue or expense is allocated to the proper period; and
(g) presentation and disclosure: an item is disclosed, classified, and described in accordance with the applicable financial reporting framework and Standards.
14. Ordinarily, audit evidence is obtained regarding each financial statement assertion. Audit evidence regarding one assertion, for example, existence of inventory, will not compensate for failure to obtain audit evidence regarding another, for example, valuation. The nature, timing and extent of substantive procedures will vary depending on the assertions. Tests can provide audit evidence about more than one assertion, for example, collection of receivables may provide audit evidence regarding both existence and valuation.
15. The reliability of audit evidence is influenced by its source: internal or external, and by its nature: visual, documentary or oral. While the reliability of audit evidence is dependent on individual circumstance, the following generalizsations will help in assessing the reliability of audit evidence:
· Audit evidence from external sources (for example, confirmation received from a third party) is more reliable than that generated internally.
· Audit evidence generated internally is more reliable when the related accounting and internal control systems are effective.
· Audit evidence obtained directly by the auditor is more reliable than that obtained from the entity.
· Audit evidence in the form of documents and written representations is more reliable than oral representations.
16. Audit evidence is more persuasive when items of evidence from different sources or of a different nature are consistent. In these circumstances, the auditor may obtain a cumulative degree of confidence higher than would be obtained from items of audit evidence when considered individually. Conversely, when audit evidence obtained from one source is inconsistent with that obtained from another, the auditor determines what additional procedures are necessary to resolve the inconsistency.
17. The auditor needs to consider the relationship between the cost of obtaining audit evidence and the usefulness of the information obtained. However, the matter of difficulty and expense involved is not in itself a valid basis for omitting a necessary procedure.
18. When in substantial doubt as to a material financial statement assertion, the auditor would attempt to obtain sufficient appropriate audit evidence to remove such doubt. If unable to obtain sufficient appropriate audit evidence, however, the auditor should express a qualified opinion or a disclaimer of opinion.
Procedures for Obtaining Audit Evidence

19. The auditor obtains audit evidence by one or more of the following procedures: inspection, observation, inquiry and confirmation, computation and analytical procedures. The timing of such procedures will be dependent, in part, upon the periods of time during which the audit evidence sought is available.
Inspection
20. 20. Inspection consists of examining records, documents, or tangible assets. Inspection of records and documents provides audit evidence of varying degrees of reliability depending on their nature and source and the effectiveness of internal controls over their processing. Three major categories of documentary audit evidence, which provide different degrees of reliability to the auditor, are:

(a) documentary audit evidence created and held by third parties;
(b) documentary audit evidence created by third parties and held by the entity; and
(c) documentary audit evidence created and held by the entity.
Inspection of tangible assets provides reliable audit evidence with respect to their existence but not necessarily as to their ownership or value.
Observation
21. Observation consists of looking at a process or procedure being performed by others, for example, the observation by the auditor of the counting of inventories by the entity’s personnel or the performance of control procedures that leave no audit trail.
Inquiry and Confirmation
22. Inquiry consists of seeking information of knowledgeable persons inside or outside the entity. Inquiries may range from formal written inquiries addressed to third parties to informal oral inquiries addressed to persons inside the entity. Responses to inquiries may provide the auditor with information not previously possessed or with corroborative audit evidence.
23. Confirmation consists of the response to an inquiry to corroborate information contained in the accounting records. For example, the auditor ordinarily seeks direct confirmation of receivables by communication with debtors.
Computation
24. Computation consists of checking the arithmetical accuracy of source documents and accounting records or of performing independent calculations.
Analytical Procedures
25. Analytical procedures consist of the analysis of significant ratios and trends including the resulting investigation of fluctuations and relationships that are inconsistent with other relevant information or deviate from predicted amounts.
Public Sector Perspective

1. When carrying out audits of public sector entities, the auditor will need to take into account the legislative framework and any other relevant regulations, ordinances or ministerial directives which affect the audit mandate and any special auditing requirements. Such requirements might affect, for example, the extent of the auditor’s discretion in establishing materiality and judgments on the nature and scope of audit procedures to be applied. Paragraph 9 of this ICSA has to be applied only after giving consideration to such restrictions on the auditor’s judgment.

Introduction

1. The purpose of this InternationalCambodian Standard on Auditing (ICSA) is to establish standards and provide guidance on the concept of materiality and its relationship with audit risk.
2. The auditor should consider materiality and its relationship with audit risk when conducting an audit.
3. 'Materiality' is defined in the International Accounting Standards Committee’s 'Framework for the Preparation and Presentation of Financial Statements' in the following terms:
'Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. Thus, materiality provides a threshold or cut - off point rather than being a primary qualitative characteristic which information must have if it is to be useful.'
Materiality

4. The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with Cambodian Accounting Standardsan identified financial reporting framework. The assessment of what is material is a matter of professional judgment.
5. In designing the audit plan, the auditor establishes an acceptable materiality level so as to detect quantitatively material misstatements. However, both the amount (quantity) and nature (quality) of misstatements need to be considered. Examples of qualitative misstatements would be the inadequate or improper description of an accounting policy when it is likely that a user of the financial statements would be misled by the description, and failure to disclose the breach of regulatory requirements when it is likely that the consequent imposition of regulatory restrictions will significantly impair operating capability.
6. The auditor needs to consider the possibility of misstatements of relatively small amounts that, cumulatively, could have a material effect on the financial statements. For example, an error in a month end procedure could be an indication of a potential material misstatement if that error is repeated each month.
7. The auditor considers materiality at both the overall financial statement level and in relation to individual account balances, classes of transactions and disclosures. Materiality may be influenced by considerations such as legal and regulatory requirements and considerations relating to individual financial statement account balances and relationships. This process may result in different materiality levels depending on the aspect of the financial statements being considered.
8. Materiality should be considered by the auditor when:
(a) determining the nature, timing and extent of audit procedures; and
(b) evaluating the effect of misstatements.
The Relationship between Materiality and Audit Risk

9. When planning the audit, the auditor considers what would make the financial statements materially misstated. The auditor’s assessment of materiality, related to specific account balances and classes of transactions, helps the auditor decide such questions as what items to examine and whether to use sampling and analytical procedures. This enables the auditor to select audit procedures that, in combination, can be expected to reduce audit risk to an acceptably low level.
10. There is an inverse relationship between materiality and the level of audit risk, that is, the higher the materiality level, the lower the audit risk and vice versa. The auditor takes the inverse relationship between materiality and audit risk into account when determining the nature, timing and extent of audit procedures. For example, if, after planning for specific audit procedures, the auditor determines that the acceptable materiality level is lower, audit risk is increased. The auditor would compensate for this by either:
(a) reducing the assessed level of control risk, where this is possible, and supporting the reduced level by carrying out extended or additional tests of control; or
(b) reducing detection risk by modifying the nature, timing and extent of planned substantive procedures.
Materiality and Audit Risk in Evaluating Audit Evidence
11. The auditor’s assessment of materiality and audit risk may be different at the time of initially planning the engagement from at the time of evaluating the results of audit procedures. This could be because of a change in circumstances or because of a change in the auditor’s knowledge as a result of the audit. For example, if the audit is planned prior to period end, the auditor will anticipate the results of operations and the financial position. If actual results of operations and financial position are substantially different, the assessment of materiality and audit risk may also change. Additionally, the auditor may, in planning the audit work, intentionally set the acceptable materiality level at a lower level than is intended to be used to evaluate the results of the audit. This may be done to reduce the likelihood of undiscovered misstatements and to provide the auditor with a margin of safety when evaluating the effect of misstatements discovered during the audit.
Evaluating the Effect of Misstatements

12. In evaluating the fair presentation of the financial statements the auditor should assess whether the aggregate of uncorrected misstatements that have been identified during the audit is material.
13. The aggregate of uncorrected misstatements comprises:
(a) specific misstatements identified by the auditor including the net effect of uncorrected misstatements identified during the audit of previous periods; and
(b) the auditor’s best estimate of other misstatements which cannot be specifically identified (i.e., projected errors).
14. The auditor needs to consider whether the aggregate of uncorrected misstatements is material. If the auditor concludes that the misstatements may be material, the auditor needs to consider reducing audit risk by extending audit procedures or requesting management to adjust the financial statements. In any event, management may want to adjust the financial statements for the misstatements identified.
15. If management refuses to adjust the financial statements and the results of extended audit procedures do not enable the auditor to conclude that the aggregate of uncorrected misstatements is not material, the auditor should consider the appropriate modification to the auditor’s report in accordance with ICSA 700 'The Auditor’s Report on Financial Statements.'
16. If the aggregate of the uncorrected misstatements that the auditor has identified approaches the materiality level, the auditor would consider whether it is likely that undetected misstatements, when taken with aggregate uncorrected misstatements could exceed materiality level. Thus, as aggregate uncorrected misstatements approach the materiality level the auditor would consider reducing the risk by performing additional audit procedures or by requesting management to adjust the financial statements for identified misstatements.
Public Sector Perspective

1. In assessing materiality, the public sector auditor must, in addition to exercising professional judgment, consider any legislation or regulation which may impact that assessment. In the public sector, materiality is also based on the 'context and nature' of an item and includes, for example, sensitivity as well as value. Sensitivity covers a variety of matters such as compliance with authorities, legislative concern or public interest.