Resolution of the Secretary for Economy and Finance

No.68/2004

(English Unofficial Translation)

 

Using the competence conferred by Article 64 of the Basic Law of the Special Administrative Region of Macao and in accordance with the provision of Subsection 2) of Article 3 of the Administrative Regulation No. 23/2004, The Secretary for Economy and Finance determines:

1. The approval of the Technical Auditing Standards annexed to the present resolution, in which they are an integral part.

2. The present resolution enters into force on the day that follows its publication.

27th July, 2004

The Secretary for Economy and Finance, Tam Pak Yuen

ANNEX

TECHNICAL AUDITING STANDARDS

The auditor should comply with the following procedures in performing statutory audit or legal certification on the financial accounts of any enterprise or entity, or in performing other functions as an auditor:
1. Audit Engagement Letter
  1)

Before accepting the engagement, the auditor should agree with the client or the entity on the terms regarding the audit engagement and sign an audit engagement letter.
  2)

The audit engagement letter should specify the purpose and scope of the audit, the level of assurance provided and the form of reporting, define the audit responsibility of the auditor and the responsibility of the entity’s management to the financial statements.
  3)

On recurring audits, the auditor should consider whether the terms of the engagement should be revised and whether there is a need to remind the client or the entity of the existing terms of the engagement.
  4)

If the auditor, before the completion of the engagement, is required to change the engagement to one which provides a lower level of assurance, the auditor should consider the appropriateness of doing so.
5)

When the terms of the engagement are changed, the auditor and the client or the entity should come into agreement with the new terms.
6)

The auditor should not agree to a change of the terms of the engagement where there is no reasonable justification for doing so.
  7)

If the auditor is unable to agree to a change of the terms of the engagement and is not permitted to continue with the original engagement, the auditor should withdraw and consider whether there is any obligation, either contractual or of other nature, to report to other interested parties, such as the board of administration or the general meeting, on the circumstances necessitating the withdrawal.
2. Quality Control
  1)

The audit firm and the auditor in public practice by means of sole proprietorship should implement quality control policies and procedures to ensure that all audits are conducted in accordance with auditing standards.
  2)

The audit firm and the auditor in public practice by means of sole proprietorship should communicate to their personnel about the quality control policies and the procedures to be applied in order to provide reasonable assurance that the policies and procedures are understood and implemented.
  3)

The auditor should implement those quality control procedures which are, in the context of the policies and procedures of the firm, appropriate to the individual audit.
3.

Documentation
  1)

The auditor should document matters which are important in providing evidence to support the audit opinion and evidence that the audit was carried out in accordance with auditing standards.
  2)

The auditor should prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit.
  3)

The auditor should record in the working papers information on planning the audit work, the nature, timing and extent of the audit procedures performed, the results thereof, and the conclusions drawn from the audit evidence obtained.
  4)

The auditor should adopt appropriate procedures for maintaining the confidentiality and safe custody of the working papers and for retaining them for a period sufficient in accordance with legal and professional requirements of record retention.
4.

Consideration of Laws and Regulations
  1)

When planning and performing audit procedures and in evaluating and reporting the results thereof, the auditor should recognize that noncompliance by the entity with laws and regulations may materially affect the financial statements.
  2)

The auditor should plan and perform the audit with an attitude of professional skepticism, pay attention to the instances or events that would lead to questioning whether an entity is complying with laws and regulations.
  3)

In order to plan the audit, the auditor should obtain a general understanding of the laws and regulations applicable to the entity and the industry and how the entity is complying with these laws and regulations.
  4)

After obtaining the general understanding of the laws and regulations, the auditor should perform procedures to identify and consider instances of noncompliance with those laws and regulations when preparing financial statements, especially the follows:
i)

inquiring from management as to whether the entity is in compliance with such laws and regulations;
ii)

inspecting correspondence between the supervisory authorities.
  5)

The auditor should obtain sufficient and appropriate audit evidence about compliance with those laws and regulations generally recognized by the auditor to have an effect on the determination of material amounts and disclosures in the financial statements. The auditor should have a sufficient understanding of these laws and regulations in order to consider them when auditing the assertions related to the determination of the amounts to be recorded and the disclosures to be made.
  6)

The auditor should be alert to the fact that procedures applied for the purpose of forming an opinion on the financial statements may bring instances of possible noncompliance with laws and regulations to the auditor's attention.
  7)

The auditor should obtain written representations that management has disclosed to the auditor all known actual or possible noncompliance with laws and regulations whose effects should be considered when preparing financial statements.
  8)

When the auditor becomes aware of information concerning a possible instance of noncompliance, the auditor should obtain an understanding of the nature of the act and the circumstances in which it has occurred, as well as other sufficient information to evaluate the possible effect on the financial statements.
  9)

When the auditor believes there may be noncompliance, the auditor should document the findings and discuss them with management.
  10)

When adequate information about the suspected noncompliance cannot be obtained, the auditor should consider the effect of the lack of audit evidence on the audit report.
  11)

The auditor should consider the implications of noncompliance in relation to other aspects of the audit, particularly the reliability of management representations.
  12)

The auditor should, as soon as practicable, communicate with the supervisory organ or the board of administration, or obtain evidence that they are appropriately informed, regarding noncompliance that comes to the auditor's attention.
  13)

If in the auditor's judgment the noncompliance is believed to be intentional and material, the auditor should communicate with the supervisory organ or the board of administration the findings without delay.
  14)

If the auditor suspects that members of senior management, including members of the board of administration, are involved in noncompliance, the auditor should report the matter to the other authority of the entity, such as the supervisory organ.
  15)

If the auditor concludes that the noncompliance has a material effect on the financial statements in which it has not been properly reflected, the auditor should express a qualified or an adverse opinion.
  16)

If the auditor is precluded by the entity from obtaining sufficient and appropriate audit evidence to evaluate whether noncompliance that may be material to the financial statements, has, or is likely to have, occurred, the auditor should express a qualified opinion or a disclaimer of opinion on the financial statements on the basis of a limitation on the scope of the audit.
  17)

If the auditor is unable to determine whether noncompliance has occurred because of limitations imposed by the circumstances rather than by the entity, the auditor should consider the effect on the audit report.
  18)

On receipt of an inquiry from the incoming auditor, the predecessor auditor should advise whether there are any professional reasons why the incoming auditor should not accept the appointment. If permission from the entity to discuss its affairs with the incoming auditor is denied by the entity, the predecessor auditor should disclose the fact to the incoming auditor.
5.

Planning
  1)

The auditor should have or obtain sufficient knowledge of the engagement circumstances to identify and understand the events, transactions and practices that may have a significant effect on the subject matter and engagement.
2)

The auditor should assess whether the criteria are suitable to evaluate the subject matter.
3)

The auditor should develop an audit plan to facilitate the performance of the audit work in an effective and appropriate manner.
  4)

The auditor should develop and document an overall audit plan describing the expected scope and step of the audit.
  5)

The auditor should develop and document an audit program setting out the nature, timing and extent of planned audit procedures required to implement the overall audit plan.
  6)

The overall audit plan and the audit program should be revised as necessary during the course of the audit.

6.

Risk Assessments and Internal Control
  1)

The auditor should obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. The auditor should use professional judgment to assess audit risk and to design audit procedures to ensure the audit risk is reduced to an acceptably low level.
  2)

In developing the overall audit plan, the auditor should assess inherent risk at the financial statement level. In developing the audit program, the auditor should relate the assessment of inherent risk to material account balances and classes of transactions at the assertion level, or assume that inherent risk is high for the assertion.
3)

The auditor should obtain an understanding of the accounting system sufficient to identify and understand:
i)

major classes of transactions of the entity;
ii)

how such transactions are initiated;
iii)

significant accounting records, supporting documents and accounts in the financial statements; and
    iv)

the accounting and financial reporting process, from the initiation of significant transactions and other events to their inclusion in the financial statements.
  4)

The auditor should obtain an understanding of the control environment sufficient to assess management’s attitudes, awareness and actions regarding internal controls and their importance in the entity.
5)

The auditor should obtain an understanding of the control procedures sufficient to develop the audit plan.
  6)

After obtaining an understanding of the accounting and internal control systems, the auditor should make a preliminary assessment of control risk, at the assertion level, for each material account balance or class of transactions.
  7)

The preliminary assessment of control risk for a financial statement assertion should be high unless the auditor:
i)

is able to identify internal controls relevant to the assertion which are likely to prevent or detect and correct a material misstatement; and
ii)

plans to perform tests of control to support the assessment.
8)

The auditor should document in the audit working papers:

i)

the understanding obtained from the entity's accounting and internal control systems; and
ii)

the assessment of control risk.
  9)

The auditor should obtain audit evidence through tests of control to support the assessment of control risk. The lower the assessment of control risk, the more support the auditor should obtain that accounting and internal control systems are suitably designed and operating effectively.
  10)

The auditor should, based on the results of the tests of control, evaluate whether the internal controls are designed and operating as contemplated in the preliminary assessment of control risk.
  11)

If the auditor plan to rely on procedures performed in prior audits, the auditor should obtain audit evidence which supports this reliance.
12)

The auditor should consider whether the internal controls were in use throughout the accounting period.
  13)

Before the conclusion of the audit, based on the results of substantive procedures and other audit evidence obtained by the auditor, the auditor should consider whether the assessment of control risk is confirmed.
  14)

The auditor should consider the assessed levels of inherent and control risks in determining the nature, timing and extent of substantive procedures required to reduce audit risk to an acceptable level.
  15)

Regardless of the assessed levels of inherent and control risks, the auditor should perform some substantive procedures for material account balances and classes of transactions.
  16)

The higher the assessment of inherent and control risk, the more audit evidence the auditor should obtain from the performance of substantive procedures. When the auditor determines that detection risk regarding a financial statement assertion for a material account balance or class of transactions cannot be reduced to an acceptable level, the auditor should express a qualified opinion or a disclaimer of opinion.
  17)

The auditor should make management aware, as soon as practical, of material weaknesses in the design or operation of the accounting and internal control systems, which have come to the auditor's attention.
7.

Audit Evidence
  1)

The auditor should obtain sufficient and appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion.
2)

Audit evidence refers to the evidence obtained by the auditor during an audit engagement for the purpose of forming an audit opinion.
3)

Audit evidence can be obtained from tests of control or substantive procedures.
4)

When performing tests of control or substantive procedures, the auditor can apply sampling technique.
  5)

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.
  6)

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.
7)

The auditor may use the following methods to obtain audit evidence:
i)

inspection;
ii)

observation;
iii)

enquiry and confirmation;
iv)

computation; and
v)

analytical procedures.
  8)

When being unable to obtain sufficient and appropriate audit evidence, the auditor should express a qualified opinion or a disclaimer of opinion.

8.

Subsequent Events
1)

The auditor should consider the effect of subsequent events up to the date of the audit report.
  2)

When the auditor becomes aware of subsequent events that materially affect the financial statements and the auditor's conclusion, the auditor should consider whether the financial statements reflect those events properly or whether those events are addressed properly in the audit report.
3)

Subsequent events may be classified into three types as follows:
a)

those that have direct and significant effects on the financial statements being audited;
    b)

those that have not direct effects on the financial statements, but should be disclosed because of its materiality, such as the events happened and aware of, prior to the balance sheet date, especially those will bring the company into risk, may impair the company’s development or restrict the company's normal operation in a extensive scope, or even involve noncompliance with laws and regulations;
c)

those that have not direct or indirect effects on the financial statements, and are not required to be disclosed.

9.

Management Representations
1)

The auditor should obtain appropriate representations from management of the entity.
  2)

The auditor should obtain evidence that management acknowledges its responsibility for the fair presentation of the financial statements in accordance with the relevant accounting standards.
  3)

The auditor should obtain written representations from management on matters material to the financial statements when other sufficient and appropriate audit evidence is reasonably believed to be non-existing.
  4)

If a representation by management is contradicted by other audit evidence, the auditor should investigate the circumstances and, when necessary, reconsider the reliability of other representations made by management.
  5)

If management refuses to provide a representation that the auditor considers necessary, this constitutes a scope limitation and the auditor should express a qualified opinion or a disclaimer of opinion.
10.

Using the Work of an Expert
  1)

When an expert is used in the collection and evaluation of evidence, the auditor should ensure that the expert possesses adequate knowledge of the subject matter and the auditor should have adequate understanding in the subject matter to determine that sufficient and appropriate evidence has been obtained.
  2)

When an expert is involved, the auditor should have a level of involvement in the engagement and an understanding of the aspects of the subject matter for which the expert has been used, sufficient to enable the auditor to accept responsibility for expressing a conclusion on the subject matter.
  3)

When an expert is involved, the auditor should obtain sufficient and appropriate evidence that the work of the expert is adequate for the purposes of the audit engagement.
11.

Using the Work of Another Auditor
1)

The auditor should consider whether the auditor's own participation is sufficient to be able to act as the principal auditor.
2)

When the principal auditor uses the work of another auditor, the principal auditor should consider how the work of the other auditor will affect the audit.
  3)

When planning to use the work of another auditor, the principal auditor should consider the professional competence of the other auditor in the context of the specific assignment.
  4)

The principal auditor should perform procedures to obtain sufficient and appropriate audit evidence that the work of the other auditor is adequate for the principal auditor's purposes, in the context of the specific assignment.
5)

The principal auditor should consider the significant findings of the other auditor.
6)

The other auditor, knowing the context in which the principal auditor will use the other auditor's work, should cooperate with the principal auditor.
  7)

When the principal auditor concludes that the work of the other auditor cannot be used and the principal auditor has not been able to perform sufficient additional procedures regarding the financial information of the component audited by the other auditor, the principal auditor should express a qualified opinion or disclaimer of opinion because there is a limitation in the scope of the audit.
  8)

When the principal auditor's opinion is drawn based on the other auditor's opinion on the portion of the financial statements, the principal auditor's report should state this fact clearly and should indicate the portion of the financial statements audited by the other auditor.
12.

Audit Report
  1)

The auditor should review and assess the conclusions drawn from the audit evidence obtained as the basis for the expression of an opinion on the financial statements.
2)

The audit report should contain a clear written expression of opinion on the financial statements taken as a whole.
3)

The audit report should have an appropriate title.
  4)

The audit report should be appropriately addressed to the client or other specified persons as required by the circumstances of the engagement and relevant regulations.
  5)

The audit report should identify the financial statements of the entity that have been audited, including the date of and period covered by the financial statements.
  6)

The audit report should include a statement that the financial statements are the responsibility of the entity's management and a statement that the responsibility of the auditor is to express an opinion on the financial statements based on the audit.
  7)

The audit report should describe the scope of the audit by stating that the audit was conducted in accordance with auditing standards.
  8)

The audit report should include a statement that the audit was properly planned and performed to obtain reasonable assurance about whether the financial statements are free of material misstatement.
9)

The audit report should describe the audit as including:
i)

examining, on a test basis, evidence to support the financial statement amounts and disclosures;
ii)

assessing the accounting principles used in the preparation of the financial statements;
    iii)

assessing the significant estimates made by management in the preparation of the financial statements; and

iv)

evaluating the overall financial statement presentation.
  10)

The audit report should include a statement that the audit provides a reasonable basis for the auditor's opinion.
  11)

The opinion paragraph of the audit report should clearly indicate the accounting principles used to prepare the financial statements and state whether the financial statements are prepared in accordance with such principles and whether the financial statements give a true and fair view of the subject matter.
12)

The auditor should date the audit report as of the completion date of the audit.
  13)

Since the auditor's responsibility is to report on the financial statements as prepared and presented by management, the audit report should be dated between the date on which the financial statements are signed and presented by management and the date of the announcement or issuance of the notice for general meeting.
14)

The auditor should indicate the address where the office is maintained in the audit report.

  15)

The audit report should be signed by the auditor in charge, or the partner in charge on behalf of the audit firm.
  16)

An unqualified opinion should be expressed when the auditor concludes that the financial statements are prepared in accordance with the prescribed accounting standards and give a true and fair view of the subject matter.
  17)

The auditor should add a paragraph to the audit report, highlighting material matters regarding the going concern problem of the entity.
  18)

The auditor should add a paragraph to the audit report, indicating if there is a significant uncertainty (other than a going concern problem), the resolution of which is dependent upon future events and which may affect the financial statements.
  19)

A qualified opinion should be expressed when the auditor concludes that an unqualified opinion cannot be expressed but that the effect of any disagreement with management, or limitation on scope is not so material and pervasive as to require an adverse opinion or a disclaimer of opinion. A qualified opinion should be expressed as being 'except for' the effects of the matter to which the qualification relates.
  20)

A disclaimer of opinion should be expressed when the possible effect of a limitation on scope is so material and pervasive that the auditor has not been able to obtain sufficient and appropriate audit evidence and accordingly is unable to express an opinion on the financial statements.
  21)

An adverse opinion should be expressed when the effect of a disagreement is so material and pervasive to the financial statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements.
22)

Whenever the auditor expresses an opinion that is other than unqualified, a clear description of all the substantive reasons should be included in the report and, unless impracticable, a quantification of the possible effect(s) on the financial statements.
23)

When there is a limitation on the scope of the auditor's work that requires expression of a qualified opinion or a disclaimer of opinion, the audit report should describe the limitation and indicate the possible adjustments to the financial statements that might have been determined to be necessary had the limitation not existed.
24)

If the disagreements between the auditor and management are material to the financial statements, the auditor should express a qualified or an adverse opinion.