2 Final Review of the Audit ContingenciesCollectibility of receivables and loansProduct warranty liabilityThreat of exploration of assets in a foreign countryLitigation, claims, and assessmentsGuarantees of debts of othersObligations of banks under standby letters of credit.
3 Final Review of the Audit Contingencies (cont.)Agreements to repurchase receivables that have been soldPurchase and sale commitments.Responsibilities Related to ContingenciesSources of Evidence of ContingenciesLetter of Audit InquiryEffect of audit contingency on audit report.
4 Adequacy of Disclosure Disclosure can be on the face of the financial statementsClassificationsParenthetical notationsFootnoteDisclosures must be adequate
5 Management Representation Letter Auditor should obtain at the end of the auditManagement refusal is considered a scope limitation sufficient to preclude an unqualified opinionPurposesReminds management of responsibility for the financial statementsConfirms oral responsesReduces possibility of misunderstandings
6 Management LetterLetter from auditor to the management with constructive observationsDO NOT CONFUSE WITH MANAGEMENT REPRESENTATION LETTER.Not required but seen as value-added auditing
7 Going ConcernAuditors are required to evaluate likelihood of going concern.Evaluation made based on information obtained from normal audit proceduresIndicators of problemsNegative trendsInternal mattersExternal mattersOther matters (bankruptcy prediction models)
8 Going Concern Review of Major Estimates Mitigating FactorsEffects on the financial statementsEffects on the Audit ReportReview of Major EstimatesResponsible for providing reasonable assurance thatManagement has info system to develop estimatesEstimates are reasonableEstimates presented in conformance with GAAP
9 Analytical and Quality Review Revenue and expensesFinal review stageadequacy of evidenceunusual or unexpected balancesadequacy of disclosureInternal Quality Review ProcessConcurring partner or cold review
10 Communicating with the Audit Committee Processes for making sensitive estimatesSignificant audit adjustmentsMajor accounting and reporting disagreementsManagement’s discussion with other CPA firmsDifficulties encountered in performing the auditSignificant fraud or other illegal actsSignificant deficiencies in internal controlAny independence issues
11 Subsequent Events Two types of events identified as subsequent Type I conditions that existed at the balancesheet dateMajor company files bankruptcyLawsuit settled for different than accrualStock dividend or splitSale of inventor below carrying value
12 Subsequent Events II Type II subsequent events Uninsured casualty Significant lawsuitNatural disasterMajor decisions such as a mergeMaterial change in value of investments
13 Subsequent Events Audit Procedures Read minutes of meetings Read interim financial statementsInquire of management concerningsignificant changes in interim statementssignificant contingent liabilitiessignificant changes in working capital, long term debt or owners equitystatus of tentative itemsunusual adjustments
14 Subsequent Events Procedures (cont) Inquire of management and legal counsel concerning contingencies.Obtain Management Representation Letter
15 Subsequent Events Dual Dating When an event occurs after the end of fieldwork but before issuance of the audit report there are two options.1) use the date of event as date of report2) Dual Date the report, use the dates of end of fieldwork and the event.
16 Subsequent EventsSubsequent discovery of facts existing at the date of the auditor’s reportAuditor must determineReliability of new informationWhether the event had occurred by the report dateWhether users are likely to be relying on statementsWhether the audit report would have been affected had the facts been known
17 Subsequent EventsSubsequent discovery of facts existing at the date of the auditor’s reportActionsRevise financial statementsExplanation in subsequent statementsIf revising must notify users.Consideration of Omitted Procedures after the Report Date