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9.401 Auditing Chapter 21 Completing the Audit. Audit Completion Activities Reviewing for contingent liabilities Reviewing for contingent liabilities.

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Presentation on theme: "9.401 Auditing Chapter 21 Completing the Audit. Audit Completion Activities Reviewing for contingent liabilities Reviewing for contingent liabilities."— Presentation transcript:

1 9.401 Auditing Chapter 21 Completing the Audit

2 Audit Completion Activities Reviewing for contingent liabilities Reviewing for contingent liabilities Reviewing for subsequent events Reviewing for subsequent events Accumulating final evidence Accumulating final evidence Evaluating results Evaluating results Working Paper Review Working Paper Review Writing the audit Report (see chapt 2) Writing the audit Report (see chapt 2) Read annual report Read annual report Audit Correspondence Audit Correspondence

3 Review for contingent liabilities Goal: Goal:  Identify all contingent liabilities  Determine likelihoods and amts involved  Ensure treatment & disclosure is appropriate

4 Techniques for contingent liabilities and commitments 1)Consider evidence already gathered Confirmations, warranties etc.Confirmations, warranties etc. 2)Enquiry of management 3)Review income tax assessments 4)Review minutes of meetings 5)Analyze legal expenses-review invoices 6)Confirm client lawyers (next slide) 7)Read contracts etc.

5 Lawyer’s letters Sent to all lawyers used by client Sent to all lawyers used by client Sent on client letterhead, signed by client, with instructions to return confirmation to auditor Sent on client letterhead, signed by client, with instructions to return confirmation to auditor Contains: Contains:  List, description & evaluation of all known claims  Request to advise if info is reasonable  Request to advise if list is incomplete Lawyers are encouraged to respond but may not or may use slightly different terminology Lawyers are encouraged to respond but may not or may use slightly different terminology

6 Review for subsequent Events Auditors are responsible for reviewing events up to date of audit report (=“substantial completion of fieldwork” Auditors are responsible for reviewing events up to date of audit report (=“substantial completion of fieldwork” Goals: Goals: 1)Identify information having direct effect on f/s and requiring adjustment (=indicates condition existing at year end) 2)Identify important events requiring disclosure

7 Techniques for subsequent events 1)Subsequent receipts 2)Subsequent payments 3)Settlement prices of subsequent transactions 4)Enquiry of management 5)Review minutes of meetings 6)Confirm client lawyers 7)Review internal statements for subsequent pd. 8)Review books of account for significant or unusual transactions 9)Letter of representation

8 Date of audit report Date = substantial completion of fieldwork, including subsequent event review Date = substantial completion of fieldwork, including subsequent event review If a subsequent event arises after that date and before issue of report, auditor can: If a subsequent event arises after that date and before issue of report, auditor can:  Extend fieldwork (subsequent event review for all events) to new date or  Limit review to new event only and double-date report

9 Subsequent discovery of facts Auditor not actively engaged to look for info after release of audit report, but some may come to their attention. Auditor not actively engaged to look for info after release of audit report, but some may come to their attention. If relates to condition that existed before audit report issue and material: If relates to condition that existed before audit report issue and material:  Auditor must audit subsequent event  Request client re-issue and auditor re- issues report  If client refuses, consult legal advice

10 Accumulating Final Evidence Final Analytical Procedures Final Analytical Procedures Evaluate Going Concern Assumption Evaluate Going Concern Assumption

11 Client Representation Letter Goal: Goal: 1) Impress upon mgmt that f/s are their reponsibility 2) Document responses of mgmt

12 Client Representations On the client’s letterhead, addressed to the auditor, signed by responsible officers and dated as of the auditor’s reports. Contains, among other things: On the client’s letterhead, addressed to the auditor, signed by responsible officers and dated as of the auditor’s reports. Contains, among other things:  Acknowledgement of primary responsibility for fair presentation of financial statements in conformity with GAAP  Availability of all financial records and related data  Completeness of the minutes of meeting of stockholders, directors, and important committees  Info about related parties  Irregularities involving management or employees  Plans or intentions affecting b/s items  see HB 7100 These representations are not substitutes for corroborating evidence obtainable by the auditor.

13 Evaluating Results Cumulative known errors, most likely and possible errors, including those on opening balances on: Cumulative known errors, most likely and possible errors, including those on opening balances on:  Total assets  Total liabilities  Current assets/liabilities  Net income Qualitative aspects Qualitative aspects Overall fair presentation of f/s, including disclosure Overall fair presentation of f/s, including disclosure

14 Working Paper Review Goals: Goals: 1)Evaluate staff 2)Ensure audit meets firm standards and GAAS 3)Counteract biases Primacy, recencyPrimacy, recency Internal control descriptions prepared by client (L. Kopp)Internal control descriptions prepared by client (L. Kopp)

15 Working Paper Review: to consider Planning decisions were adequate Planning decisions were adequate All work complete and properly documented All work complete and properly documented Conclusions appropriate Conclusions appropriate Analytical review results Analytical review results

16 Other Information and Supplementary Information Other Information Section Other Information Section  Auditor’s have and obligation to read (study) the information and determine whether it is inconsistent with the audited financial statements.  However the auditor is not required to review press releases, analyst’s interviews or other forms of irregular financial new releases specifically engaged by the client to do so. 13The auditor should read the other information in the annual report and consider whether any of this information is inconsistent with the financial statements on which he has reported. [JAN. 1986] 13The auditor should read the other information in the annual report and consider whether any of this information is inconsistent with the financial statements on which he has reported. [JAN. 1986]

17 Other Information and Supplementary Information Other Information Section Other Information Section  Auditor’s have and obligation to read (study) the information and determine whether it is inconsistent with the audited financial statements.  However the auditor is not required to review press releases, analyst’s interviews or other forms of irregular financial new releases specifically engaged by the client to do so. 13The auditor should read the other information in the annual report and consider whether any of this information is inconsistent with the financial statements on which he has reported. [JAN. 1986] 13The auditor should read the other information in the annual report and consider whether any of this information is inconsistent with the financial statements on which he has reported. [JAN. 1986]

18 Read annual report Auditors have and obligation to read (study) the information and determine whether it is inconsistent with the audited financial statements. Any inconsistencies must be corrected. Auditors have and obligation to read (study) the information and determine whether it is inconsistent with the audited financial statements. Any inconsistencies must be corrected. NOT required to review press releases, analyst’s interviews or other forms of irregular financial new releases specifically engaged by the client to do so. NOT required to review press releases, analyst’s interviews or other forms of irregular financial new releases specifically engaged by the client to do so.

19 Audit Communications Necessary communication with mgmt (and audit committee): Necessary communication with mgmt (and audit committee):  Misstatements (other than trivial ones)  Illegal or possibly illegal acts  Internal control “reportable conditions” (=significant deficiencies in design or operation)

20 Communications with audit committee Auditor vs mgmt responsibility Auditor vs mgmt responsibility Significant planning decisions Significant planning decisions Significant acctg policies Significant acctg policies Areas of audit sensitivity, mgmt estimates Areas of audit sensitivity, mgmt estimates Disagreements with mgmt, major issues discussed Disagreements with mgmt, major issues discussed Difficulties encountered Difficulties encountered

21 Management letters Optional Optional Areas of improvement in internal control, efficiency and effectiveness in operations Areas of improvement in internal control, efficiency and effectiveness in operations


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