AUDIT LECTURE 7 EVALUATION AND REVIEW HOLY KPORTORGBI EXCEL ICAG SCHOOL AUDIT LECTURE 7 EVALUATION AND REVIEW HOLY KPORTORGBI

LECTURE 7 CONTENT Overall Review of financial statements Comparatives Other Information Subsequent Events Going concern

Overall Review Having gathered sufficient and appropriate written audit evidence, the next stage is to evaluate and review Overall review is undertaken on the financial statements as well as on identified misstatements and potential misstatements This overall review is a requirement of ISA220- Quality control for audit of financial statements

Overall Review The review should cover the following areas Compliance with accounting regulations National and local laws, Accounting standards Accounting policies Review for consistency and reasonableness Analytical procedures ROCE, Gearing, dividend cover etc Summarizing misstatements and evaluation of same Completion of checklist and Audit clearance meeting

Opening Balances Although the audit is for the current year, the auditor must probe opening balances (closing balances for prior year period) Three situations could exist in relation to opening balances Prior year FS not audited Prior year FS audited by a predecessor auditor Prior year audited by same auditor In each of the situations, the auditor must carry out specific audit procedures to obtain sufficient and appropriate evidence on the opening balances

Opening Balances Pg 206 provides summary of effect of the conclusions of opening balances on audit report

Comparatives In most cases, audited financial statements are presented with comparatives ISA 710- Comparative information provides guideline on auditor’s responsibilities regarding comparative information ISA 710 distinguishes between two types of comparative information Comparative figures and comparative financial statements

Comparatives Audit procedures performed on corresponding figures are usually limited to ensuring accuracy The auditor must ensure policies used for corresponding figures are consistent with current periods Corresponding figures must agree with amounts and disclosures in the prior periods Auditors must request written representation on corresponding figures See pg 209 for effects

Comparatives Auditor’s responsibility regarding comparative financial statement are same as for comparative figures The auditor is not expected to re audit but ensure accuracy, consistency and fair presentation Where the prior year statements were audited by a predecessor auditor, the current auditor must, with the permission of the client obtain representations from the predecessor auditor

Other Information Other Information includes information (other than the FS and Auditor’s report) presented in the document containing the financial statements and the auditor’s report Examples of other information include financial ratios, financial highlights, directors particulars, directors report etc Auditors should always seek to resolve inconsistencies or misstatements of facts between financial statements and other information

Other Information Unless the auditor is specially engaged for that purpose, the Auditor has no responsibility to report that other information is properly stated Page 213 summarizes auditors response to material inconsistencies in other information

Subsequent Events The auditor’s responsibility extends to the date on which they sign their audit report This date is inevitably after the year end Events happening between the year end and date of signing the report is referred to as subsequent events IAS 10 distinguishes between adjusting events and non adjusting events

Subsequent Events ISA560 requires of the auditor to obtain sufficient and appropriate evidence that subsequent events that require adjustment are captured and those that require disclosure are adequately disclosed Procedures for testing subsequent events arte mainly enquiries of management and other procedures (reading of minute books and review of records) Auditors do not have any responsibility for events happening between the date the FS are signed off a the date of issue

Going Concern ISA570 stipulates that, unless management specifies to the contrary, there is an inherent assertion that the entity will continue as a going concern and the financial statements are prepared on that basis Auditors are expected to test validity of this assertion

Going Concern Significant doubts against going concern assumption include Financial (net liability, liquidity problem, adverse ratios) Operation (exit of key management, loss of market share, labour agitations) Others- non compliant, pending major litigation etc Auditors are required to evaluate management assessment of the entity’s ability to continue as a going concern and draw conclusions

Going Concern Where the use of going concern is appropriate but material uncertainty exist, the auditor must determine if there are sufficient disclosures in the financial statement- the auditor may express an unmodified opinion and include an emphasis of Matter paragraph If the auditor concludes the use of the going concern assumption is inappropriate, or disclosures made in respect of material uncertainty are inadequate, the auditor must qualify his opinion or issue an adverse opinion