Completing the Audit and Post Audit Responsibilities

The Sequence of Audit Accepting the audit engagement/appointment Understanding the industry and the business Tests of controls and substantive tests for the following transactions cycles: The revenue cycles The expenditure cyclest The Production Cycles Auditing the HRM/Payroll Cycles Auditing the Investing and Financing Cycles Auditing the Investments and Cash Balances Completing the audits and reporting the audit

Completeing the Audit Consist of three main things: Completing the field work Evaluating the findings Communicating with the client

Completing the Field Works Making subsequent event review Reading minutes of meetings Obtaining evidence concerning litigation, claims, and assessments Obtaining client representation letter Performing analytical procedures

Evaluating the Findings Making final assessment of materiality and audit risk Evaluating going concern Making technical review of financial statements Formulating opinion and drafting audit report on the financial statements Formulating opinion and drafting audit report on internal controls over financial reporting. Making final review (s) of working papers.

Communicating with the Client Communicating internal control matters Communicating matters pertaining to conduct of audit Preparing management letter

Postaudit Responsibilities Subsequent events between report date and issuance of report. Discovery of facts existing at report date. Discovery of omitted procedures.

Completing the Fieldwork Subsequent Events Review Subsequent events are events that occur after the balance sheet dates but prior to the issuance of the financial statements and the auditor’s report.

Completing the Fieldwork Illustration of Subsequent Events Balance sheet Date Dec. 31, X1 Report issuance date March 15, X2 End of field work (report date) March 1, X2 Subsequent events Subsequent events period (the responsibility of auditor only to the events in this period)

Completing the Fieldwork Types of Subsequent Events Type 1: require adjustment of the financial statements, i.e. settlement of recorded year-end estimated liabilities at different amount than recorded. Type 2: require disclosure of the financial statements, i.e. issuance of long-term bonds or casualty losses resulting from fire or natural disaster.

Completing the Fieldwork Auditing Procedures Performing year-end substantive tests such as cut-off tests and the search for unrecorded liabilities. Read the latest available interim financial statements and compare them with the statements being reported on. Inquire of management having responsibility for financial and accounting matters about:

Completing the Fieldwork Substantial contingent liabilities or commitments existing at the balance sheet date or date of inquiry. Significant changes in capital stock, long-term debt, or working capital to the date of inquiry. The current status of items previously accounted for on the basis of tentative, preliminary, or inconclusive data.

Completing the Fieldwork Unusual adjustments since the balance sheet date. Read minutes of meetings of directors, stockholders, and other appropriates committees. Inquire client’s legal counsel concerning litigation, claims, and assessments.

Completing the Fieldwork Obtain letter of representation from about subsequent events that would, in its opinion, require adjustment or disclosure. Make additional inquiries or perform additional procedures considered necessaries in the circumstances.

Completing the Fieldwork The Effects of Subsequent Events The effect of the subsequent events to auditor’s opinion or conclusion depend on the level of materiality of the events. The failure to record or properly disclose the subsequent events in financial statements will result in a departure from the auditor’s standard report.

Completing the Fieldwork Reading Minutes of Meeting The minutes of meeting of stockholders, the board of directors and its subcommittees may contain matters that have audit significance, i.e. issuance of bonds, treasury stock, payment of cash dividend, discontinuance of a product line etc. The reading should be documented in the working papers.

Completing the Fieldwork Obtaining Evidence Concerning Litigation, Claims, and Assessments (LCA) This procedures aimed to ensure the possible existence of loss contingency (gain contingency normally not recorded – due to conservatism principle). Contingency is an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss.

Completing the Fieldwork Considering the Evidence of LCA The existence of a condition, situation, or set of circumstances indicating an uncertainty as to the possible loss to an entity arising form LCA. The period in which the underlying cause for legal action occurred. The degree of probability of an unfavorable outcome. The amount of range of potential loss.

Completing the Fieldwork Letter of Audit Inquiry An auditor normally does not possess sufficient legal skills to make an informed judgment about all LCAs, therefore “a letter of audit inquiry” to the client’s lawyer(s) will be the primary means of corroborating information. The refusal of the lawyer to respond the letter will be as a limitation of audit scope.

Completing the Fieldwork Obtaining Client Representation Letter Representation letter is part of evidential matter. It is used to confirm oral representation. It may complement of other auditing procedures, however in some cases, it may be the primary source of audit evidence, i.e. for the decision of discontinuing certain product line.

Completing the Fieldwork Content of Representation Letter Management’s responsibility for the financial statements. Completeness of information and evidence furnished to the auditor. Issues regarding revenue recognition, accounting estimates, and disclosures. Subsequent events.

Performing Analytical Procedures The procedures involve the use of ratios and other comparative techniques as an overall (or final) review of the financial statements. The procedures should be: Applied to critical audit areas identified during the audit. Based on financial data after all audit adjustments and reclassification have been recognized. Compare the ratio with the expected ratio or with other comparable ratios.

Evaluating the Findings Final Assessment of Materiality and Audit Risk Assessment components: Uncorrected misstatements specifically identified through substantive tests of detail of transactions and balances (referred to as known misstatement) Projected uncorrected misstatements estimated through audit sampling techniques. Estimated misstatements detected through analytical procedures and quantified by other auditing procedures.

Evaluating the Findings Final Assessment of Materiality and Audit Risk The total of the above potential misstatement for an account is called likely misstatement. The sum of the likely misstatements in all accounts is called aggregate likely misstatement. The above estimated misstatement will be used as a basis to assess the materiality and audit risk.

Evaluating the Findings Evaluating Going Concern Evaluation not exceed one year beyond the date of the financial statements. Information that would raise the substantial doubt about the going concern assumption relates to the entity’s inability to continue to meet its obligations without substantial disposition of assets.

Evaluating the Findings Evaluating Going Concern The steps need to be done: Obtain information about management’s plans to mitigate the effect of such conditions or events. Assess the likelihood that such plans can be effectively implemented.

Evaluating the Findings Evaluating Going Concern When finally auditor concludes that there is a substantial doubt about a going concern, the auditors should: Consider the adequacy of disclosure about the doubt of the going concern for a reasonable period of time. Include an explanatory paragraph in the audit report to reflect his or her conclusion.

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