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

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

3. 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

4. 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

5. 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

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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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