1. Auditing & Assurance Services, 6e

2. Chapter 11 Completing the Audit “It ain’t over till it’s over.”
– Yogi Berra, former catcher for the New York Yankees
11-2

3. Timeline for Major Activities in Audit
Year-End Date
(date of the financial statements)
Date of the auditors’ report
(audit completion date)
Audit report
release date
Beginning
of year
Interim testing (tests of controls and substantive procedures)
Complete substantive procedures
Attorney’s letters
Written representations
Going-concern assessment
Adjusting journal entries
Audit documentation review
Subsequent events
Subsequently discovered facts
Subsequently discovered facts
Omitted audit procedures
Management letter
Communications with those charged with governance
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4. Completing Substantive Procedures
Roll-forward procedures: Extend work from interim period to date of the financial statements
Perform analytical procedures to identify unusual or unexpected relationships not previously identified
Review accounts for “miscellaneous”, “other,” and “clearing” accounts (may relate to earnings management)
Evaluate management estimates and process for developing estimates for reasonableness
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5. Procedures for Litigation, Claims, and Assessments
Inquiry of clients
Review minutes of meetings of stockholders, directors, and committees
Review contracts, loan agreements, and correspondence from taxing and governmental agencies
Obtain information concerning guarantees from bank confirmations
Review documentation related to legal services
Attorney’s letters
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6. Attorney’s Letters Contents of Attorney’s Letter
Responsibilities for Attorney’s Letter
Auditors
Initiate request for attorney letter
Send letter to attorney including information related to litigation, claims, and assessments
Client
Prepare listing, description, and evaluation of litigation, claims, and assessments for letter
Attorney
Respond to auditors directly regarding client’s description of litigation, claims, and assessments contained in attorney letter
Listing of pending litigation, claims, and assessments
Description of each item or case included in the listing
Evaluation of the likelihood of an unfavorable outcome
Estimate of the range of potential loss
Understanding regarding unasserted claims
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7. Written Representations
Provided by management to auditors
Dated using date of auditors’ reports (audit completion date)
Broad purpose
Impress upon management its primary responsibility for the financial statements
May establish auditors’ defense if a question related to inquiries subsequently arises
Qualify or disclaim an opinion if not provided by the client
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8. Contents of Written Representations
Information related to financial statements
Management’s responsibility for F/S and internal control over financial reporting
Appropriate disclosure, presentation, and reasonableness of items
Statement that uncorrected misstatements are immaterial
Information provided to auditors by management
Internal control over financial reporting (for public entities)
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9. Other Procedures Performed Prior to Date of Auditors’ Report
Consider whether evidence obtained during audit raises questions about ability to continue as a going concern
Accumulate identified misstatements and evaluate need for adjustments to financial statements
Rollover method considers the current period income effect(s) of misstatements
Iron curtain method considers the aggregate effect of the adjustments on the entity’s balance sheet
Review of audit documentation
Supervisor: Have all steps been performed?
Manager and partner: Scope of audit and support for conclusions
Reviewing partner: Consistency of work and reporting with quality standards of the firm (engagement quality review)
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10. Subsequently Discovered Facts
Timeline and Terms
Year-End Date
(Date of the Financial Statements)
Date of the auditors’ report
(Audit completion date)
Audit report
release date
Beginning
of year
Subsequent Events
Subsequently Discovered Facts
Subsequent events occur between the date of the financial statements and date of the auditors’ report
Subsequently discovered facts become known after the date of the auditors’ report
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11. Procedures to Identify Subsequent Events
Obtain understanding of procedures management performs to identify subsequent events
Inquire of management and those charged with governance
Read minutes of meetings of owners, management, and those charged with governance
Review entity’s interim financial statements
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12. Auditors’ Response to Subsequent Events
If discovered prior to date of auditors’ reports, perform procedures and evaluate disclosure
If discovered prior to audit report release date, perform procedures
Revise date of auditors’ reports to reflect new completion date
Dual date auditors’ reports
If discovered following audit report release date: If facts would result in revision of auditors’ report or F/S and individuals are relying on F/S
Notify individuals relying on F/S
Issue revised F/S which provide disclosure of facts
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13. Omitted Procedures Perform procedures if:
Omitted procedures are important
Individuals are currently relying on financial statements and auditors’ reports
If previous opinion can be supported, no further action necessary
If previous opinion cannot be supported
Withdraw the original report
Issue revised reports
Inform persons currently relying on the financial statements
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14. Communication with Individuals Charged with Governance
Auditors’ responsibility under GAAS
Overview of planned scope and timing of audit
Judgment about quality of accounting policies, estimates, and disclosures
Significant difficulties encountered during audit
Uncorrected misstatements
Disagreements with management
Material, uncorrected misstatements
Representations requested from management
Management consultations with other auditors
Significant issues discussed with management
Other findings or issues significant and relevant to those charged with governance
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15. Summary of Audit Communications
Type
From To
Timing
Method
Engagement letter
Auditors
Client
Before engagement
Written
Acceptance letter
Attorney letter response
Attorney
Near date of auditors’ report
Written representations
Date of auditors’ report
11-15

16. Summary of Audit Communications (Continued)
Type
From To
Timing
Method
Internal control deficiencies
Auditors
Individuals charged with governance
For public entities, prior to audit report release date
Written
Communication with those charged with governance
After audit
Oral or written*
Management letter
Client
Oral or written
*If oral communication, document in audit documentation.
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