1. Chapter 14
Completing the Audit

2. Final Review of the Audit
Contingencies
Collectibility of receivables and loans
Product warranty liability
Threat of exploration of assets in a foreign country
Litigation, claims, and assessments
Guarantees of debts of others
Obligations of banks under standby letters of credit.

3. Final Review of the Audit
Contingencies (cont.)
Agreements to repurchase receivables that have been sold
Purchase and sale commitments.
Responsibilities Related to Contingencies
Sources of Evidence of Contingencies
Letter of Audit Inquiry
Effect of audit contingency on audit report.

4. Adequacy of Disclosure
Disclosure can be on the face of the financial statements
Classifications
Parenthetical notations
Footnote
Disclosures must be adequate

5. Management Representation Letter
Auditor should obtain at the end of the audit
Management refusal is considered a scope limitation sufficient to preclude an unqualified opinion
Purposes
Reminds management of responsibility for the financial statements
Confirms oral responses
Reduces possibility of misunderstandings

6. Management Letter
Letter from auditor to the management with constructive observations
DO NOT CONFUSE WITH MANAGEMENT REPRESENTATION LETTER.
Not required but seen as value-added auditing

7. Going Concern
Auditors are required to evaluate likelihood of going concern.
Evaluation made based on information obtained from normal audit procedures
Indicators of problems
Negative trends
Internal matters
External matters
Other matters (bankruptcy prediction models)

8. Going Concern Review of Major Estimates
Mitigating Factors
Effects on the financial statements
Effects on the Audit Report
Review of Major Estimates
Responsible for providing reasonable assurance that
Management has info system to develop estimates
Estimates are reasonable
Estimates presented in conformance with GAAP

9. Analytical and Quality Review
Revenue and expenses
Final review stage
adequacy of evidence
unusual or unexpected balances
adequacy of disclosure
Internal Quality Review Process
Concurring partner or cold review

10. Communicating with the Audit Committee
Processes for making sensitive estimates
Significant audit adjustments
Major accounting and reporting disagreements
Management’s discussion with other CPA firms
Difficulties encountered in performing the audit
Significant fraud or other illegal acts
Significant deficiencies in internal control
Any independence issues

11. Subsequent Events Two types of events identified as subsequent
Type I conditions that existed at the balance
sheet date
Major company files bankruptcy
Lawsuit settled for different than accrual
Stock dividend or split
Sale of inventor below carrying value

12. Subsequent Events II Type II subsequent events Uninsured casualty
Significant lawsuit
Natural disaster
Major decisions such as a merge
Material change in value of investments

13. Subsequent Events Audit Procedures Read minutes of meetings
Read interim financial statements
Inquire of management concerning
significant changes in interim statements
significant contingent liabilities
significant changes in working capital, long term debt or owners equity
status of tentative items
unusual adjustments

14. Subsequent Events Procedures (cont)
Inquire of management and legal counsel concerning contingencies.
Obtain Management Representation Letter

15. Subsequent Events Dual Dating
When an event occurs after the end of fieldwork but before issuance of the audit report there are two options.
1) use the date of event as date of report
2) Dual Date the report, use the dates of end of fieldwork and the event.

16. Subsequent Events
Subsequent discovery of facts existing at the date of the auditor’s report
Auditor must determine
Reliability of new information
Whether the event had occurred by the report date
Whether users are likely to be relying on statements
Whether the audit report would have been affected had the facts been known

17. Subsequent Events
Subsequent discovery of facts existing at the date of the auditor’s report
Actions
Revise financial statements
Explanation in subsequent statements
If revising must notify users.
Consideration of Omitted Procedures after the Report Date