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Completing The Audit. Good Review Requires More Than Looking At Working Papers. CONTINGENCIES SUBSEQUENT EVENTS FINAL ANALYTICAL REVIEW EVALUATE GOING CONCERN CLIENT REP. LETTER EVALUATE RESULTS OTHER INFORMATION IN ANNUAL REPORTS COMMUNICATION WITH AUDIT COMMITTEE MANAGEMENT LETTER.

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Presentation Transcript
slide1

Completing

The Audit

Good Review Requires

More Than Looking

At Working Papers

phase iv wrap up activities
CONTINGENCIES

SUBSEQUENT EVENTS

FINAL ANALYTICAL REVIEW

EVALUATE GOING CONCERN

CLIENT REP. LETTER

EVALUATE RESULTS

OTHER INFORMATION IN ANNUAL REPORTS

COMMUNICATION WITH AUDIT COMMITTEE

MANAGEMENT LETTER

PHASE IV : WRAP-UP ACTIVITIES
required communication with audit committee
Irregularities and illegal acts

Significant control weaknesses

Other matters:

Financial statement adjustments

Disagreements with management

Difficulties encountered in the audit

REQUIRED COMMUNICATION WITH AUDIT COMMITTEE
slide4

TYPES OF WORKING

PAPER REVIEW

Types of Who When

Review Does Done Purpose

In-charge review

Audit partner

review

Independent review

Peer review

slide5

Final Evidence

 Perform Final Analytical Procedures

 Evaluate Going Concern Assumption

Obtain Management Representation Letter

 Read Other Information in the Annual Report

Accumulation

slide6

Completing the Engagement Checklist

1.Examination of prior year’s working papers

a. Were last year’s working paper and review notes examined for areas

of emphasis in the current-year audit?

b. Was the permanent file reviewed for items that affect the current year?

2. Internal control

a. Has internal control been adequately understood?

b. Is the scope of the audit adequate in light of the assessed control risk?

c. Have all major weaknesses been included as reportable conditions in

a letter to the audit committee or to senior management?

3. General documents

a. Were all current-year minutes and resolutions reviewed, abstracted,

and followed up?

b. Has the permanent file been updated?

c. Have all major contracts and agreements been reviewed and abstracted

and copied with all existing legal requirements?

slide7

Evaluating Results and Reaching Conclusions

on the Basis of Evidence in the CYCLE, ACCOUNT,

AND THE OVERALL FS PRESENTATION

slide8

A Contingent Liabilities

A contingent liability is potential future

obligation to an outside party for an unknown

amount resulting from activities that have

already taken place.

What if it’s probable & reasonably est?

slide9

Certain contingent liabilities are of

considerable concern to the auditor:

  • Pending litigation for patent infringement,
  • product liability, or other actions
  • Income tax disputes
  • Product warranties
  • Notes receivable discounted
  • Guarantees of obligations of others
  • Unused balances of outstanding letters of credit
slide10

Audit Procedures

for Finding Contingencies

  • Inquire of management (orally and in writing)

about the possibility of unrecorded contingencies.

  • Review current and previous years’ internal

revenue agent reports for income tax settlements.

  • Review the minutes of directors’ and stockholders’

meetings for indications of lawsuits or other contingencies.

continued

slide11

Audit Procedures

for Finding Contingencies

  • Analyze legal expense for the period under audit and

review invoices and statements from legal counsel.

  • Obtain a letter for each major attorney performing

legal services.

  • Review working papers for any information that may

indicate a potential contingency.

  • Examine letters of credit in force as of the balance sheet

date and obtain a confirmation of the used and unused balance.

slide12

Typical Inquire

of Attorney

slide13

DISTINCTION

BETWEEN REVIEW

FOR SUBSEQUENT

EVENTS AND

SUBSEQUENT

DISCOVERY OF

FACTS AFTER

THE BALANCE

SHEET DATE

slide15

Review for Subsequent Events and

Subsequent Discovery of Facts

slide16

Type I Subsequent Events

Those that have a Direct Effect on the Financial statements and Require Adjustment

  • Declaration of bankruptcy by a customer because of a
  • deteriorating financial condition (deteriorating w/in the BS date).
  • Settlement of a litigation that existed at the BS date.
  • Litigation claim based on events covered by the BS date.
type i subsequent events
If it is material and the client won’t adjust the FS’s:

EXPLANATORY Paragraph

W/hold report

W/draw from Engagement

(EWW!)

Type I Subsequent Events
slide18

Type II Subsequent Events

continued

Those that have NO Direct Effect on the Financial Statements but Which Disclosure is Advisable

(Interpretation/usefulness of FS’s affected)

  • Decline in the market value of securities
  • Issuance of bonds or equity securities
  • Uninsured loss of PPE or inventories as a result of fire, etc.
  • A merger or an acquisition/ purchase of a business
  • Losses of AR d/t issues arising subsequent to the BS date
  • Settlement of litigation, where the issue causing litigation took place
  • s/t the BS date
slide19

Audit Tests

  • Inquire of Management
  • Correspond with Attorneys
  • Review Internal statements Prepared Subsequent to the
  • Balance Sheet Date
  • Review Records Prepared Subsequent to the Balance Sheet Date
  • Examine Minutes Issued Subsequent to the Balance Sheet Date
  • Obtain a Letter of Representation
  • basically READ and REVIEW - SOUNDS LIKE COR(II)A
slide20

Dual Dating

Dual-dated audit report means

that the audit report includes two dates.

1. The first date is the date for the completion

of field work except for a specific exception.

2. The second date, which is always later,

deals with the exception.

slide21

Review for Subsequent Events and

Subsequent Discovery of Facts

subsequent discovery of facts
Once the report is issued, the auditor has no further obligation to perform additional procedures

UNLESS…new material information comes to our attention (don’t have to go looking)

Are people attaching importance to the info, likely to rely on the info?

Subsequent Discovery of Facts
subsequent discovery of facts1
If it is a material issue, then the auditor must PREVENT further reliance in the report

3 D’s: The auditor can advise the client to disclose the new info: 1. Draft new FS’s/revoke old, 2. Disclose in imminent report (e.g., Qrtly), OR 3. Press Release “DON’T RELY!)

Subsequent Discovery of Facts
subsequent discovery of facts2
If the client won’t disclose the new info, then

Notify the CLIENT and BOD’s – report can no longer be associated w/ the FS’s

Notify REGULATORY AGENCIES – “audit report unreliable!”

Notify each PERSON known to be relying - “audit report unreliable!”

Subsequent Discovery of Facts
omitted procedures detected after report date
A necessary audit procedure wasn’t performed (perhaps discovered in internal or external peer review)

Ask the Q: is the report still reliable?

IF NO, or uncertain, DO the procedure

Ask again: is the report still reliable?

If NO, do the 3 “D’s”

Omitted Procedures detected after report date
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