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chapter 11

chapter 11. completing the audit. wrapping up the audit. Chris W. describe what is meant by Interim Testing. subsequent events. end of field work report date. date Report issued. 12/31/09. interim. A. B. C. D. 4. Roll-forward

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chapter 11

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  1. chapter 11 completing the audit

  2. wrapping up the audit

  3. Chris W describe what is meant by Interim Testing.

  4. subsequent events end of field work report date date Report issued 12/31/09 interim A B C D 4

  5. Roll-forward B Analytical Procedures exhibits, 4.3, 4.4, pr 4.47, pr 4.48 appendix 4A B Attorney’s Letters • Management Representations • Subsequent Events • communications to audit comm or mgmt • internal control related matters identified • Those charged with governance • subsequent discovery of facts • Omitted procedures

  6. subsequent events end of field work report date date Report issued 12/31/09 interim A B C D 6

  7. Aaron describe what it means to “Roll-Forward” revenue and expense accounts at year-end.

  8. Kim at what three stages of the audit MAY we perform Analytical Procedures ? at what stages of the audit are we required to perform Analytical Procedures?

  9. req’d planning phase substantive tests req’d at conclusion as an overall review

  10. AU Section 329 Analytical Procedures (Supersedes section 318) Source: SAS No. 56. Effective for audits of financial statements for periods beginning on or after January 1, 1989, unless otherwise indicated. .01 This section provides guidance on the use of analytical procedures and requires the use of analytical procedures in the planning and overall review stages of all audits. .02 Analytical procedures are an important part of the audit process and consist of evaluations of financial information made by a study of plausible relationships among both financial and non financial data. Analytical procedures range from simple comparisons to the

  11. Roll-forward B Analytical Procedures • Attorney’s Letters • Management Representations • Subsequent Events • Final assessment of audit risk - opinion • communications to audit comm or mgmt • SAS 114 Communicating Internal Control Related Matters Identified in an Audit • SAS 112 Communication with Those Charged with Governance • subsequent discovery of facts • Omitted procedures

  12. Ben • Liabilities – Unrecorded Liabilities • Management is our primary source of information about • Litigation, Claims and Assessments • what is our most important source of evidence to corroborate managements’ representations ?

  13. Natalie “Inquiry of a Client’s Attorney” this is an auditing procedure what kind of problem do we have if the attorney refuses to respond ? what kind of report will we issue ?

  14. Lindsey Litigation, Claims and Assessments are usually contingencies what does SFAS No. 5 teach us about contingent losses

  15. SFAS 5 contingencieslitigation, claims & assessments probable estimable record loss probable not estimable disclose possible estimable or “ possible not estimable “ remote ignore

  16. SFAS 5 contingencies

  17. p. 428 • Roll-forward B Analytical Procedures • Attorney’s Letters • Management Representations • Subsequent Events • Final assessment of audit risk - opinion • communications to audit comm or mgmt • SAS 114 Communicating Internal Control Related Matters Identified in an Audit • SAS 112 Communication with Those Charged with Governance • subsequent discovery of facts • Omitted procedures

  18. Chris Mc we must obtain certain representations from management in writing this is a required auditing procedure what kind of problem do we have if the client refuses? what kind of report will we issue ? Page 428/429

  19. AU Section 333 Client Representations Source: SAS No. 85. See section 9333 for interpretations of this section. Effective for periods ending on or after September 30, 1977, unless otherwise indicated. .01 This section establishes a requirement that the independent auditor obtain written representations from management as a part of an audit performed in accordance with generally accepted auditing standards and provides guidance concerning the representations to be obtained. Reliance on Management Representations

  20. Management representation letter example on page 429 Exhibit 11.4 we have made all financial records available there are no material transactions that have not been properly recorded There are no violations of laws or regulations There are no unasserted claims or assessments…. all related party transactions have been disclosed

  21. Kristin what is a “waived adjustment?” Look at the “score sheet” on page 434

  22. Scoresheet

  23. Roll-forward B Analytical Procedures • Attorney’s Letters • Management Representations • Subsequent Events • Final assessment of audit risk - opinion • communications to audit comm or mgmt • SAS 114 Communicating Internal Control Related Matters Identified in an Audit • SAS 112 Communication with Those Charged with Governance • subsequent discovery of facts • Omitted procedures

  24. subsequent events end of field work report date date Report issued 12/31/09 interim A B C D 26

  25. AU Section 560 Subsequent Events Sources: SAS No. 1, section 560; SAS No. 12. Issue date, unless otherwise indicated: November, 1972. .01 An independent auditor's report ordinarily is issued in connection with historical financial statements that purport to present financial position at a stated date and results of operations and cash flows for a period ended on that date. However, events or transactions sometimes occur subsequent to the balance-sheet date, butprior to the issuance of the financial statements and auditor's report, that have a material effect on the financial statements and therefore require adjustment or disclosure in the statements. These occurrences hereinafter are referred to as "subsequent events." .02 Two types of subsequent events require consideration by management and evaluation by the independent auditor.

  26. Kyle describe the two types of subsequent events how do we decide whether to make an adjusting entry to include the effects of the subsequent event in the financial statement balances or just disclose the event in the footnotes

  27. subsequent events • Type I - adjusting journal entry • events which provide info about conditions that existed @ 12/31/09 • can be used to make better estimates or confirm estimates that were made • Type II - disclose • events whose cause and manifestation arise subsequent to 12/31/09

  28. subsequent events GAAS auditing procedures read interim financial statements read minutes of Bd of Directors’ meetings obtain attorney’s letter obtain management representation letterpage 431

  29. Roll-forward B analytical procedures • Attorney’s Letters • Management Representations • Subsequent Events • Final assessment of audit risk - opinion • communications to audit comm or mgmt • SAS 114 Communicating Internal Control Related Matters Identified in an Audit • SAS 112 Communication with Those Charged with Governance • subsequent discovery of facts • Omitted procedures

  30. subsequent events end of field work report date date Report issued 12/31/09 interim A B C D 33

  31. Cesar what is a “second-partner review?”

  32. Roll-forward B analytical procedures • Attorney’s Letters • Management Representations • Subsequent Events • Final assessment of audit risk - opinion • communications to audit comm or mgmt • SAS 114 Communicating Internal Control Related Matters Identified in an Audit • SAS 112 Communication with Those Charged with Governance • subsequent discovery of facts • Omitted procedures

  33. Lisa what is control risk

  34. control risk the probability that a company’s controls will fail to prevent or detect errors or frauds that would otherwise entered the system page 81

  35. Max to whom do we report deficiencies in the internal controls ? what two types of control deficiencies do we report ?

  36. communication of internal control matters • communicate what • significant deficiency • material weaknesses • communicate to who • the audit committee • board of directors • management

  37. Randy define a significant deficiency

  38. reportable conditions (page 184) conditions that could adversely affect the organization’s ability to initiate, record, process, and report financial data in the financial statement

  39. Keith define a material weakness

  40. material weakness (page 184) a significant deficiency that results in a reasonable possibility that a material misstatement would not be prevented or detected on a timely basis

  41. communication with audit committees • significant accounting policies • management judgments & estimates • audit adjustments • disagreements with management page 439

  42. lots of different communications page 441 • Engagement letter / Acceptance letter • Letter of audit inquiry / Attorney’s letter • Management representation letter • Internal control deficiencies • Those charged with “governance” • Management letter

  43. be sure to know the followingHINT! to whom is the communication addressed ? on whose letterhead is the letter written ? over whose signature is the letter sent ? can the communication be oral or must it be written?

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