AT - COMPLETING THE AUDIT and POST AUDIT RESPONSIBILITIES

Question 1

After the fieldwork is almost done, what procedures are carried out to complete the audit?

Answer 1

1. Identification of SUBSEQUENT EVENTS that may affect the FS under audit
2. Identifying contingencies such as litigation,claims, and assessment.
3. Obtaining written management representation
4. Performing wrap-up procedures

Question 2

What are subsequent events?

Answer 2

Subsequent events are those events or transactions that occur subsequent to the balance sheet date that may affect the FS and the auditor;s report.

FOR AUDIT PURPOSE, the auditor is only concerned with SE AFTER THE BALANCE SHEET DATE BUT BEFORE THE DATE OF THE AUDITOR’S REPORT.

SE may be classified as:

a. Requiring Adjustment - those that provide further evidence of CONDITIONS THAT EXISTED AT THE BALANCE SHEET DATE
b. Requiring Disclosure - those that are indicative of conditions THAT AROSE SUBSEQUENT TO THE BALANCE SHEET DATE. (Loss of inventory due to fire)

Question 3

When does an auditor’s responsibility to identify subsequent events end?

Answer 3

According to PSA 560, “The auditor should PERFORM PROCEDURES DESIGNED TO OBTAIN SAE that all events UP TO THE DATE OF THE AUDITOR’S REPORT that may require adjustment/disclosure in the FS has been identified.

The auditor has no responsibility to perform procedures to identify SE occurring AFTER THE DATE OF HIS REPORT. It is MANAGEMENT’S RESPONSIBILITY to INFORM AUDITOR of SE that may affect the FS.

Nevertheless, if the auditor becomes aware of such SE after his report, he must ascertain whether such events has been properly accounted for and disclosed in the notes to FS.

Question 4

Why is the date of audit report important?

Answer 4

It shows the date when the auditor’s responsibility fro SE ends.

Question 5

When are audit reports usually dated?

Answer 5

Generally, audit reports are dated as of THE COMPLETION OF ESSENTIAL AUDIT PROCEDURES.

Question 6

Is the auditor responsible for identifying SE after the date of the auditor’s report?

Answer 6

No, it is management who is responsible of informing auditor of SE.

Question 7

What happens when a material SE REQUIRING ADJUSTMENT TO FS occurs after the date of the auditor’s report but before the issuance of the FS?

Answer 7

The FS should be adjusted and the auditor’s report should bear the original date of the report. This is because the condition already existed as of the balance sheet date and did not actually occur in the subsequent period.

Question 8

What happens when a material SE REQUIRING DISCLOSURE TO FS occurs after the date of the auditor’s report but before the issuance of the FS?

Answer 8

Auditor should consider the adequacy of the disclosure and DATE THE REPORT EITHER

1. AS OF THE DATE OF THE SUBSEQUENT EVENT
2. DUAL-DATE THE REPORT (Mar 15, 2020 except for note 5 as to which the date is Mar 31, 2020)

Question 9

What happens when the auditor decides to date the report AS OF THE DATE OF THE SUBSEQUENT EVENTS?

Answer 9

His RESPONSIBILITY FOR SE EXTENDS UP TO SE DATE.

Question 10

What happens when the auditor decides to dual-date the report?

Answer 10

When dual-dating the report, his responsibility for SE occurring after the original date of the audit report is LIMITED ONLY TO THE SPECIFIC EVENT REFERRED TO IN THE NOTE.

Question 11

What is the auditor’s responsibility regarding litigation,claims, and assessment?

Answer 11

PSA 501 requires the auditor to CARRY OUT PROCEDURES TO BECOME AWARE OF ANY LITIGATION/CLAIMS/ASSESSMENTS involving the entity which MAY HAVE A MATERIAL EFFECT ON THE FS.

Question 12

Who is the primary source of information regarding litigation,claims, and assessments?

Answer 12

Management is the primary source. The auditor corroborates information from management by ASKING THE CLIENT TO SEND LETTERS OF AUDIT INQUIRY TO LAWYERS WITH WHOM THE CLIENT HAS CONSULTED concerning these matters.

The letter must be

1. PREPARED BY MANAGEMENT
2. SENT BY AUDITOR
3. REQUESTING THE LAWYER TO COMMUNICATE DIRECTLY TO THE AUDITOR to assist auditor in obtaining SAE about material claims and litigation.

Question 13

What happens when management refuses to give the auditor permission to communicate with entity’s lawyer OR when the lawyer refuses to reply regarding litigation/claims/assessment?

Answer 13

It would constitute a SCOPE LIMITATION leading to the issuance of either a QUALIFIED OR DISCLAIMER OF OPINION.

Question 14

What happens if the lawyer is UNABLE TO ESTIMATE THE LIKELIHOOD OF AN UNFAVORABLE OUTCOME AND THE AMOUNT OF POTENTIAL LOSS?

Answer 14

This uncertainty must be DISCLOSED IN AN EMPHASIS OF MATTER PARAGRAPH TO AN UNMODIFIED REPORT to draw the attention of readers of FS.

Question 15

Why is written management representation needed? What form is it in?

Answer 15

PSA 580 requires the auditor to obtain SAE through the written management representation that the entity’s management:

1. Has acknowledged that it has fulfilled its responsibility for the preparation and presentation of fair FS
2. Has approved the FS

It is in the form of MANAGEMENT REPRESENTATION LETTER.

Question 16

From whom are written management representations usually requested?

Answer 16

Normally from CEO, CFO, or other equivalent persons in entities who do not use such titles.

Question 17

Can written management representations substitute audit evidence/procedures?

Answer 17

No. Management written representations COMPLEMENT THE AUDIT EVIDENCES accumulated and DO NOT SUBSTITUTE THE PERFORMANCE OF AUDIT PROCEDURES designed to obtain necessary evidence for the expression of an opinion.

Question 18

What are the basic elements of a written management representation?

Answer 18

1. Written representation should be addressed to the auditor
2. The date of the written representations SHALL BE AS NEAR AS PRACTICABLE TO, BUT NOT AFTER, THE DATE OF THE AUDITOR’S REPORT
3. Written representation must be signed by the appropriate level of management.

Question 19

What happens when management refuses to provide written representations?

Answer 19

Refusal may alert the auditor to the possibility that issues may exist or that management’s integrity is doubtful. Refusal also constitutes a SCOPE LIMITATION and would warrant a DISCLAIMER OF OPINION.

Question 20

What are wrap-up procedures?

Answer 20

Wrap-up procedures are those procedures done at the end of the audit that generally cannot be performed before the other audit work is complete. These include:

1. Final analytical procedures
2. Evaluation of going concern
3. Evaluation of audit findings and obtaining client’s approval for proposed adjusting entries.

Question 21

What are final analytical procedures?

Answer 21

AP are required during the planning and overall review stages of the audit. The final analytical procedures applied in the completion phase focuses on:

1. Identifying unusual fluctuations that were not previously identified
2. Assessing the validity of the conclusions reached and evaluating the overall financial statement presentation

Question 22

Explain the auditor’s evaluation of the entity’s ability to continue as going concern.

Answer 22

The GOING CONCERN ASSUMPTION IS A FUNDAMENTAL PRINCIPLE IN THE PREPARATION OF THE FS. The continuance of the entity as a going concern is assumed in the preparation of the FS in the absence of information to the contrary.

MANAGEMENT IS EXPLICITLY REQUIRED TO MAKE A SPECIFIC ASSESSMENT OF THE ENTITY’S ABILITY TO CONTINUE AS A GOING CONCERN, WHICH SHOULD BE AT LEAST TWELVE MONTHS FROM THE BALANCE SHEET DATE.

Auditor is responsible for:
1. Considering whether there are events or conditions which may cast significant doubts on the going concern assumption

2. Evaluation of management’s assessment of the entity’s ability to continue as a going concern.

Question 23

1. What is the effect on the auditor’s report if there is a reasonable assurance that the entity is a going concern?
2. What is the effect on the auditor’s report if there is an uncertainty on the going concern?
3. What is the effect on the auditor’s report if the going concern assumption is not appropriate?

Answer 23

1. If there is reasonable assurance on the going concern, the auditor should express an unmodified opinion.
2. If there is an uncertainty on the going concern, the auditor’s report will depend on WHETHER THE UNCERTAINTY IS ADEQUATELY DISCLOSED.

A. If adequately disclosed - UNMODIFIED OPINION PLUS EMPHASIS OF MATTER PARAGRAPH

B. If not adequately disclosed - QUALIFIED OR ADVERSE OPINION.

3. If the going concern is not appropriate, the auditor should issue an adverse opinion.

Question 24

Explain the evaluation of audit findings and obtaining client’s approval for proposed adjusting entries.

Answer 24

The auditor decides whether to accept the FS as fairly stated or to request management to revise the FS. Material misstatements must be corrected by recommending appropriate adjusting entries.

If management accepts the proposed adjusting entries - auditor issues an unmodified opinion

If management refuses to correct the FS - Adverse or qualified opinion.

Question 25

Explain the post audit responsibilities of the auditor.

Answer 25

After the FS have been issued, the auditor generally has no responsibility to perform additional procedures , EXCEPT when he becomes aware that the audit report issued in connection with the FS may be inappropriate. If so, he must TAKE STEPS TO PREVENT FUTURE RELIANCE ON SUCH REPORT

1. SUBSEQUENT DISCOVERY OF FACTS - when the auditor comes to KNOW OF A MATERIAL FACT EXISTING AT THE DATE OF HIS REPORT AND, IF KNOWN AT THAT DATE MAY HAVE CAUSED THE AUDITOR TO MODIFY HIS REPORT. The auditor must:
   a. Discuss the matter with appropriate level of management and consider the need of revision
   b. Advise management to take the necessary steps to ensure that users of the previously issued FS are made aware of the situation
   c. If management makes the appropriate action, auditor should ISSUE A NEW REPORT THAT INCLUDES AN EMPHASIS OF MATTER TO HIGHLIGHT THE REASON FOR REVISION OF PREVIOUSLY ISSUED FS.
   d. If management refuses to take action or inform the users, THE AUDITOR SHOULD NOTIFY THOSE PERSONS RESPONSIBLE FOR THE DIRECTION OF THE ENTITY AND PREVENT USERS OF FS FROM RELYING ON THE AUDIT REPORT.
2. SUBSEQUENT DISCOVERY OF OMITTED PROCEDURES - When the firm’s internal inspection or quality control review discloses omission of auditing procedures considered necessary in the audit, the auditor should:
   a. Assess the importance of the omitted procedure to support the auditor’s ability to support his opinion - Some other procedures performed could compensate for the omitted procedures
   b. Undertake to apply the omitted procedures OR corresponding alternative procedures if the auditor believes that omission impairs the ability to support his opinion, he should apply the omitted procedures or the alternative procedures. If after the application of said procedures the auditor determines that the FS are materially stated and that his report is inappropriate, THE AUDITOR SHOULD NOTIFY THOSE PERSONS RESPONSIBLE FOR THE DIRECTION OF THE ENTITY AND PREVENT USERS OF FS FROM RELYING ON THE AUDIT REPORT.