Audit Completion Flashcards
How can an auditor determine whether disclosures have been properly made?
Use a checklist of disclosures
What are the 2 main steps in a financial statements review?
- Do the FS comply with CA06 and accounting standards?
- Do the financial statements make sense?
How can an auditor check that the FS makes sense?
IIC
Use APs for:
Interpretation - FS reviewed, considering absolute figures and ratios
Investigation - unusual movements / numbers identified as audit risk, answers documented in WPs
Corroboration - can’s find answers? Further work required.
The auditor should accumulate misstatements identified during the audit and:
IRDS
Inform management
Reassess materiality
Determine whether uncorrected misstatements are, individually / aggregate
Seek WR from management to confirm the effect of uncorrected misstatements is immaterial
Should non-compulsory information be disclosed in the Financial statements E.g. Sustainability
Information important to a user’s understanding should be considered if it contributes to MM
What does an ‘Overall FS Review’ consist of? (3)
SDS
Audit Completion
ISA 520
Need to confirm that…
1. Sufficient / appropriate evidence collected.
2. Do the FS make sense, considered effects?
3. Summarise all findings in audit completion memorandum.
What does auditing the ‘Summary of unadjusted misstatements’ consist of? (4)
CRIW
Audit Completion
ISA 450
The auditor needs to:
Consider if sum of uncorrected IM are Material.
Reassess materiality if necessary.
Inform management of all errors found unless < trivial.
WR to confirm communicated.
What does ‘Auditing Opening Balances’ consist of? (3)
Audit Completion
ISA 510
- Agree b/f figures to PY FS.
- Assess AC policies applied to op balances.
- Perform:
- Review previous auditor’s WP
- CY APs provide evidence over op balances?
- Perform procedures on op balances.
What does auditing ‘Comparatives’ (for an existing client) consist of?
CAM
Audit Completion
ISA 710
Confirm the comparative numbers have been b/f correctly.
Auditor must obtain sufficient, appropriate evidence that the comparative numbers are true and fair.
Misstatement in PY FS + matter unresolved = consider modifying CY audit opinion
What does auditing ‘Going Concern’ consist of? (2)
Audit Completion
ISA 570
A3 checklist of factors
A16 procedures
Look for factors which indicate the business runs out of cash or not be a viable business.
Audit cash flow forecasts, Inspect receipt / payments, consider reasonableness
Why is GC a key audit risk area?
ISA 570
A16, Procedures
Potential GC issues should be disclosed in the FS.
If company is likely not a GC, accounts should be prepared on a BUB
What does auditing ‘Subsequent events’ consist of?
DDP
Audit Completion
ISA 560, A8, A9
Subsequent events after audit report signed off, before AGM?
Discuss with management
Determine if amendment needed
Perform AP on change
Amendment required, FS not issued > ask to amend before sending.
Amendment required, FS issued > send out amended version.
If management refuse to speak at AGM, what should you do as the auditor?
Subsequent events
Resign and seek legal advice.
What does ‘Written Representation’ in Audit Completion consist of?
ISA 580
Finalize WR letter for matters where evidence obtained is persuasive but not conclusive.
E.g. Auditors draft letter listing judgmental issues, directors sign off before audit report is signed.
What does ‘Communicate deficiencies in IC’ in Audit Completion consist of? (2)
ISA 265
Control deficiencies found communicated to management in timely manner.
Communication: Clear, understandable, focus on impact of the business.
What happens when the auditor has to report on the deficiencies in ICs to those charged with Governance?
Report deficiencies to management in a management letter.
Focus on implications for the business not the audit.
What ‘Consequences’ should be included in the management letter?
Explain what could go wrong for the business:
Falling revenue, profits, reputations, poor cash flow.
What ‘Recommendations’ should be included in the management letter?
ISA 315, A96
Good control activities:
Physical controls, Authorization, Information processing, Reviews / Reconciliations, Segregation of duties
General control activities:
Training, Discipline, Recommunication of policies
What should the Auditor consider / do regarding GC at the ‘Evidence stage’ of the Audit? (2)
Make enquiries of management, management bias.
Procedures: Review:
- future plans, financial forecasts, projections, latest management accounts.
- board minutes / meetings
- borrowing facilities / other finance
How can sustainability influence a business’s GC status? (2)
- Lack of natural resources > supply chain disruption.
- New legislation > tricky to implement.
What is an Adjusting event and what is the effect on the FS?
Subsequent events
An adjusting event provides evidence of conditions that existed at date of FS.
The FS should be adjusted.
What is an Non-adjusting event and what is the effect on the FS?
Subsequent events
Non-adjusting events provide evidence that arose after the date of the FS.
If material, event disclosed
(adjust if GC is affected}
What is the audit response to subsequent events being between YE and audit report sign-off?
(2)
Active duty:
Perform procedures to identify events that require adjs / disclosures.
WR that all subsequent events adj / disclosed.
What is the audit response to subsequent events being AFTER sign-off of audit report?
Passive duty:
No obligation to perform procedures but must discuss with management / take appropriate action if auditor becomes aware of events that require adj / disclosures.
