Chapter 10 - Audit completion

Question 1

Two ways to review financial statement:

Answer 1

1. compliance check
2. sense check

Question 2

Compliance check

Answer 2

Checklist to ensure everything is there

Question 3

Sense check

Answer 3

Conclusions reached match financial statements

Question 4

Why should an auditor use analytical procedures?

Answer 4

• Interpretation - the financial statements should be reviewed, considering absolute figures and ratios
• Investigation - unusual movements or numbers should have been identified as audit risks so the answers to questions should be in the audit working papers
• Corroboration - if answers cannot be found in working papers then further work is required

Question 5

The auditor should accumulate misstatement identifies during the audit and:

Answer 5

1. Inform management
2. Reassess materiality
3. Determine whether uncorrected misstatements are material, individually or in aggregate
4. Seek written representations from management to confirm that the effect of uncorrected misstatements is immaterial

Question 6

Rule for opening balances:

Answer 6

• Opening balances must match p/y closing balances
• If opening balances are misstated, then the financial statements for the current year may also be misstated

Question 7

Opening balance for current engagement:

Answer 7

checking last year audited balances have correctly been brought forward

Question 8

Opening balances
If auditor didn’t audit last year’s financial statements

Answer 8

• Agree b/f figures to last year financial statements
• Assess accounting policies have been appropriately applied to opening balances
• Perform at least one:
  1. review previous auditors working papers
  2. consider whether this years audit procedures provide evidence over opening balances
  3. Perform specific procedures on opening balances

Question 9

Subsequent events

Answer 9

• Adjusting events
• Non-adjusting events

Question 10

Adjusting events and examples

Answer 10

• Provide evidence of conditions existing at the date of the financial statements
• The financial statements should be adjusted

Examples
- Resolution of a court case
- Major customer enters liquidation
- Evidence of NRV of inventory
- Discovery of fraud or error

Question 11

Non adjusting events and examples

Answer 11

Provide evidence of conditions arising after the date of financial statements
- If material, the event should be disclosed (adjust only if going concern status affected)

Examples
- Destruction of an asset by fire
- Dividends declared after the year end
- Announcement of plan to close part of the business

Question 12

Active duty

Answer 12

Between year end and auditors report signed

Perform procedures to ensure subsequent events have been account for properly

Written representations that all subsequent events adjusted/disclosed

Carry out procedures to find things/events

Question 13

Passive duty

Answer 13

Between Auditor’s report signed and financial statements issued

No obligation to perform procedures but must discuss with management/take appropriate action if they become aware of events which require adjustment/disclosure