Chapter 10 - Audit completion Flashcards
Financial Statement Review:
At the end of an audit, the audit engagement partner needs to review the final F/S and do two checks.
What are they?
Compliance check
Sense check
Financial Statement Review:
What is a compliance check?
Use checklist to determine disclosures have been made properly
Financial Statement Review:
What is a sense check?
Use analytic procedures
Interpretation - look at absolute figures/risks
Investigation - unusual movements/numbers should have been identified as audit risk, so answers should be in wps
Corroboration - if no answers in wps, do more work
Evaluation of misstatements:
Which ISA requires auditors to accumulate misstatements during the audit, unless they are trivial?
ISA 450
Evaluation of misstatements:
After accumulating misstatements, what should the auditor do?
Talk to management
Get written representation that uncorrected mistakes are immaterial
Are the uncorrected misstatements material - individually or aggregate?
Reassess materiality
Opening balances:
What is the problem with misstated opening balances?
Current year F/S might be misstated too
Opening balances:
If it is a recurring engagement (you audited last years F/S), what do you do?
Check last year’s audited balances have been correctly b/f
Opening balances:
If you did NOT audit last years F/S, what do you do?
Agree b/f to last year F/S
Check correct accounting policy applied to b/f
Perform one of:
- review auditor wps from last year
- consider if this year’s audit tests provide evidence over opening balance
- perform specific procedures on opening balances
Comparatives:
Which ISA requires auditor to obtain sufficient evidence that the comparative figures are true and fair?
ISA 710
Comparatives:
What should the auditor do if last year’s F/S has material misstatement that was unresolved?
Consider the need to modify this year’s audit opinion
Going concern:
F/S are prepared on going concern basis, unless ……………………………………
Management is going to liquidate the company
Cease operations
Has no realistic alternative
Going concern:
What are the accounting requirements if going concern?
Disclose in F/S
Going concern:
What are the accounting requirements if NOT going concern?
F/S prepared on liquidation/break up basis
- No long term assets/liabilities
- Assets valued at recoverable amount
- Provisions required for new costs eg: redundancies
Audit issues regarding going concern:
Auditor responsibility?
Obtain sufficient appropriate evidence that management has made the right assumption about going concern.
Consider at all stages of audit
Audit issues regarding going concern:
Acceptance?
High risk if unlikely to continue business
consider carefully if want to commit to this client
Audit issues regarding going concern:
Planning?
When performing procedures, is there any doubt about going concern?
Audit issues regarding going concern:
Evidence?
Obtain to determine if material uncertainty
Evidence such as:
- Review of future plans (financial forecasts)
- Review borrowing facilities (would loan convenant be breached?)
- Review board meetings
Audit issues regarding going concern:
Reporting?
might have to modify audit report
Subsequent events:
What are the two types?
Adjusting
Non adjusting
Subsequent events:
What are ADJUSTING events and what action should be taken?
Provide evidence of conditions that existed at the date of F/S
F/S should be adjusted
Subsequent events:
What are NON-ADJUSTING events and what action should be taken?
Provide evidence of conditions after date of F/S
Disclose, only adjust if going concern affected
What should the auditor do between year end and sign off?
Active duty to identify events that need adjustment/disclosure
Management representation that this has been done
What should the auditor do after sign off?
Identified adjusting events need to be discussed with directors and ask to amend F/S
If do not amend F/S - consider withdrawing audit report
If directors do not allow to withdraw audit report (distribute F/S with original audit report)
- seek legal advice
- right to speak at AGM
- consider resignation = call EGM
