Chapter 10 - Audit completion

Question 1

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?

Answer 1

Compliance check

Sense check

Question 2

Financial Statement Review:

What is a compliance check?

Answer 2

Use checklist to determine disclosures have been made properly

Question 3

Financial Statement Review:

What is a sense check?

Answer 3

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

Question 4

Evaluation of misstatements:

Which ISA requires auditors to accumulate misstatements during the audit, unless they are trivial?

Answer 4

ISA 450

Question 5

Evaluation of misstatements:

After accumulating misstatements, what should the auditor do?

Answer 5

Talk to management

Get written representation that uncorrected mistakes are immaterial

Are the uncorrected misstatements material - individually or aggregate?

Reassess materiality

Question 6

Opening balances:

What is the problem with misstated opening balances?

Answer 6

Current year F/S might be misstated too

Question 7

Opening balances:

If it is a recurring engagement (you audited last years F/S), what do you do?

Answer 7

Check last year’s audited balances have been correctly b/f

Question 8

Opening balances:

If you did NOT audit last years F/S, what do you do?

Answer 8

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

Question 9

Comparatives:

Which ISA requires auditor to obtain sufficient evidence that the comparative figures are true and fair?

Answer 9

ISA 710

Question 10

Comparatives:

What should the auditor do if last year’s F/S has material misstatement that was unresolved?

Answer 10

Consider the need to modify this year’s audit opinion

Question 11

Going concern:

F/S are prepared on going concern basis, unless ……………………………………

Answer 11

Management is going to liquidate the company

Cease operations

Has no realistic alternative

Question 12

Going concern:

What are the accounting requirements if going concern?

Answer 12

Disclose in F/S

Question 13

Going concern:

What are the accounting requirements if NOT going concern?

Answer 13

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

Question 14

Audit issues regarding going concern:

Auditor responsibility?

Answer 14

Obtain sufficient appropriate evidence that management has made the right assumption about going concern.

Consider at all stages of audit

Question 15

Audit issues regarding going concern:

Acceptance?

Answer 15

High risk if unlikely to continue business

consider carefully if want to commit to this client

Question 16

Audit issues regarding going concern:

Planning?

Answer 16

When performing procedures, is there any doubt about going concern?

Question 17

Audit issues regarding going concern:

Evidence?

Answer 17

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

Question 18

Audit issues regarding going concern:

Reporting?

Answer 18

might have to modify audit report

Question 19

Subsequent events:

What are the two types?

Answer 19

Adjusting

Non adjusting

Question 20

Subsequent events:

What are ADJUSTING events and what action should be taken?

Answer 20

Provide evidence of conditions that existed at the date of F/S

F/S should be adjusted

Question 21

Subsequent events:

What are NON-ADJUSTING events and what action should be taken?

Answer 21

Provide evidence of conditions after date of F/S

Disclose, only adjust if going concern affected

Question 22

What should the auditor do between year end and sign off?

Answer 22

Active duty to identify events that need adjustment/disclosure

Management representation that this has been done

Question 23

What should the auditor do after sign off?

Answer 23

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