Chapter 12 - Audit completion Flashcards
At the audit completion stage, what are the main responsibilities of the engagement partner?
At the audit completion stage, the engagement partner has overall responsibility for finalising the audit and forming the audit opinion. Their main responsibilities include:
- Reviewing the audit file – To ensure that sufficient appropriate audit evidence has been obtained and documented throughout the engagement.
- Resolving final judgemental issues – Assessing and making final decisions on complex matters requiring professional judgement, such as materiality, estimates, or uncorrected misstatements.
- Confirming compliance with auditing standards – Ensuring the audit was conducted in accordance with ISA requirements and firm policies.
- Considering the work done – The partner’s will review as to whether the work performed was in line with the audit plan, whether enough audit work was completed, and that any issues arising during the audit have been adequately resolved
- Evaluating the adequacy of disclosures – Checking that the financial statements include all required and appropriate disclosures.
- Reviewing audit conclusions and documentation – Verifying that conclusions drawn are supported by the audit evidence and that the file is complete.
- Evaluating discovered errors – Assessing the nature and significance of any identified misstatements and whether they are material individually or in aggregate.
- Ensuring opening balances and comparatives are correct – Especially for first-year audits or continuing engagements, verifying that prior period figures and balances have been appropriately brought forward.
- Assessing going concern and subsequent events – Reviewing the final going concern assessment and considering any post-year-end events that may impact the financial statements.
- Obtaining necessary management representations – Acquiring signed written representations from management to confirm key matters such as the completeness of information provided and responsibility for estimates.
- Signing off the auditor’s report – Taking personal responsibility for signing the audit opinion once satisfied with the work performed and evidence gathered.
While ideally this stage should be smooth—especially if the audit was well planned and executed—the partner still plays a crucial role in making final judgements and ensuring audit quality.
How will engagement partners usually ensure the financial statements comply with auditing standards?
Engagement partners typically ensure compliance with auditing and disclosure standards by using a standardised disclosure checklist. These checklists are designed to cover all requirements of the Companies Act and the relevant accounting standards (such as IFRS or UK GAAP).
These checklists are usually included in the firm’s audit packs and serve as a systematic tool to confirm that all necessary disclosures have been made in the financial statements. By reviewing this checklist, the engagement partner can verify that the financial statements are complete, accurate, and fully compliant before signing off the audit report.
What are the engagement partners responsibilities when errors or misstatements are discovered during the audit?
- Communicate all misstatements to management promptly and request adjustments.
- Review any adjustments made by management.
- If misstatements remain uncorrected, reassess materiality to determine if they are material individually or in aggregate.
- Obtain management’s explanation for not adjusting errors.
- Ensure that management acknowledges any uncorrected, immaterial misstatements in the written representation letter.
What are the engagement partners responsibilities when opening balances are unaudited or audited by a different firm?
In an initial audit or when the prior year was audited by another firm, the engagement partner must ensure that sufficient and appropriate audit evidence is obtained over the opening balances to avoid misstatement of the current year’s financial statements. Key responsibilities include:
- Assessing the risk of material misstatement – Opening balances may contain errors that impact the current period; the partner must evaluate how this risk affects audit planning and evidence needs.
- Ensuring compliance with ISA 510 (UK) – The audit must address whether opening balances are free from material misstatement, whether accounting policies are consistent, and whether any changes have been adequately disclosed.
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Directing audit procedures to obtain evidence, including:
- Verifying prior closing balances – Ensuring last year’s audited closing figures have been correctly carried forward.
- Reviewing accounting policies – Confirming that the same policies have been applied unless changes are justified and disclosed.
- Performing specific audit tests – Applying procedures (e.g. reviewing transactions, balances, reconciliations) to validate the opening balances.
GOING CONCERN
What is meant by subsequent events?
Events related to the entity that occur after the end of the reporting period but before the financial statements are authorized for issue (signed)
What are the two types of subsequent events? Define each and Define adjusting events and their accounting treatment
- Adjusting events are events that provide additional evidence of conditions that existed at the end of the reporting period. When an adjusting event occurs, it should be reflected in the financial statements by adjusting the amounts recognized and adequate disclosures made.
- Non-adjusting events are events that are indicative of conditions that arose after the reporting period. When a non-adjusting event occurs, it does not need to be reflected in the financial statements but disclosed in a note to the financial statements.
What is important to remember about non-adjusting events with regards to going concern?
If a non-adjusting event impacts an entity’s ability to continue as a going concern it is ALWAYS an adjusting event.
What are the auditor’s responsibilities for considering subsequent events from the balance sheet date up to and beyond the signing of the audit report?
Between the Balance Sheet Date and the Auditor’s Report (Active Duty Period)
During this period, the auditor has an active responsibility to identify and evaluate subsequent events that may affect the financial statements. This includes:
* Reviewing management’s procedures for identifying subsequent events.
* Reading minutes from board and committee meetings.
* Reviewing post-year-end financial data, forecasts, and latest budgets.
* Assessing legal correspondence, especially involving claims or litigation.
* Considering disclosures and estimates affected by new information.
* Deciding whether to adjust or disclose events, and whether the auditor’s report needs to be amended.
After the Auditor’s Report but Before the Financial Statements Are Issued (No Active Duty, But Response Required if Facts Arise)
In this period, the auditor has no active obligation to search for new information, but must respond if they become aware of a material fact that existed at the report date.
* Discuss the matter with management and assess whether the financial statements need to be adjusted.
- If correct adjustments are made:
* Audit the adjustments
* Reissue the auditor’s report with a new date
- If no adjustment or incorrect adjustment is made:
* Reissue the auditor’s report with a modification
After the Financial Statements Are Issued (Still No Active Duty, But Response Required if Material Facts Arise)
Here again, there is no duty to actively seek new facts, but if the auditor becomes aware of material misstatements or events that require correction:
* Discuss with management the need to withdraw or amend the financial statements.
- If correct adjustments are made:
* Audit and reissue the report with a new date
- If adjustments are not made or are incorrect:
* Consider modifying the report
* Seek legal advice and explore the possibility of withdrawing the audit report to avoid liability
What is the engagement partner’s responsibility regarding written representations, and why are they important?
The engagement partner is responsible for ensuring that the audit team obtains appropriate written representations from management as part of the audit evidence.
This is necessary because in certain areas evidence is not available from other sources the facts are only known to management or the matter involves management judgement or opinion.
At the completion stage of the audit, the partner must ensure that awritten representation letter is prepared and signed by the company’s directors before the audit report is signed.
Although written representations support audit conclusions, the engagement partner must remember that this form of evidence is not sufficient or appropriate on its own—it must be corroborated with other audit procedures.
What must a qritten representation letter contain?
A written representation letter must be signed by management (typically the directors) and must confirm the following:
* That management is responsiblefor preparing the financial statements in accordance with the applicable financial reporting framework.
* That all relevant information has been provided to the auditor, including access to records, documentation, and other matters requested.
* That all transactions have been recorded and are reflected in the financial statements.
Additional representations may also be included, depending on the specific circumstances of the audit, particularly when:
* The matter involves judgement or opinion
* The auditor is unable to obtain evidence from other sources.
