Lecture 9: Completion & review and The audit report Flashcards
Define subsequent events.
Events occurring between the date of financial report and the date of auditor’s report,
and facts that became known to the auditor after the date of the auditor’s report that may have caused the auditor to amend the audit report
Differentiate between the timing of the 3 different periods.
Period 1
- between balance date and audit report sign off
Period 2
- between date audit report is signed and date financial report is issued
Period 3
- after financial report is issued
What are the responsibilities of the auditor in period 1?
To discover and evaluate all subsequent events that may have a material effect on the financial statements
What are the responsibilities of the auditor in period 2?
Examine only facts that come to their attention, that may have caused them to amend the audit report if they had known them at the date of the audit report
What are the audit procedures required for period 1? (5)
Enquire of management
Review management procedures to identify subsequent events
Examine minutes of meetings held after year-end
Examine management reports, budgets and forecasts
Enquire of auditee’s lawyers
What are the main audit procedures required in period 2? (3)
Discuss issue with management or board
Determine if financial report should be amended
Enquire how management intends to address the issue
In period 2, what are the procedures required by the auditor if management amends the financial report? (3)
Undertake appropriate audit procedures
Extend period 1 procedures
Provide a new audit report
In period 2, what is the procedure required by the auditor if management refuses to amend the financial report?
Modify their audit opinion to prevent reliance on the financial report
What is an adjusting event in relation to subsequent events?
A subsequent event due to circumstances that existed at balance date
What is a disclosing event in relation to subsequent events?
A subsequent event that is not related to circumstances at balance date
- ie. circumstances changed after balance date
What are 3 examples of an adjusting event?
Debtor becomes bankrupt after balance date due to deteriorating business conditions that existed before balance date
Settlement of litigation for amount different to that recorded in books
Determination after reporting date of the proceeds of an asset sale or the cost of an asset purchased
What are 3 examples of a disclosing event?
Debtor becomes bankrupt due to suffering an uninsured loss after balance date
Uninsured loss of inventories from fire after balance date
Major currency realignment after balance date
What is the purpose of obtaining a Management Representation Letter? (4)
Confirm oral representations made by management
Document the continuing appropriateness of the representations
Reduce misunderstandings regarding the representations
Acknowledge management’s responsibility for presentation of the financial statements
List the issues covered in a management representation letter. (6)
Financial statements prepared in accordance with applicable accounting framework
Significant assumptions and estimates are reasonable
Related party issues appropriately disclosed
Subsequent events properly dealt with
Uncorrected misstatements are not material
Necessary disclosures were made
What is the purpose of a Solicitor’s representation letter? And what are the 3 things it identifies?
Comprehensive, reliable evidence of claims by and against auditee Identifies - legal matter - likelihood of gain / loss - estimated $ amount
