Lecture 9 - Sem 2 - Audit completion

Question 1

Before finalising the audit report, you need to consider

additional issues that may affect the financial statements. These are:

Answer 1

A. Subsequent events, also called post-balance sheet events
B. Provisions and Contingencies
C. Evaluation of misstatements
D. Management Representations
E. Audit Documentation and final check
F. Going Concern concept (considered throughout audit)

Question 2

ISA 10 - Subsequent events are….

Answer 2

Events occurring between the balance sheet date and the date when financial statements are authorised for issue

Question 3

Adjusting events (ISA 10) are….

Answer 3

Those that provide evidence of conditions that existed at the end of the reporting period

Question 4

Non-adjusting events (ISA 10) are…..

Answer 4

Those that are indicative of conditions that arose

after the reporting period

Question 5

When reviewing subsequent events, auditors need to…

Answer 5

A. Know if they are adjusting or non-adjusting events, then:
B. Consider the following periods to decide evidence to be collected and how to respond:
(i) Events occurring between the date of the financial statements (directors) and the date of the audit report (auditor)
(ii) Facts that become known to the auditor after the date of the auditor’s report but before the date the financial statements are issued
(iii) Facts that become known to the auditor after the financial statements have been issued

Question 6

As an auditor, you will want to obtain evidence to be

reasonably assured that the provisions (and contingencies) are…..

Answer 6

‘Genuine’, ‘accurate’ and ‘complete’

Question 7

Provision =

Answer 7

A liability of uncertain timing or amount

Question 8

Contingent Liability is…..

Answer 8

(a) A possible obligation arising from past events and whose existence will only be confirmed by the occurrence of one or more uncertain future events, not wholly within the control of the entity, or
(b) A present obligation, but payment is not probable or the amount cannot be measured reliably.

Question 9

Contingent Asset is……

Answer 9

a) A possible asset that arises from past events, and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events
(b) Not wholly within the control of the entity

Question 10

According to the IAS 37, future events can be classed into three ways:

Answer 10

1)Probable -The future event is likely to occur and
can be measured. There is therefore an existing obligation/asset that is uncertain (i.e.it is not contingent)

2) Neither probable or remote - The chance of the future event occurring is less than probable but more than remote
3) Remote - The chance of the future event occurring is slight

Question 11

A misstatement is -

Answer 11

The difference in the amount, classification, presentation or disclosure of a reported financial statement item and what it should be to comply with the applicable financial reporting framework.

• Factual misstatements
• Judgemental misstatements
• Projected misstatements

Question 12

What to do if you find a misstatement?

Answer 12

-Are they material or, if taken together, cumulatively would have a material impact on the financial statements?
Keep a record of errors/evaluate aggregate of misstatements.
Are changes needed to the financial statements – discuss with management.
Do you have to revisit the scope of the audit work done?
Are there matters discovered that need to be raised with third parties and not with management (e.g. illegal acts by management).

Question 13

ISA 580 - Management’s letter of representation is….

Answer 13

To obtain written representations from management that they believe that they have fulfilled their responsibility for the preparation of the financial statements and for the completeness of the information to the auditor

Question 14

ISA 230 - Audit documentation - Objective

Answer 14

• Sufficient and appropriate record of the basis for the auditor’s report.
• Evidence that the audit was planned and performed in accordance with ISAs and applicable legal and regulatory framework.
• Increase efficiency and effectiveness of audit.

Question 15

Basic rule of audit documentation:

Answer 15

Sufficient for experienced auditor to understand

Question 16

Final review of the audit - One last check involves….

Answer 16

a) All routine matters dealt with – no outstanding matters in the audit documentation
b) All important matters have been covered
c) Financial statements reviewed – as a whole show a true and fair view

Question 17

The going concern concept involves:

Answer 17

• Financial statements are prepared on the assumption that the audited entity will continue to operate for the foreseeable future.
• Therefore, assets and liabilities are recorded on the basis that the entity will be able to realise its assets and discharge its liabilities in the normal course of business

Question 18

Responsibility of Management: Going concern

Answer 18

• Determine appropriateness of using the GC concept to prepare the financial statements.
• To assess the entity’s ability to continue as a GC.
• Make judgement about inherently uncertain future events or conditions.

Question 19

Responsibility of Auditor: Going concern

Answer 19

• Obtain sufficient appropriate audit evidence and conclude on appropriateness of management’s use of the GC assumption.
• Conclude on whether there is material uncertainty over the entity’s ability to continue as a GC.
• The auditor cannot predict future events, therefore absence to reference of material uncertainty in the audit report cannot be viewed as a guarantee the entity is a GC