Module - 21 - Audit Process: Completion

Question 1

Before the auditor begins to prepare the audit report. It is important that…

Answer 1

Sufficient, appropriate evidence on which to base the opinion has been collected

Question 2

At completion, what will the auditor do? (In terms of materiality)

Answer 2

Calculate reporting materiality based on the financial statement figures

Evaluate whether sufficient, appropriate evidence has been gathered

Evaluate the effect of unadjusted misstatements identified by the auditor

Question 3

At completion, the auditor will do what? (In terms of going concern)

Answer 3

Evaluate the directors assessment of the entity’s ability to continue as a going concern, including whether any material uncertainties exist

Consider the impact of this evaluation on the audit report

Question 4

At completion, the auditor will do what? (In terms of overall analytical review)

Answer 4

Carry out analytical procedures to determine:

Whether the financial statements as a whole are consistent with the auditors understanding of the entity

There are no obvious inconsistencies between the final version of the financial statements and the evidence gathered

Question 5

At completion, the auditor will do what? (In terms of subsequent events)

Answer 5

Perform procedures designed to obtain evidence that all events up to date of audit report that require adjustments or disclosure have been identified and reflected in financial statements

Question 6

At completion, the auditor will do what? (In terms of management representation letters)

Answer 6

Those charged with governance acknowledge their collective responsibilities

Required by other ISAs (UK)

To support other audit evidence

Question 7

Reporting materiality definition

Answer 7

The final overall materiality level calculated at the completion stage using the finalised financial statement numbers

Question 8

What tasks does the completion stage involve?

Answer 8

Materiality recalculation and assessment of misstatements

Going concern assessment

Overall analytical review of financial statements

Subsequent events review

Management representation letters

Engagement and client management

Audit report issued

Question 9

What is the Summary of Audit Misstatements (‘SAM’):

Answer 9

A summary document containing all misstatements (adjusted and unadjusted) identified throughout the audit, other than those considered to be clearly trivial

Question 10

Should all material misstatements be adjusted for by the entity?

Answer 10

Yes

Question 11

Are immaterial errors corrected at the discretion of the entity?

Answer 11

Yes

Unless, if, in aggregate, the total of immaterial misstatements is above materiality

Question 12

Directors responsibilities in relation to going concern:

Answer 12

Preparing financial statements - and therefore, making an assessment whether the entity is a going concern or not

Disclosing any material uncertainties in relation to going concern

Disclosing if the company has not prepared the financial statements on a going concern basis of accounting

Question 13

Auditors responsibilities in relation to going concern:

Answer 13

Obtaining sufficient, appropriate audit evidence and concluding on, the appropriateness of managements use of the going concern basis of accounting

Concluding on whether a material uncertainty exists about the entity’s ability to continue as a going concern

(In meeting these, the auditor will evaluate the directors assessment of the entity’s ability to continue as a going concern)

Question 14

The ISA (UK) 520 Analytical Procedures states the auditor must do what?

Answer 14

Carry out analytical procedures during completion to determine whether the financial statements as a whole are consistent with the auditors understanding of the entity

The auditor must be satisfied there are no obvious inconsistencies in the final version of the financial statements and that evidence gathered if sufficient and appropriate to meet the assertions

Question 15

When doing analytical procedures at completion, what happens where the are unusual or unexpected results?

Answer 15

These should be investigated and corroborated by obtaining additional evidence to ensure that sufficient, appropriate audit evidence is obtained

Question 16

Can subsequent events impact the truth and fairness of financial statements?

Answer 16

Yes

Question 17

What does ISA (UK) 560 require?

Answer 17

The auditor to be alert for any events occurring after the year-end date

Question 18

Directors responsibilities in relation to subsequent events:

Answer 18

Undertake the subsequent events review and reflect any necessary adjustments or disclosure as part of their preparation of the financial statements

Question 19

Auditor responsibilities in relation to subsequent events

Answer 19

Perform procedures designed to obtain sufficient appropriate evidence that all events up to the date of the audit report that require adjustment or disclosure have been identified and appropriately reflected in the financial statements

Question 20

Auditor procedures in relation to subsequent events will include:

Answer 20

Understanding of any procedures management have established to subsequent events

Enquiring to relevants (eg management) as to whether any subsequent events have occurred which may impact the financial statements

Reviewing minutes of all shareholder and board meetings

Reviewing post year-end management accounts

Requesting details of pending litigation from company lawyers (and obtaining written representations from management regarding subsequent events

Question 21

ISA (UK) 580 requires what?

Answer 21

The auditor to obtain written statements that management has fulfilled their responsibilities for the preparation of the financial statements

Question 22

There are three main areas requiring representation (representation letter)

Answer 22

Audit evidence that those charged with governance acknowledge their collective responsibility for the preparation of the financial statements

Required representations by other ISAs

Representation to support other audit evidence obtained during the audit of the financial statements

Question 23

Audit evidence that those charged with governance acknowledge their collective responsibility for the preparation of the financial statements includes:

Answer 23

Responsibility for preparation of the financial statements

Responsibility for making all records and information available to the auditor

That all transactions have been recorded and are reflected in the financial statements

Question 24

(Management representation letter) Required representations by other ISAs (UK)

Answer 24

ISA (UK) 560 - Subsequent Events - management confirms that adjustment or disclosure has been made for any relevant subsequent events

ISA (UK) 450 - Evaluation of Misstatements identified during the audit - management confirm that they believe that the effects of the y corrected misstatements identified by the auditor during the audit are immaterial, both individuals and in aggregate

Question 25

Who are management representation letters from?

Answer 25

From management to the auditor

Question 26

Are management representation letters a substitute for other available audit evidence?

Answer 26

No

Question 27

Written representations from management will often be in relation to matters material to the financial statements. In what scenario is it used over audit evidence?

Answer 27

When other sufficient, appropriate audit evidence cannot reasonably be expected to exist

Question 28

Commonly, when are additional management representations sought?

Why?

Answer 28

Where the only evidence that has been obtained is oral

Because the possibility of misunderstanding is reduced when oral representations are confirmed in writing

Question 29

When should the management representation letter be dated?

Answer 29

As at the date of the audit report

And obtained immediately before the audit report is signed (as it forms part of the evidence on which the audit opinion is based)