SU 10 completing the audit

Question 1

What is the standard for audit documentation required

Answer 1

Must be enough that an experienced auditor would know what had been done

Question 2

who do the work papers belong to

Answer 2

the auditor

Question 3

Large accelerated filer

Answer 3

$700 million + in market value of common equity (voting and non-voting held by non-affiliates)

Question 4

Accelerated filer

Answer 4

more than $75 million but less than $700 million in market value of common equity (voting and non-voting held by non-affiliates)

Question 5

Non-Accelerated filer

Answer 5

less than $75 million in market value of common equity (voting and non-voting held by non-affiliates)

Question 6

Audit report/ 10-K deadlines

Answer 6

Days from fiscal year-end
Large accelerated filer: 60 days
Accelerated Filer: 75 days
Non-accelerated filer: 90 days

Question 7

Audit file assembly completion deadline

Answer 7

Public company audit, 45 days after report release date. 60 days for private company audits

Question 8

audit file Retention requirements

Answer 8

Public company: 7 years
private company: 5 years (or as specified by state board)

Question 9

Lead schedules

Answer 9

summaries of detailed schedules

Question 10

Important audit documents

Answer 10

• working trial balance
• lead schedules
• permanent files
• current files
• Significant findings

Question 11

date of management representation letter

Answer 11

audit report date

Question 12

What is required in the management representation letter

Answer 12

material matters only (or those deemed important by the auditor)

Question 13

What should an auditor do if the management refuses to sign a representation letter

Answer 13

Creates a scope limitation - can only do qualified or disclaimed opinion
may cause auditor to question management integrity –> withdraw

Question 14

What is the management letter

Answer 14

written by the auditor, delivered to the audit committee with constructive comments. Essentially a value added service

Question 15

What goes in the management letter

Answer 15

• appropriateness of significant accounting policies
• processes used by management for developing estimates
• difficulties encountered during the audit
• disagreements with management
• other significant findings/ issues
• uncorrected misstatements
• corrected misstatements
• business conditions affecting the entity
• consultations with other accountants
• a copy of any written representation requested from management

Question 16

Purpose of inquiry to client’s lawyer

Answer 16

looking for any litigation with potential material impact on financial

Question 17

Contingency disclosure levels

Answer 17

• Probable (must include in balance sheet liabilities)
• Reasonably possible (must disclose in notes)
• Remote (no disclosure required)

Question 18

What information should be collected regarding pending/ threatened litigation

Answer 18

• nature of matter
• probability of loss
• disagreements with management information
• an explanation for any limited responses
• existence of any reasonably possible new litigation

Question 19

Name for inquiry to client’s lawyer

Answer 19

Letter of audit inquiry

Question 20

Result of layer’s refusal to answer letter of audit inquiry

Answer 20

Complete refusal creates a scope limitation and requires a qualified or disclaimed opinion

not all limitations on information are refusals, some withheld info okay/ some predictions not possible

Question 21

Risk assessment/ risk response procedures to evaluate risk of other contingent losses

Answer 21

• Confirming information with financial institutions
• inspecting minutes of BoD meetings
• inspecting contracts, leases, correspondence from gov’t agencies
• inspecting tax returns/ IRS correspondence
• inquiring of management regarding completeness of recorded liabilities
• inquiring of client’s legal counsel

Question 22

what must be considered in the final audit evaluations

Answer 22

Must do a final evaluation of
- materiality
- misstatements
- potential of fraud

• final analytical procedure of the final review findings
• quality review of entire engagement

Question 23

Types of misstatements to consider in final review

Answer 23

• identified vs likely
• uncorrected vs corrected
• material vs immaterial
• quantitative vs qualitative

Question 24

What is the time frame for going concern considerations

Answer 24

one year beyond the date the financial statements are available to be issued (evaluation period)

Question 25

Potential conditions and events might signal a going concern issue

Answer 25

• negative trends
• financial difficulties
• internal matters (labor, long term commitments, failed major projects)
• external conditions (litigation, regulation changes, major losses of resources/clients, natural catastrophes)

Question 26

Audit procedures that could flag going concern issues

Answer 26

• analytical procedures during risk assessment
• review of subsequent events
• review of compliance with terms of debt and loan agreements
• reading the minutes of meetings of stockholders, BoD, other important committees
• inquiry of the client’s legal counsel
• confirmation with related parties/ third parties of the details of arrangements to provide or maintain financial support

Question 27

Management plans that may mitigate going concern issues

Answer 27

• asset disposals (potential to recoup)
• borrowing or debt restructuring
• expenditure reduction/delays
• equity increases (capital investments)
• Evidence documented & evaluated

Question 28

Auditor’s actions if not satisfied with management’s plans to mitigate issues

Answer 28

include emphasis-of-matter paragraph regarding the going concern and document all facts and considerations leading to the decision

Question 29

What should be communicated with the audit committee when there is a going concern issue

Answer 29

• nature of condition and events
• financial statement effects
• adequacy of disclosure
• audit report effects

Question 30

What is the subsequent period

Answer 30

Period after the balance sheet date but before the audit report date (end of fieldwork)

Question 31

Types of subsequent period information

Answer 31

1) facts that existed at balance sheet data that have a material impact
2) events or facts that arise after the balance sheet date

Question 32

what response is required for discovered facts that existed at balance sheet date with material impact

Answer 32

adjust financial statements

Question 33

What response is required for discovered events that arose after the balance sheet date

Answer 33

Disclose in notes

Question 34

Procedures for facts discovered after the report date that existed at the report date

Answer 34

• determine if information is reliable and material
• revise financial statements if effects are known
• include disclosure on subsequent financial statement

Question 35

What if client refuses to disclose facts discovered that existed at the report date

Answer 35

• prevent reliance on the audit report
• notify each member of the client’s board (Right to use audit report with financial statements rescinded)
• notify regulatory agencies
• notify users of financial statements (if possible)

Question 36

Procedure if discover audit procedures were omitted after the report date

Answer 36

• assess if the audit opinion is still supported
  - if yes, just document other procedures that cover what was omitted
  -if no, complete the omitted or alternative testing if possible.
  
  • if can’t do testing consult attorney