SU 10 completing the audit Flashcards
What is the standard for audit documentation required
Must be enough that an experienced auditor would know what had been done
who do the work papers belong to
the auditor
Large accelerated filer
$700 million + in market value of common equity (voting and non-voting held by non-affiliates)
Accelerated filer
more than $75 million but less than $700 million in market value of common equity (voting and non-voting held by non-affiliates)
Non-Accelerated filer
less than $75 million in market value of common equity (voting and non-voting held by non-affiliates)
Audit report/ 10-K deadlines
Days from fiscal year-end
Large accelerated filer: 60 days
Accelerated Filer: 75 days
Non-accelerated filer: 90 days
Audit file assembly completion deadline
Public company audit, 45 days after report release date. 60 days for private company audits
audit file Retention requirements
Public company: 7 years
private company: 5 years (or as specified by state board)
Lead schedules
summaries of detailed schedules
Important audit documents
- working trial balance
- lead schedules
- permanent files
- current files
- Significant findings
date of management representation letter
audit report date
What is required in the management representation letter
material matters only (or those deemed important by the auditor)
What should an auditor do if the management refuses to sign a representation letter
Creates a scope limitation - can only do qualified or disclaimed opinion
may cause auditor to question management integrity –> withdraw
What is the management letter
written by the auditor, delivered to the audit committee with constructive comments. Essentially a value added service
What goes in the management letter
- 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
Purpose of inquiry to client’s lawyer
looking for any litigation with potential material impact on financial
Contingency disclosure levels
- Probable (must include in balance sheet liabilities)
- Reasonably possible (must disclose in notes)
- Remote (no disclosure required)
What information should be collected regarding pending/ threatened litigation
- nature of matter
- probability of loss
- disagreements with management information
- an explanation for any limited responses
- existence of any reasonably possible new litigation
Name for inquiry to client’s lawyer
Letter of audit inquiry
Result of layer’s refusal to answer letter of audit inquiry
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
Risk assessment/ risk response procedures to evaluate risk of other contingent losses
- 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
what must be considered in the final audit evaluations
Must do a final evaluation of
- materiality
- misstatements
- potential of fraud
- final analytical procedure of the final review findings
- quality review of entire engagement
Types of misstatements to consider in final review
- identified vs likely
- uncorrected vs corrected
- material vs immaterial
- quantitative vs qualitative
What is the time frame for going concern considerations
one year beyond the date the financial statements are available to be issued (evaluation period)
Potential conditions and events might signal a going concern issue
- 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)
Audit procedures that could flag going concern issues
- 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
Management plans that may mitigate going concern issues
- asset disposals (potential to recoup)
- borrowing or debt restructuring
- expenditure reduction/delays
- equity increases (capital investments)
- Evidence documented & evaluated
Auditor’s actions if not satisfied with management’s plans to mitigate issues
include emphasis-of-matter paragraph regarding the going concern and document all facts and considerations leading to the decision
What should be communicated with the audit committee when there is a going concern issue
- nature of condition and events
- financial statement effects
- adequacy of disclosure
- audit report effects
What is the subsequent period
Period after the balance sheet date but before the audit report date (end of fieldwork)
Types of subsequent period information
1) facts that existed at balance sheet data that have a material impact
2) events or facts that arise after the balance sheet date
what response is required for discovered facts that existed at balance sheet date with material impact
adjust financial statements
What response is required for discovered events that arose after the balance sheet date
Disclose in notes
Procedures for facts discovered after the report date that existed at the report date
- determine if information is reliable and material
- revise financial statements if effects are known
- include disclosure on subsequent financial statement
What if client refuses to disclose facts discovered that existed at the report date
- 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)
Procedure if discover audit procedures were omitted after the report date
- 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
