W16 Completion and Review Flashcards
What are the procedures an auditor must perform before they can sign the auditors report
Subsequent events
Going concern
Overall review of the financial statements
Evaluation of misstatements
Written representations
What are subsequent events
an event occurring between the date of the financial statement and the date of the auditor’s report
the auditor must obtain sufficient appropriate audit evidence between these dates that require adjustments or disclosure and are appropriately reflected in accordance with the applicable financial reporting framework
What are the two types of subsequent events
Adjusting
Non-adjusting
What are adjusting events
Provide additional evidence relatiing to conditions that existed at the reporting date
Provide new information about items included in the financial statements
What are non adjusting events
Non-adjusting events concern conditions which arose after the reporting date
If material, disclosure is required in the notes to the financial statements indicating what effect the events might have
Auditors responsibilities in relation to subsequent events
Auditors have an active duty between year-end and auditors signed report to perform procedures to determine whether subsequent events have been accounted for appropriately
Auditors have a passive duty between auditors signed report and financial statements issued to perform procedures but they have no obligation but must take action of they become aware of events that would cause a modified opinion.
What is going concern
The assumption that the entity will continue in business for the foreseeable future (generally a minimum of 12 months from the year end)
Why is going concern significant
Affects how the financial statements are prepared
If the assumption is made that the company will cease trading, the financial statements are prepared using the break-up or liquidation basis:
Assets are recorded at likely sales values
- Inventory and receivables may need to be written down
- Additional liabilities may arise, e.g.redundancy costs
What are the directors responsibilities for going concern
It is the directors responsibility to assess the company’s ability to continue as a going concern when they are preparing the financial statements.
What are the auditors responsibilities for going concern
Obtain sufficient appropriate audit evidence regarding the appropriateness of management’s use of the going concern basis of accounting in the preparation of the financial statements
- Conclude on whether a material uncertainty exists about the entity’s ability to continue as a going concern
- Report in accordance with ISA 570 (Going Concern)
What are the reporting implications for going concern
if directors dont adequately disclose material uncertainty or dont prepare statements on the appropriate basis the auditor should modify the audit opinion.
if directors appropriately disclose going concern uncertainties or prepare financial statements on a break up basis, the auditor issues an unmodified opinion with additional communication
What procedures are to be undertaken in performing a subsequent events review
Enquire of management if they are aware of any adjusting or non adjusting events that havent been disclosed in the statements
Enquiring into management procedures/systems for the identification of
events after the reporting period.
- Reading minutes of members’ and directors’ meetings.
Obtaining a written representation from management confirming that they
have informed the auditor of all subsequent events and accounted for
them appropriately in the financial statements
Whaat audit procedures should be performed to assess managements evaluation of going concern
Evaluate managements assessment of going concern
consider whether managements assessment includes all relevant information.
