completing the audit and post audit responsibilities
DESCRIPTION
The Sequence of Audit Accepting the audit engagement/appointment Understanding the industry and the business Tests of controls and substantive tests for the following transactions cycles: The revenue cycles The expenditure cyclest The Production Cycles Auditing the HRM/Payroll Cycles Auditing the Investing and Financing Cycles Auditing the Investments and Cash Balances Completing the audits and reporting the auditTRANSCRIPT
Completing the Auditand Post Audit Responsibilities
The Sequence of Audit
1. Accepting the audit engagement/appointment2. Understanding the industry and the business3. Tests of controls and substantive tests for the
following transactions cycles: a. The revenue cyclesb. The expenditure cyclestc. The Production Cyclesd. Auditing the HRM/Payroll Cyclese. Auditing the Investing and Financing Cyclesf. Auditing the Investments and Cash
Balances4. Completing the audits and reporting the audit
Completeing the Audit
Consist of three main things:
1. Completing the field work2. Evaluating the findings3. Communicating with the client
Completing the Field Works
1. Making subsequent event review2. Reading minutes of meetings3. Obtaining evidence concerning
litigation, claims, and assessments4. Obtaining client representation
letter5. Performing analytical procedures
Evaluating the Findings1. Making final assessment of materiality
and audit risk2. Evaluating going concern3. Making technical review of financial
statements4. Formulating opinion and drafting audit
report on the financial statements5. Formulating opinion and drafting audit
report on internal controls over financial reporting.
6. Making final review (s) of working papers.
Communicating with the Client
1. Communicating internal control matters
2. Communicating matters pertaining to conduct of audit
3. Preparing management letter
Postaudit Responsibilities
1. Subsequent events between report date and issuance of report.
2. Discovery of facts existing at report date.
3. Discovery of omitted procedures.
1. Subsequent Events ReviewSubsequent events are
events that occur after the balance sheet dates but prior to the issuance of the financial statements and the auditor’s report.
Completing the Fieldwork
Balance sheetDateDec. 31, X1
End of field work(report date)March 1, X2
Report issuancedate
March 15, X2
Subsequent events
Subsequent events period(the responsibility of auditor
only to the events in thisperiod)
Completing the FieldworkIllustration of Subsequent Events
• Type 1: require adjustment of the financial statements, i.e. settlement of recorded year-end estimated liabilities at different amount than recorded.
• Type 2: require disclosure of the financial statements, i.e. issuance of long-term bonds or casualty losses resulting from fire or natural disaster.
Types of Subsequent Events
Completing the Fieldwork
Auditing Procedures1. Performing year-end substantive tests
such as cut-off tests and the search for unrecorded liabilities.
2. Read the latest available interim financial statements and compare them with the statements being reported on.
3. Inquire of management having responsibility for financial and accounting matters about:
Completing the Fieldwork
a. Substantial contingent liabilities or commitments existing at the balance sheet date or date of inquiry.
b. Significant changes in capital stock, long-term debt, or working capital to the date of inquiry.
c. The current status of items previously accounted for on the basis of tentative, preliminary, or inconclusive data.
Completing the Fieldwork
d. Unusual adjustments since the balance sheet date.
e. Read minutes of meetings of directors, stockholders, and other appropriates committees.
f. Inquire client’s legal counsel concerning litigation, claims, and assessments.
Completing the Fieldwork
g. Obtain letter of representation from about subsequent events that would, in its opinion, require adjustment or disclosure.
h. Make additional inquiries or perform additional procedures considered necessaries in the circumstances.
Completing the Fieldwork
The Effects of Subsequent Events
The effect of the subsequent events to auditor’s opinion or conclusion depend on the level of materiality of the events.
The failure to record or properly disclose the subsequent events in financial statements will result in a departure from the auditor’s standard report.
Completing the Fieldwork
Reading Minutes of MeetingThe minutes of meeting of stockholders, the board of directors and its subcommittees may contain matters that have audit significance, i.e. issuance of bonds, treasury stock, payment of cash dividend, discontinuance of a product line etc. The reading should be documented in the working papers.
Completing the Fieldwork
Obtaining Evidence Concerning Litigation, Claims, and Assessments (LCA)This procedures aimed to ensure the possible existence of loss contingency (gain contingency normally not recorded – due to conservatism principle). Contingency is an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss.
Completing the Fieldwork
Considering the Evidence of LCA1.The existence of a condition, situation, or set of circumstances indicating an uncertainty as to the possible loss to an entity arising form LCA.2.The period in which the underlying cause for legal action occurred.3.The degree of probability of an unfavorable outcome.4.The amount of range of potential loss.
Completing the Fieldwork
Letter of Audit InquiryAn auditor normally does not possess sufficient legal skills to make an informed judgment about all LCAs, therefore “a letter of audit inquiry” to the client’s lawyer(s) will be the primary means of corroborating information. The refusal of the lawyer to respond the letter will be as a limitation of audit scope.
Completing the Fieldwork
Obtaining Client Representation Letter•Representation letter is part of evidential matter.•It is used to confirm oral representation.•It may complement of other auditing procedures, however in some cases, it may be the primary source of audit evidence, i.e. for the decision of discontinuing certain product line.
Completing the Fieldwork
Content of Representation Letter1.Management’s responsibility for the financial statements.2.Completeness of information and evidence furnished to the auditor.3.Issues regarding revenue recognition, accounting estimates, and disclosures.4.Subsequent events.
Completing the Fieldwork
The procedures involve the use of ratios and other comparative techniques as an overall (or final) review of the financial statements.The procedures should be:•Applied to critical audit areas identified during the audit.•Based on financial data after all audit adjustments and reclassification have been recognized.Compare the ratio with the expected ratio or with other comparable ratios.
Performing Analytical Procedures
Final Assessment of Materiality and Audit RiskAssessment components:1.Uncorrected misstatements specifically identified through substantive tests of detail of transactions and balances (referred to as known misstatement)2.Projected uncorrected misstatements estimated through audit sampling techniques.3.Estimated misstatements detected through analytical procedures and quantified by other auditing procedures.
Evaluating the Findings
Final Assessment of Materiality and Audit Risk
The total of the above potential misstatement for an account is called likely misstatement. The sum of the likely misstatements in all accounts is called aggregate likely misstatement.
The above estimated misstatement will be used as a basis to assess the materiality and audit risk.
Evaluating the Findings
Evaluating Going ConcernEvaluation not exceed one year beyond
the date of the financial statements. Information that would raise the substantial doubt about the going concern assumption relates to the entity’s inability to continue to meet its obligations without substantial disposition of assets.
Evaluating the Findings
Evaluating Going ConcernThe steps need to be done:1.Obtain information about
management’s plans to mitigate the effect of such conditions or events.
2.Assess the likelihood that such plans can be effectively implemented.
Evaluating the Findings
Evaluating Going ConcernWhen finally auditor concludes that there is a
substantial doubt about a going concern, the auditors should:
1. Consider the adequacy of disclosure about the doubt of the going concern for a reasonable period of time.
2. Include an explanatory paragraph in the audit report to reflect his or her conclusion.
Evaluating the Findings
Thank You