Completing the Audit
Completing the Audit
Learning Objective 1
Learning Objective 1
Design and perform audit tests
Design and perform audit tests
related to presentation and
related to presentation and
disclosure audit objectives.
Presentation and Disclosure
Presentation and Disclosure
Audit Objectives (page 761)
Audit Objectives (page 761)
Occurrence and rights and obligations:
Disclosed events and transactions have occurred and pertain to the entity.
Completeness:
Presentation and Disclosure
Presentation and Disclosure
Audit Objectives (page 761)
Audit Objectives (page 761)
Accuracy and valuation:
Financial and other information are
disclosed fairly and at appropriate amounts.
Classification and understandability:
Financial information is appropriately
Learning Objective 2
Learning Objective 2
Conduct a review for contingent
Conduct a review for contingent
liabilities and commitments.
Contingent Liabilities
Contingent Liabilities
A contingent liability is a potential future obligation to an outside party for an
Likelihood of Occurrence and
Likelihood of Occurrence and
Financial Statement Treatment
Financial Statement Treatment
Reasonably
possible Footnote disclosureis necessary Probable
(likely to occur) Adjust financial statementsor note disclosure Remote
(slight chance) No disclosureis necessary Likelihood of
Auditor’s Concerns
Auditor’s Concerns
Pending litigation for patent infringement, product liability, or other actions
Income tax disputes Product warranties
Notes receivable discounted
Guarantees of obligations of others
Audit Procedures for Finding
Audit Procedures for Finding
Contingencies
Contingencies
Inquire of management about the possibility of unrecorded contingencies.
Review current and previous years’ internal revenue reports for income tax settlements.
Review the minutes of directors’ and
Audit Procedures for Finding
Audit Procedures for Finding
Contingencies
Contingencies
Analyze legal expenses and review invoices and statements from legal counsel.
Obtain a letter from each major attorney of the client as to the status of pending litigation.
Review audit documentation for any information that may indicate a potential contingency.
Learning Objective 3
Learning Objective 3
Obtain and evaluate letters from
Obtain and evaluate letters from
the client’s attorneys.
Inquiry of Client’s Attorneys
Inquiry of Client’s Attorneys
A list including: (1) pending threatened litigation and (2) asserted or unasserted claims or
assessments with which the attorney has had involvement.
A request that the attorney furnish information
Inquiry of Client’s Attorneys
Inquiry of Client’s Attorneys
A request of the law firm to identify any unlisted pending or threatened legal actions or a
statement that the client’s list is complete.
A statement informing the attorney of the attorney’s responsibility to inform management of legal matters requiring disclosure in the financial statements
Sarbanes-Oxley Act
Sarbanes-Oxley Act
Congress included provisions in this act directing the SEC to issue rules requiring attorneys serving public companies to report material violations
by the company of federal securities laws.
Learning Objective 4
Learning Objective 4
Conduct a post-balance-sheet
Conduct a post-balance-sheet
review for subsequent events.
Period Covered by Subsequent
Period Covered by Subsequent
Events Review
Period to which review for
Types of Subsequent Events
Types of Subsequent Events
Those that have a direct effect
on the financial statements and require adjustment
Those that have do not have a direct
Requiring Adjustment
Requiring Adjustment
Declaration of bankruptcy by a customer with an accounts receivable balance
Settlement of a litigation at an amount different from the amount recorded
on the books
Disposal of equipment not being used in operations at a price below the current book value
Advisability of Disclosure
Advisability of Disclosure
Decline in the market value of securities held for temporary investment or resale Issuance of bonds or equity securities Decline in the market value of inventory as a consequence of government action barring further sale of a product
Uninsured loss of inventories as a result of fire
Audit Tests
Audit Tests
1. Procedures normally integrated as a part of the verification of year-end account balances.
2. Procedures performed specifically for the purpose of discovering events or transactions that must be recognized as subsequent events.
Inquire of management
Correspond with attorneys
Review internal statements prepared subsequent to the balance sheet date Review records prepared subsequent
to the balance sheet date
Examine minutes issued subsequent to the balance sheet date
Obtain a letter of representation
Audit Tests
Dual Dating
Dual Dating
The first date is the date for the completion
of field work except for a specific exception
The second date, which is always later,
deals with the exception
Learning Objective 5
Learning Objective 5
Design and perform the final steps
Design and perform the final steps
in the evidence-accumulation
in the evidence-accumulation
segment of the audit.
1. Perform final analytical procedures.
2. Evaluate the going-concern assumption.
3. Obtain a management representation letter. 4. Consider information accompanying the
basic financial statements.
5. Read other information in the annual report.
Final Evidence Accumulation
Management Representation
Management Representation
Letter
Letter
1. To impress upon management its responsibility for the assertions in the financial statements.
2. To remind management of potential misstatements or omissions in the financial statements.
1. Financial statements
2. Completeness of information
3. Recognition, measurement, and disclosure 4. Subsequent events
Four Categories in
Four Categories in
Management Representation
Management Representation
Letter
Information Accompanying
Information Accompanying
Basic Financial Statements
Basic Financial Statements
Balance sheet
Learning Objective 6
Learning Objective 6
Integrate the audit evidence
Integrate the audit evidence
gathered and evaluate the
gathered and evaluate the
overall audit results.
Evaluate Results
Evaluate Results
Sufficient appropriate evidence
Evidence supports auditor’s opinion Financial statement disclosures
Audit documentation review Independent review
Evaluating Results and
Evaluating Results and
Reaching Conclusions
Reaching Conclusions
Actual audit evidence (by cycle, account,
and objective)
Audit procedures Sample size Items to select
Timing
Evaluate results
(by account and cycle)
Estimated misstatement (by account)
Evaluating Results and
Evaluating Results and
Reaching Conclusions
The audit report is the only thing that most users see in the audit process, and the
consequences of issuing an inappropriate report can be severe.
Issue the Audit Report
Learning Objective 7
Learning Objective 7
Communicate effectively with the
Communicate effectively with the
audit committee and management.
Communicate fraud and illegal acts
Communicate internal control deficiencies Other communication with audit committee Management letters
Communicate with the Audit
Communicate with the Audit
Committee and Management
Learning Objective 8
Learning Objective 8
Identify the auditor’s
Identify the auditor’s
responsibilities when facts
responsibilities when facts
affecting the audit report are
affecting the audit report are
discovered after its issuance.
Review for Subsequent Events
Review for Subsequent Events
and Discovery of Facts
and Discovery of Facts
Date client
Period to which review for