Post on 16-Dec-2015
21 - 2Copyright 2003 Pearson Education Canada Inc.
Audit Completion ProceduresAudit Completion ProceduresSearch for unrecorded contingent liabilities.
What is acontingent liability and what are the relevant related
GAAPrecommendations?
21 - 3Copyright 2003 Pearson Education Canada Inc.
Audit Completion ProceduresAudit Completion ProceduresSearch for unrecorded contingent liabilities.
What is acontingent
liability and what are the relevant
GAAPrecommenda-
tions?
a potential futureobligation to an outside party for an unknown amount resulting from activities that havealready taken place
21 - 4Copyright 2003 Pearson Education Canada Inc.
Audit Completion ProceduresAudit Completion ProceduresSearch for unrecorded contingent liabilities.
likely and reasonably estimated - accrual
likely and not estimable - footnote disclosure
not determinable - footnote disclosure
unlikely - no financial statement or disclosure unless significant adverse effect
What is acontingent
liability and what are the relevant
GAAPrecommenda-
tions?
21 - 5Copyright 2003 Pearson Education Canada Inc.
Audit Completion ProceduresAudit Completion ProceduresSearch for unrecorded contingent liabilities.
Footnote disclosureshould describe the contingency and theopinion of legalcounsel or manage-ment regarding theexpected outcome.
What is acontingent
liability and what are the related
GAAPrecommenda-
tions?
21 - 6Copyright 2003 Pearson Education Canada Inc.
Audit Completion ProceduresAudit Completion ProceduresSearch for unrecorded contingent liabilities.- enquire of management
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Audit Completion ProceduresAudit Completion Procedures
Search for unrecorded contingent liabilities.- enquire of management- review: ~ client copies of Revenue Canada correspondence ~ minutes of board and shareholder meetings ~ invoices from client lawyers ~ existing audit workpapers ~ contracts, agreements, etc.
21 - 8Copyright 2003 Pearson Education Canada Inc.
Audit Completion ProceduresAudit Completion ProceduresSearch for unrecorded contingent liabilities.- enquire of management- review: ~ client copies of Revenue Canada correspondence ~ minutes of board and shareholder meetings ~ invoices from client lawyers ~ existing audit work papers ~ contracts, agreements, etc.- obtain letters of confirmation from all client lawyers
Jill Auditor, CA
Joe Lawyer Canada48
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Lawyer EnquiryLawyer Enquiry
The auditor should ask the client to prepare a letter (on client letterhead, signed by client officer) asking the lawyer to respond directly to the auditor concerning:
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Lawyer EnquiryLawyer Enquiry
The auditor should ask the client to prepare a letter (on client letterhead, signed by client officer) asking the lawyer to respond directly to the client with a copy to theauditor concerning:- client’s description of the nature & current status of all outstanding & possible claims with which the lawyer has been involved
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The auditor should ask the client to prepare a letter (on client letterhead, signed by client officer) asking the lawyer to respond directly to the auditor concerning:- client’s description of the nature & current status of all outstanding & possible claims with which the lawyer has been involved- client’s evaluation of the amount & likelihood of loss or gain for each listed outstanding & possible claim
Lawyer EnquiryLawyer Enquiry
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The auditor should ask the client to prepare a letter (on client letterhead, signed by client officer) asking the lawyer to respond directly to the auditor concerning:- client’s description of the nature & current status of all outstanding & possible claims with which the lawyer has been involved- client’s evaluation of the amount & likelihood of loss or gain for each listed outstanding & possible claim- any unlisted or potential items, or whether the status of each claim or assessment
Lawyer EnquiryLawyer Enquiry
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If an lawyer refuses to respond or refuses to provide adequate information, the audit opinion
will be qualified or denied.
Lawyer EnquiryLawyer Enquiry
21 - 14Copyright 2003 Pearson Education Canada Inc.
Review for Subsequent EventsReview for Subsequent Events
?
21 - 15Copyright 2003 Pearson Education Canada Inc.
Review for Subsequent EventsReview for Subsequent Events
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balance sheet field work report date completion issue date
period under audit subsequent events period
Subsequent events are events or trans-actions having a material effect on
the financial statements thatoccur after the balance sheet
date but before fieldwork completion.
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balance sheet field work report date completion issue date
period under audit subsequent events period
Types of Subsequent EventsTypes of Subsequent Events1.events that provide additional evidence about conditions that existed at the balance sheet date (e.g., settlement of liabilities, realiza- tion of assets)
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balance sheet field work report date completion issue date
period under audit subsequent events period
1.events that provide additional evidence about conditions that existed at the balance sheet date (e.g., settlement of liabilities, realiza- tion of assets)
Types of Subsequent EventsTypes of Subsequent Events
Client financial statements for the periodunder audit must be adjusted to reflectthis subsequent event information.
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balance sheet field work report date completion issue date
period under audit subsequent events period
2. events that occur after the balance sheet date and do not relate to condi- tions that existed at year-end (e.g., bond/stock issue, acquisition, fire/flood loss, major customer/vendor bankruptcy)
Types of Subsequent EventsTypes of Subsequent Events
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12/31 2/14 2/28
balance sheet field work report date completion issue date
period under audit subsequent events period
2. events that occur after the balance sheet date and do not relate to condi- tions that existed at year-end
disclose
These subsequent events must be disclosed in the footnotes of the period under audit. Theauditor may also consider:- pro forma financial statements
Types of Subsequent EventsTypes of Subsequent Events
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Review for Subsequent EventsReview for Subsequent Events
Whatauditing
procedureswill identifysubsequent
events?
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Subsequent Events Auditing ProceduresSubsequent Events Auditing Procedures
Near field work completion, auditors should:- read post-balance sheet interim statements and records
Ace Company
Financial Statements
For the month ofJanuary 2005
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Subsequent Events Auditing ProceduresSubsequent Events Auditing Procedures
Near field work completion, auditors should:- read post-balance sheet interim statements and records- obtain a management representation letter and discuss with management: ~ contingent liabilities ~ significant changes in owners’ equity ~ items accounted for on tentative data ~ unusual adjustments in subsequent period
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Subsequent Events Auditing ProceduresSubsequent Events Auditing Procedures Near field work completion, auditors should:- read post-balance sheet interim statements and records- obtain a management representation letter- read minutes of board and shareholder meetings that have occurred since year-end
21 - 24Copyright 2003 Pearson Education Canada Inc.
Joe Lawyer
Jill Auditor, CA
Subsequent Events Auditing ProceduresSubsequent Events Auditing Procedures Near field work completion, auditors should:- read post-balance sheet interim statements and records- obtain a management representation letter- read minutes of board and shareholder meetings that have occurred since year-end- obtain letter from client’s lawyer
Canada 48
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balance sheet field work report date completion issue date
period under audit subsequent events period
Whatresponsibility
does the auditorhave for
subsequentevents that
occur betweenfield work
completion andthe issue date?
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12/31 2/14 2/28
balance sheet field work report date completion issue date
period under audit subsequent events period
- the auditor is not responsible for dis- covering subsequent events during this period
Whatresponsibility
does the auditorhave for
subsequentevents that
occur betweenfield work
completion and
the issue date?
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12/31 2/14 2/28
balance sheet field work report date completion issue date
period under audit subsequent events period
- the auditor is not responsible for dis- covering subsequent events during this period
- if, however, auditors learn of a subsequent event during this period, they are responsible for ensuring correcting accounting for it
Whatresponsibility
does the auditorhave for
subsequentevents that
occur betweenfield work
completion andthe issue date?
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If auditors learn of a subsequent event during this period, they are responsible for
its disclosure.
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balance sheet field work report date completion issue date
period under audit subsequent events period
The auditors then have two options:- expand all subsequent events tests to the date of the event and change the report date to the date of the event (e.g., 2/21)
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If auditors learn of a subsequent event during this period, they are responsible for
its disclosure.12/31 2/14 2/28
balance sheet field work report date completion issue date
period under audit subsequent events period
The auditors then have two options:- expand all subsequent events tests to the date of the event and change the report date to the date of the event (e.g., 2/21)- restrict testing only to matters relating to the new event and dual-date the report:
Taylor & Tower, CAsFebruary 14, 2005, except for Note 3, as to which the date is February 21, 2005
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12/31 2/14 2/28
balance sheet field work report date completion issue date
period under audit subsequent events period
The auditors then have two options:- expand all subsequent events tests to the date of the event and change the report date to the date of the event (e.g., 2/21)- restrict testing only to matters relating to the new event and dual-date the report
What are the trade-offsbetween these options?
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Whatresponsibility
does the auditor
have for subsequentevents that occur afterthe issue
date?
period subsequent events period under audit
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balance sheet field work report date completion issue date
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Whatresponsibility
does the auditor
have for subsequentevents that occur afterthe issue
date?
period subsequent events period under audit
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balance sheet field work report date completion issue date
Auditors have no obligation toperform additional proceduresafter the report date unlessthey become aware of factsthat existed at the report date.
21 - 33Copyright 2003 Pearson Education Canada Inc.
Whatresponsibility
does the auditor
have for subsequentevents that occur afterthe issue
date?
With regard to this information,auditors should determine:- did the information exist at the report date?
period subsequent events period under audit
12/31 2/14 2/28
balance sheet field work report date completion issue date
21 - 34Copyright 2003 Pearson Education Canada Inc.
Whatresponsibility
does the auditor
have for subsequentevents that occur afterthe issue
date?
With regard to this information,auditors should determine:- did the information exist at the report date?- is the information reliable?
period subsequent events period under audit
12/31 2/14 2/28
balance sheet field work report date completion issue date
21 - 35Copyright 2003 Pearson Education Canada Inc.
Whatresponsibility
does the auditor
have for subsequentevents that occur afterthe issue
date?
With regard to this information,auditors should determine:- did the information exist at the report date?- is the information reliable?- would the audit report have been different if the informa- tion had been available prior to the report date?
period subsequent events period under audit
12/31 2/14 2/28
balance sheet field work report date completion issue date
21 - 36Copyright 2003 Pearson Education Canada Inc.
Whatresponsibility
does the auditor
have for subsequentevents that occur afterthe issue
date?
With regard to this information,auditors should determine:- did the information exist at the report date?- is this information reliable?- would the audit report have been different if the informa- tion had been available prior to the report date?- are persons still relying on the audit report?
period subsequent events period under audit
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balance sheet field work report date completion issue date
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If theanswer to
any of these questions is
no, theauditors donot need to
take anyaction.
With regard to this information,auditors should determine:- did the information exist at the report date?- is this information reliable?- would the audit report have been different if the informa- tion had been available prior to the report date?- are persons still relying on the audit report?
period subsequent events period under audit
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balance sheet field work report date completion issue date
21 - 38Copyright 2003 Pearson Education Canada Inc.
If theanswer to
all of these questions is
yes, theauditors mustact to prevent
future reliance on the
audit report.
With regard to this information,auditors should determine:- did the information exist at the report date?- is this information reliable?- would the audit report have been different if the informa- tion had been available prior to the report date?- are persons still relying on the audit report?
period subsequent events period under audit
12/31 2/14 2/28
balance sheet field work report date completion issue date
21 - 39Copyright 2003 Pearson Education Canada Inc.
How do auditors How do auditors prevent future prevent future reliancereliance on a on a previously-issuedpreviously-issued
audit report?audit report?
Auditors’ Report
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21 - 40Copyright 2003 Pearson Education Canada Inc.
the client must reviseand reissue the
financial statements
How do auditors How do auditors prevent future prevent future reliancereliance on a on a previously-issuedpreviously-issued
audit report?audit report?If the financial statement effect of the subsequently-discovered information
can be determined promptly
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the client must notify persons known to be (and those likely to be) relying
on the financial statements
How do auditors How do auditors prevent future prevent future reliancereliance on a on a previously-issuedpreviously-issued
audit report?audit report?If the financial statement effect of the subsequently-discovered information
cannot be determined promptly
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What should the auditor do if the client What should the auditor do if the client refusesrefuses to reissue the statements or contact to reissue the statements or contact
those relying on the auditors’ report?those relying on the auditors’ report?
reviseand
reissue?NO!
21 - 43Copyright 2003 Pearson Education Canada Inc.
What should the auditor do if the client What should the auditor do if the client refusesrefuses to reissue the statements or contact to reissue the statements or contact
those relying on the auditors’ report?those relying on the auditors’ report?
-first, notify the audit committee, or other body, such as the board, of management’s refusal
21 - 44Copyright 2003 Pearson Education Canada Inc.
What should the auditor do if the client What should the auditor do if the client refusesrefuses to reissue the statements or contact to reissue the statements or contact
those relying on the auditors’ report?those relying on the auditors’ report?- first, notify the audit committee, etc. of management’s refusal- then: ~ inform client management that the audit report may no longer be associated with the statements
21 - 45Copyright 2003 Pearson Education Canada Inc.
What should the auditor do if the client What should the auditor do if the client refusesrefuses to reissue the statements or contact to reissue the statements or contact
those relying on the auditors’ report?those relying on the auditors’ report?
- first, notify the audit committee, etc. of management’s refusal- then: ~ inform client management that the audit report may no longer be associated with the statements ~ consider obtaining legal advice
21 - 46Copyright 2003 Pearson Education Canada Inc.
What should the auditor do if the client What should the auditor do if the client refusesrefuses to reissue the statements or contact to reissue the statements or contact
those relying on the auditors’ report?those relying on the auditors’ report?- first, notify the audit committee, etc. of management’s refusal- then: ~ inform client management that the audit report may no longer be associated with the statements ~ consider obtaining legal advice ~ consider the appropriateness of other actions such as withdrawing
21 - 47Copyright 2003 Pearson Education Canada Inc.
Client Representation LetterClient Representation Letter
?
21 - 48Copyright 2003 Pearson Education Canada Inc.
Client Representation LetterClient Representation Letter
The auditor must obtain a letter from the client documenting the client’s represen-tations during the engagement.
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ClientRepresentation
Letter
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Client Representation LetterClient Representation Letter
The auditor must obtain a letter from the client documenting the client’s represen-tations during the engagement.
The primary purposes are to:- confirm and document oral statements- reduce auditor-client misunderstanding- remind management of its responsibili- ty for the financial statements
21 - 50Copyright 2003 Pearson Education Canada Inc.
Client Representation LetterClient Representation LetterThe auditor must obtain a letter from the client documenting the client’s represen-tations during the engagement.
The primary purposes are to:- confirm and document oral statements- reduce auditor-client misunderstanding- remind management of responsibilitiesThe letter should be signed by the clientCFO and CEO and dated with the fieldwork completion date.
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Client Representation LetterClient Representation Letter
If the client refuses toIf the client refuses togive the auditor a give the auditor a
representation letter, representation letter, the auditor must the auditor must qualifyqualify
or or denydeny the opinion. the opinion.
probable
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Final Audit StepsFinal Audit Steps
1. Incorporating all audit evidence, materiality, and judgment, the auditor draws overall conclusions and prepares the audit report.
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Final Audit StepsFinal Audit Steps1. Incorporating all audit evidence, materiality, and judgment, the auditor draws overall conclusions and prepares the audit report.2. The auditor prepares the management letter.
?
21 - 54Copyright 2003 Pearson Education Canada Inc.
Final Audit StepsFinal Audit Steps1. Incorporating all audit evidence, materiality, and judgment, the auditor draws overall conclusions and prepares the audit report.2. The auditor prepares the management letter.
recommendations forimproving the client business
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Final Audit StepsFinal Audit Steps1. Incorporating all audit evidence, materiality, and judgment, the auditor draws overall conclusions and prepares the audit report.2. The auditor prepares the management letter.3. The auditor communicates the results to the audit committee/management and gives them the audit report and management letter.
21 - 56Copyright 2003 Pearson Education Canada Inc.
GAAS GAAS suggestssuggests that auditors to that auditors to communicate (oral or written) to audit communicate (oral or written) to audit
committees, etc.:committees, etc.:
- the auditor’s responsibilities under GAAS
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GAAS suggests that auditors GAAS suggests that auditors communicate (oral or written) to audit communicate (oral or written) to audit
committees, etc.:committees, etc.:
- the auditor’s responsibilities under GAAS- significant accounting policies selected, & judgments used by management
21 - 58Copyright 2003 Pearson Education Canada Inc.
GAAS suggests that auditors GAAS suggests that auditors communicate (oral or written) to audit communicate (oral or written) to audit
committees, etc.:committees, etc.:- the auditor’s responsibilities under GAAS- significant accounting policies selected, & judgments used by management- audit planning
21 - 59Copyright 2003 Pearson Education Canada Inc.
GAAS suggests that auditors GAAS suggests that auditors communicate (oral or written) to audit communicate (oral or written) to audit
committees, etc.:committees, etc.:- the auditor’s responsibilities under GAAS- significant accounting policies selected, & judgments used by management- audit planning- disagreements with management
21 - 60Copyright 2003 Pearson Education Canada Inc.
GAAS suggests that auditors GAAS suggests that auditors communicate (oral or written) to audit communicate (oral or written) to audit
committees, etc.:committees, etc.:- the auditor’s responsibilities under GAAS- significant accounting policies selected, & judgments used by management- audit planning- disagreements with management- difficulties in performing the audit
21 - 61Copyright 2003 Pearson Education Canada Inc.
GAAS suggests that auditors GAAS suggests that auditors communicate (oral or written) to audit communicate (oral or written) to audit
committees, etc.:committees, etc.:- the auditor’s responsibilities under GAAS- significant accounting policies selected, & judgments used by management- audit planning- disagreements with management- difficulties in performing the audit- consultations with other accountants
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What are the What are the requiredrequired communications with the communications with the
audit committee, etc.?audit committee, etc.?
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What are other suggested What are other suggested communications with the communications with the
audit committee?audit committee?
- significant deficiencies in internal control- misstatements that are other than trivial- illegal or possible illegal acts