completing audit

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24 - 1 Prentice Hall Business Publishing, Prentice Hall Business Publishing, Auditing 11/e, Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder Completing the Completing the Audit Audit Chapter 24 Chapter 24
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completing audit phase

Transcript of completing audit

Chapter 24 – Completing the AuditCompleting the Audit
Learning Objective 1
liabilities and commitments.
Summary of the Audit Process
Phase I
Phase IV – Completing the Audit
Review for contingent
Contingent Liabilities
unknown amount resulting from activities
that have already taken place.
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Likelihood of Occurrence and Financial Statement Treatment
Auditor’s Concerns
Income tax disputes
Unused balances of outstanding letters of credit
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Audit Procedures for Finding Contingencies
Inquire of management (orally and in
writing) about the possibility of
unrecorded contingencies.
stockholders’ meetings for indications
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Audit Procedures for Finding 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.
Examine letters of credit in force.
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Learning Objective 2
the 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.
or comment about the progress of each item listed.
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Inquiry of Client’s Attorneys
A request for the identification of any unlisted
pending or threatened legal action 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
and to respond directly to the auditor.
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Sarbanes-Oxley Act
the SEC to issue rules requiring attorneys serving
public companies to report material violations
by the company of federal securities laws.
The American Bar Association amended its
attorney-client confidentiality rules to permit
attorneys to breach confidentiality if a client
is committing a crime or fraud.
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Learning Objective 3
Conduct a post-balance-sheet
Period Covered by Subsequent Events Review
Client’s ending
subsequent events applies
Types of Subsequent Events
on the financial statements
on the financial statements but
for which disclosure is advisable
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Requiring Adjustment
with an accounts receivable balance
Settlement of a litigation at an amount
different from the amount recorded
on the books
book value
recorded cost
Advisability of Disclosure
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
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Audit Tests
account balances
transactions that must be recognized
as subsequent events
Inquire of management.
Correspond with attorneys.
Review records prepared subsequent
Examine minutes issued subsequent
Audit Tests
Dual Dating
completion of field work except
for a specific exception.
always later, deals with
Learning Objective 4
in the evidence-accumulation
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.
Final Evidence Accumulation
Management Representation Letter
for the assertions in the financial statements
To document the responses from management
to inquiries about various aspects of the audit*
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1. Financial statements
4. Subsequent events
Management Representation Letter
1. Management’s acknowledgment of its
responsibility for establishing and
maintaining effective internal control
effectiveness of internal control over
financial reporting as of the end of
the fiscal period
4. Management’s knowledge of any fraud
Management Representation Letter: Internal Control
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Information Accompanying Basic Financial Statements
Balance sheet
Income statement
Statement of
cash flows
Information Accompanying Basic Financial Statements
2 opinions:
Positive opinion
Disclaimer-no assurance
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5. Read other information
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Learning Objective 5
Evaluate Results
Immaterial misstatement- totaled up.
Evaluate Results
Meet audit standard
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Completing the Engagement Checklist
for areas of emphasis in the
current-year audit?
items that affect the current year?
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Completing the Engagement Checklist
light of the assessed control risk?
c. Have all major weaknesses been
included as reportable conditions in
a letter to the audit committee or to
senior management?
Completing the Engagement Checklist
resolutions reviewed, abstracted,
and followed up?
agreements been reviewed and
existing legal requirements?
Evaluating Results and Reaching Conclusions
Actual audit evidence
(by cycle, account,
Evaluating Results and Reaching Conclusions
Evaluate overall
financial statements
Estimated misstatement
(overall statements)
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 6
Communicate fraud and illegal acts: ISA 240
Communicate internal control deficiencies
Management letters
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3. Other communication with audit committee
ISA 260 Communication of audit with those in charge of corporate governance.
for large firms.
4. Management letters
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Learning Objective 7
discovered after its issuance.
Period Covered by Subsequent Events Review
Date client
issues financial
Subsequent discovery of facts
Regardless of auditors or mgts fault, the responsibility is the same:
Ask mgt to issue immediate revision of FS.
If time has passed, inform in the subsequent FS.
Auditor must make sure client take necessary action.
If client refuse- auditor inform BOD or notify regulatory agencies such as Bursa M or SC.
recalled of FS does arise from bus events occurring after the date of the auditor’s report.
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End of Chapter 24