Completing the Audit and Post Audit Responsibilities - PowerPoint PPT Presentation

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Completing the Audit and Post Audit Responsibilities


Completing the Audit and Post Audit Responsibilities – PowerPoint PPT presentation

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Title: Completing the Audit and Post Audit Responsibilities

Completing the Auditand Post Audit
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 audit

Completeing the Audit
  • Consist of three main things
  • Completing the field work
  • Evaluating the findings
  • Communicating with the client

Completing the Field Works
  1. Making subsequent event review
  2. Reading minutes of meetings
  3. Obtaining evidence concerning litigation, claims,
    and assessments
  4. Obtaining client representation letter
  5. Performing analytical procedures

Evaluating the Findings
  1. Making final assessment of materiality and audit
  2. Evaluating going concern
  3. Making technical review of financial statements
  4. Formulating opinion and drafting audit report on
    the financial statements
  5. 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
  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.

Completing the Fieldwork
  • Subsequent Events Review
  • Subsequent events are events that occur after
    the balance sheet dates but prior to the issuance
    of the financial statements and the auditors

Completing the Fieldwork
Illustration of Subsequent Events
Report issuance date March 15, X2
Balance sheet Date Dec. 31, X1
End of field work (report date) March 1, X2
Subsequent events
Subsequent events period (the responsibility of
auditor only to the events in this period)
Completing the Fieldwork
Types of Subsequent Events
  • Type 1 require adjustment of the financial
    statements, i.e. settlement of recorded year-end
    estimated liabilities at different amount than
  • Type 2 require disclosure of the financial
    statements, i.e. issuance of long-term bonds or
    casualty losses resulting from fire or natural

Completing the Fieldwork
  • Auditing Procedures
  • Performing year-end substantive tests such as
    cut-off tests and the search for unrecorded
  • Read the latest available interim financial
    statements and compare them with the statements
    being reported on.
  • Inquire of management having responsibility for
    financial and accounting matters about

Completing the Fieldwork
  1. Substantial contingent liabilities or commitments
    existing at the balance sheet date or date of
  2. Significant changes in capital stock, long-term
    debt, or working capital to the date of inquiry.
  3. The current status of items previously accounted
    for on the basis of tentative, preliminary, or
    inconclusive data.

Completing the Fieldwork
  • Unusual adjustments since the balance sheet date.
  • Read minutes of meetings of directors,
    stockholders, and other appropriates committees.
  • Inquire clients legal counsel concerning
    litigation, claims, and assessments.

Completing the Fieldwork
  • Obtain letter of representation from about
    subsequent events that would, in its opinion,
    require adjustment or disclosure.
  • Make additional inquiries or perform additional
    procedures considered necessaries in the

Completing the Fieldwork
  • The Effects of Subsequent Events
  • The effect of the subsequent events to auditors
    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 auditors standard

Completing the Fieldwork
  • Reading Minutes of Meeting
  • The 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 LCA
  • The existence of a condition, situation, or set
    of circumstances indicating an uncertainty as to
    the possible loss to an entity arising form LCA.
  • The period in which the underlying cause for
    legal action occurred.
  • The degree of probability of an unfavorable
  • The amount of range of potential loss.

Completing the Fieldwork
  • Letter of Audit Inquiry
  • An auditor normally does not possess sufficient
    legal skills to make an informed judgment about
    all LCAs, therefore a letter of audit inquiry
    to the clients 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
  • 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 Letter
  • Managements responsibility for the financial
  • Completeness of information and evidence
    furnished to the auditor.
  • Issues regarding revenue recognition, accounting
    estimates, and disclosures.
  • Subsequent events.

Performing Analytical Procedures
  • 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
  • Compare the ratio with the expected ratio or with
    other comparable ratios.

Evaluating the Findings
  • Final Assessment of Materiality and Audit Risk
  • Assessment components
  • Uncorrected misstatements specifically identified
    through substantive tests of detail of
    transactions and balances (referred to as known
  • Projected uncorrected misstatements estimated
    through audit sampling techniques.
  • 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 Concern
  • Evaluation 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 entitys
    inability to continue to meet its obligations
    without substantial disposition of assets.

Evaluating the Findings
  • Evaluating Going Concern
  • The steps need to be done
  • Obtain information about managements plans to
    mitigate the effect of such conditions or events.
  • Assess the likelihood that such plans can be
    effectively implemented.

Evaluating the Findings
  • Evaluating Going Concern
  • When finally auditor concludes that there is a
    substantial doubt about a going concern, the
    auditors should
  • Consider the adequacy of disclosure about the
    doubt of the going concern for a reasonable
    period of time.
  • Include an explanatory paragraph in the audit
    report to reflect his or her conclusion.

Thank You
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