9.401 Auditing

1
9.401 Auditing

• Chapter 21
• Completing the Audit

2
Audit Completion Activities

• Reviewing for contingent liabilities
• Reviewing for subsequent events
• Accumulating final evidence
• Evaluating results
• Working Paper Review
• Writing the audit Report (see chapt 2)
• Read annual report
• Audit Correspondence

3
Review for contingent liabilities

• Goal
• Identify all contingent liabilities
• Determine likelihoods and amts involved
• Ensure treatment disclosure is appropriate

4
Techniques for contingent liabilities and
commitments

• Consider evidence already gathered
• Confirmations, warranties etc.
• Enquiry of management
• Review income tax assessments
• Review minutes of meetings
• Analyze legal expenses-review invoices
• Confirm client lawyers (next slide)
• Read contracts etc.

5
Lawyers letters

• Sent to all lawyers used by client
• Sent on client letterhead, signed by client, with
  instructions to return confirmation to auditor
• Contains
• List, description evaluation of all known
  claims
• Request to advise if info is reasonable
• Request to advise if list is incomplete
• Lawyers are encouraged to respond but may not or
  may use slightly different terminology

6
Review for subsequent Events

• Auditors are responsible for reviewing events up
  to date of audit report (substantial completion
  of fieldwork
• Goals
• Identify information having direct effect on f/s
  and requiring adjustment (indicates condition
  existing at year end)
• Identify important events requiring disclosure

7
Techniques for subsequent events

1. Subsequent receipts
2. Subsequent payments
3. Settlement prices of subsequent transactions
4. Enquiry of management
5. Review minutes of meetings
6. Confirm client lawyers
7. Review internal statements for subsequent pd.
8. Review books of account for significant or
   unusual transactions
9. Letter of representation

8
Date of audit report

• Date substantial completion of fieldwork,
  including subsequent event review
• If a subsequent event arises after that date and
  before issue of report, auditor can
• Extend fieldwork (subsequent event review for all
  events) to new date or
• Limit review to new event only and double-date
  report

9
Subsequent discovery of facts

• Auditor not actively engaged to look for info
  after release of audit report, but some may come
  to their attention.
• If relates to condition that existed before audit
  report issue and material
• Auditor must audit subsequent event
• Request client re-issue and auditor re-issues
  report
• If client refuses, consult legal advice

10
Accumulating Final Evidence

• Final Analytical Procedures
• Evaluate Going Concern Assumption

11
Client Representation Letter

• Goal
• Impress upon mgmt that f/s are their
  reponsibility
• Document responses of mgmt

12
Client Representations

• On the clients letterhead, addressed to the
  auditor, signed by responsible officers and dated
  as of the auditors reports. Contains, among
  other things
• Acknowledgement of primary responsibility for
  fair presentation of financial statements in
  conformity with GAAP
• Availability of all financial records and
  related data
• Completeness of the minutes of meeting of
  stockholders, directors, and important
  committees
• Info about related parties
• Irregularities involving management or employees
• Plans or intentions affecting b/s items
• see HB 7100

These representations are not substitutes for
corroborating evidence obtainable by the auditor.
13
Evaluating Results

• Cumulative known errors, most likely and possible
  errors, including those on opening balances on
• Total assets
• Total liabilities
• Current assets/liabilities
• Net income
• Qualitative aspects
• Overall fair presentation of f/s, including
  disclosure

14
Working Paper Review

• Goals
• Evaluate staff
• Ensure audit meets firm standards and GAAS
• Counteract biases
• Primacy, recency
• Internal control descriptions prepared by client
  (L. Kopp)

15
Working Paper Review to consider

• Planning decisions were adequate
• All work complete and properly documented
• Conclusions appropriate
• Analytical review results

16
Other Information and Supplementary Information

• Other Information Section 7500.13 -
• Auditors have and obligation to read (study) the
  information and determine whether it is
  inconsistent with the audited financial
  statements.
• However the auditor is not required to review
  press releases, analysts interviews or other
  forms of irregular financial new releases
  specifically engaged by the client to do so.
• 13 The auditor should read the other information
  in the annual report and consider whether any of
  this information is inconsistent with the
  financial statements on which he has reported.
  JAN. 1986

17
Other Information and Supplementary Information

• Other Information Section 7500.13 -
• Auditors have and obligation to read (study) the
  information and determine whether it is
  inconsistent with the audited financial
  statements.
• However the auditor is not required to review
  press releases, analysts interviews or other
  forms of irregular financial new releases
  specifically engaged by the client to do so.
• 13 The auditor should read the other information
  in the annual report and consider whether any of
  this information is inconsistent with the
  financial statements on which he has reported.
  JAN. 1986

18
Read annual report

• Auditors have and obligation to read (study) the
  information and determine whether it is
  inconsistent with the audited financial
  statements. Any inconsistencies must be
  corrected.
• NOT required to review press releases, analysts
  interviews or other forms of irregular financial
  new releases specifically engaged by the client
  to do so.

19
Audit Communications

• Necessary communication with mgmt (and audit
  committee)
• Misstatements (other than trivial ones)
• Illegal or possibly illegal acts
• Internal control reportable conditions
  (significant deficiencies in design or operation)

20
Communications with audit committee

• Auditor vs mgmt responsibility
• Significant planning decisions
• Significant acctg policies
• Areas of audit sensitivity, mgmt estimates
• Disagreements with mgmt, major issues discussed
• Difficulties encountered

21
Management letters

• Optional
• Areas of improvement in internal control,
  efficiency and effectiveness in operations