Audit Ch 11 Completing the Audit

Roll-forward Procedures

Extend work from interim period to date of the financial statements

• Include both tests of controls and substantive procedures

• Performed following date of the financial statements

• Idea is to obtain evidence through the date of the financial statements

Analytical Procedures

Study of relationships among financial and nonfinancial data

– Can be used in planning (required), substantive testing, and near the end of the audit (required)

– Near the end of the audit, analytical procedures identify unusual or unexpected relationships not previously identified

• Review accounts for “miscellaneous,” “other,” and “clearing” accounts (may relate to earnings management)

Accounting Estimates

• Examples include future cash flows in evaluating asset impairments, allowance for doubtful accounts for receivables, and depreciation lives for fixed assets

• Review management’s process for developing estimates

• Review estimates for reasonableness

Procedures for Litigation, Claims, and Assessments

• Inquiry of clients

• Review minutes of meetings of stockholders, directors, and committees

• Review contracts, loan agreements, and correspondence from taxing and governmental agencies

• Obtain information concerning guarantees from bank confirmations

• Review documentation related to legal services

• Attorney’s letters

Written Representations

• Provided by management to auditors

• Dated using date of auditors’ reports (audit

completion date)

• Qualify or disclaim an opinion if not provided by the client

Broad purposes of Written Representations

– Impress upon management its primary responsibility for the financial statements

– May establish auditors’ defense if a question related to inquiries subsequently arises

Contents of Written Representations

• Information related to financial statements

– Management’s responsibility for F/S and internal control over financial reporting

– Appropriate disclosure, presentation, and reasonableness of items

– Statement that uncorrected misstatements are immaterial

• Information provided to auditors by management

• Internal control over financial reporting (for public entities)

Ability to Continue as a Going-Concern

Auditors required to consider whether evidence obtained during audit raises questions about ability to continue as a going concern

If concerns do not remain

No effect on report or financial statements

If concerns remain

Ensure proper use of going concern basis of accounting and modify auditors’ report (ex: curt costs, raise revenue)

Adjusting Entries and Financial Statement Disclosure

• Accumulate dollar effects of identified misstatements

• Evaluate materiality

• Recommend adjustment of all misstatements identified

• Carry any uncorrected misstatements forward for consideration in future audits

• Communicate all adjustments and misstatements to audit committee or individuals charged with governance

Audit Documentation Review

Audit supervisor, Audit manager and partner, Reviewing partner

Procedures to Identify Subsequent Events

• Obtain understanding of procedures management performs to identify subsequent events

• Inquire of management and those charged with governance

• Read minutes of meetings of owners, management, and those charged with governance

• Review entity’s interim financial statements

Types of Subsequent Events

• Provide new information about conditions existing at date of the financial statements

– Adjust financial statements to reflect new information

• Involve events that arose following the date of the financial statements

– Disclose in financial statements

• If Subsequently Discovered Facts discovered prior to audit report release date, perform procedures related to items

– Revise date of auditors’ reports to reflect new completion date

– Dual date auditors’ reports

Following audit report release date: If facts would result in revision of auditors’ report or F/S and individuals are relying on F/S

– Notify individuals relying on F/S

– Issue revised F/S which provide disclosure of facts

Procedures Following Audit Report Release Date

• Omitted procedures

• Communication with those charged with governance

• Management letters