Module 20: Completion and review Flashcards
Directors assessment of GC STRAIGHTFORWARD for those currently generating profits and with good access to finance, focusing on:
- prep and review of forecasts and budgets
- review of lending facilities
- review of any pending legal cases
Design procedures the directors should perform as part of their GC review
- setting an annual budget, including CF forecasts
- performing sensitivity analysis
- setting medium-term business and financial plans (2-5 years)
- Assessing overdraft facilities and reviewing any covenants
- reviewing contracts with major customers and suppliers
Subsequent events: Adjusting events examples
- sale of inventory for a loss after Y/E => NRV at Y/E incorrect
- debtor going into liquidation
- receipt of an insurance claim which was just being finalised at the year-end
Subsequent events: Non adj events examples
- loss of fixed assets/stock due to catastrophe e.g. fire, flood which occurred after the year-end
- debtor going into liquidation due to major catastrophe which occurred after the Y/E
- post period end closure of a major part of the company’s business
- a post period end merger or acquisition
Subsequent events
Auditors will collect the evidence both by being ALERT for subsequent events WHILE PERFORMING FIELDWORK and by performing procedures that are IN ADDITION to those carried out at Y/E substantive testing
If auditor does not consider DISCLOSURE to be adequate = MATERIAL MISSTATEMENT and approp audit report given
EXTENT of subsequent event review depends on length of time between completion and fieldwork and date of audit report
Exam tip: subsequent events
Identifying the relevant subsequent events period is key to answering questions:
Period 1. after the audit fieldwork, but prior to the signing of the audit report
Period 2. After the date of the audit report
Once the period has been identified, the relevant paragraphs in ISA (UK) 560 can be used as a guide to identify what procedures should be undertaken
(Note that these audit procedures may need to be tailored to the circumstances within the scenario)
Summary of audit misstatements (SAM)
A record of all misstatements identified, excluding those that are clearly trivial
Management rep letter
Provided by the management of the audited entity on its own stationery but is USUALLY DRAFTED BY THE AUDITOR to ensure all the required contents are included
Internal completion documents, necessary to conclude if there is adequate evidence of the audit completion include:
- points forward scedule
- Audit highlights memorandum/summary review memorandum
- accounts disclosure checklist
Internal completion docs: Points forward schedule
List of points that need to be brought to the attention of next year’s audit team and will be used when planning next year’s audit to ensure that any problems experienced this year are properly addressed.
Info gained this year that relates to next year can be carried forward
Internal completion docs: Audit Highlights memorandum
concludes on the performance of the audit and SUMMARISES KEY MATTERS OF IMPORTANCE
Usually prepared by audit manager or senior for the engagement leader
Internal completion doc: Accounts disclosure checklist
Disclosure checklist to help ensure all relevant matters have been properly identified and disclosed in accordance with the CA 2006 and relevant accounting standards
Person completing the checklist should be sufficiently senior to have the knowledge of relevant legislation.
Any areas identified where insufficient/ inappropriate disclosure => client must be notified and asked to amend the financial statements
Once complete, prepare checklist and should be reviewed and signed off by audit manager
Review procedures: QC procedures
Review is about bringing another, more experienced perspective to consider the issues involved:
Two elements for the auditor to consider:
- GENERAL review procedures
- ADDITIONAL procedures necessary for LISTED COMPANY AUDITS
General points considered during quality control process:
- review carried out by personnel with approp experience?
- review performed by a member of audit team who is more senior than the auditor who carried out testing?
- has the level of review been adequately documented?
- do working papers comply with ISA (UK) 230 Audit documentation
- has a review of the sufficiency and approp evidence as whole and overall truth and fairness of FS been carried out by the engagement partner?
- have specialists carried out specific reviews if appropriate (e.g. tax)?
- has audit manager review been conducted and a schedule of issues prepared for partner review/decision?
- has audit partner performed their review of high risk areas and matters for partner attention?
