Unit 11 Flashcards
What procedures are performed during the wrap up of an engagement?
- Review the audit file to ensure that the planned audit procedures were executed properly and completely (manager review and query list)
- Determine that all necessary matters have been appropriately considered, that all significant issues have been documented and conclusions reached
- Clear outstanding review notes and “to do” items and perform any audit procedures not yet completed
- Remove all unnecessary documentation, drafts and cleared review notes from the engagement files
- Consider the amount used for materiality. Are there factors or conditions about the client or its environment that have been identified during the audit that would cause the auditor to determine that a lower materiality threshold is appropriate?
What procedures are performed during the wrap up of an engagement? (Part 2)
- Reconsider the fraud risk assessment. When the auditor identifies misstatements in the financial statements, they consider whether such misstatements may be indicative of fraud. Where fraud has been detected, the pervasiveness of the fraud is considered.
- Revisit the planning documentation to ensure that all significant issues identified during the planning phase have been addressed.
- Perform analytical procedures on the adjusted financial statements to evaluate whether the final financial statement are consistent with the knowledge of the business obtained during the audit.
- Perform a review for contingent liabilities and commitments to ensure that they are appropriately accounted for or disclosed.
- Perform a review of subsequent events.
- Complete the engagement file on a timely basis.
What are contingent liabilities?
are existing or possible obligations on the balance sheet date when the final outcome is uncertain and contingent upon a future event.
What procedures are required for contingent liabilities?
- Inquire of management and others within the entity if there are any unreported contingent liabilities
- Review meeting minutes and correspondence between the entity and its external legal counsel
- Review correspondence with legal counsel
- Review legal expense accounts for unexpected fluctuations
What is a subsequent event?
Events that occur after year end but before the issuance of the financial statements.
What is a type 1 subsequent event?
provide additional evidence with respect to conditions that existed at year end. The financial statements should be adjusted to reflect any material type 1 subsequent event up to the date of the audit report.
What is a type 2 subsequent event?
- do not provide additional evidence with respect to conditions that existed at year end
- will not result in changes to amounts in the financial statements. However, these events may be of such significance as to require disclosure in the financial statements.
What are 3 key dates to consider for the importance of subsequent events?
- The date on which the financial statements are approved.
- The date of the audit report.
- The date on which the financial statements are issued.
What happens when an event occurs between the date of the financial statements and the date of the auditor’s report (event A)?
where the auditor discovers a subsequent event that requires adjustment (type 1) or disclosure (type 2) in the financial statements, the auditor will ensure that the event is appropriately reflected in the financial statements before the auditor’s report is issued.
What happens when an event occurs between the date of the auditor’s report but before the date that the financial statements are issued (event B)?
the auditor has no obligation to gather evidence for events that occur after the date of the auditor’s report
but, if the auditor becomes aware of an event that occurs over this time period and requires adjustment, the auditor can:
- Provide a new auditor’s report on the amended financial statements
- Double date the auditor’s report. Where an auditor’s report is double dated, the date of the auditor’s report doesn’t change and a new date is added on the report where the amendment is referred to.
What happens when an events occurs after the financial statements have been issued (event C)?
the auditor has no obligation to gather evidence for events that occur after the financial statements have been issued.
However, if the auditor decides that the event is a type 1 event, the auditor should take action to prevent future reliance on the auditor’s report by withdrawing the report
- If it is decided that the financial statements need to be amended and the event giving rise to the amendment is pervasive to the financial statements, the auditor will provide a new auditor’s report on the amended financial statements. The new report will not be dated earlier than the approval date of the amended financial statements and include and emphasis of matter paragraph that describes the amendment.
- The auditor may also choose to double date the auditor’s report. Where an auditor’s report is double dated, the date of the auditor’s report doesn’t change and a new date is added on the report where the amendment is referred to.
What will an auditor discuss with those charged with governance at the end of an audit?
- The general approach and overall scope of the audit, including any expected limitations or additional requirements
- The selection of, or changes in, significant accounting policies and practices that have, or could have, a material effect on the entity’s financial statements
- The potential effect on the financial statements of any material risks and exposures (such as pending litigation) that are required to be disclosed in the financials statements
- Disagreements with management about matters that, individually or in aggregate, could be significant to the entity’s financial statements or the audit report
What will an auditor discuss with those charged with governance at the end of an audit? (Part 2)
- Expected modifications to the audit report
- Any practical difficulties encountered during the audit
- Any irregularities or suspected non-compliance with laws and regulations that came to the auditor’s attention during the audit
- Comments on the design and operation of internal controls and suggestions for their improvement
