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Flashcards in Week 13 Deck (14):
1

Final Audit Procedures

1.Review for contingent liabilities
2.Review for subsequent events
3.Accumulate final evidence
4.Evaluate results, & document quality control
5.Issue Audit Report
6.Communicate

2

Why should auditors care about contingent liabilities?

Review for contingent liabilities

Relates to this year’s operations – c/b material.
Users should be told to ensure F/S are:
Relevant
Reliable
Examples:
Potential Lawsuits
Income Tax Disputes
Unused balances in outstanding letters of credit
Thus required to search and evaluate

3

Commitments

Review for contingent liabilities

Examples:
Leases
Royalties
Agreement to purchase

Important characteristic:
Commit the firm to a set of fixed conditions in the future
Need to be disclosed in the f/s notes

Search for unknown commitments is usually performed as part of the audit of each cycle
Auditor needs to identify these

4

A fire one month after year end destroys 75% of the inventory in the client’s only warehouse. Does it impact the f/s?
Example of what?

2.Review for subsequent events

5

Assessment of subsequent events:

2.Review for subsequent events

Type One
Conditions causing the change in valuation existed at or before year end.
vs.
Type Two
Conditions causing the change in valuation came into being after
year end. Conditions causing the change in valuation came into being after year end.

6

Evaluating Results

4. Evaluate results, & document quality control

To form an opinion:
Evaluate audit evidence obtained
Evaluate effects of unrecorded misstatements and qualitative aspects of entity’s accounting
Evaluate whether the financial statements are properly prepared and presented according to standards
Evaluate fair presentation of financial statements in accordance with the applicable reporting framework

7

2 Choices if Insufficient

4. Evaluate results, & document quality control

More Evidence
Qualified Opinion

8

Misstatements

4. Evaluate results, & document quality control

Misstatements are differences between a reported financial statement item and the correct reporting as required by standards
Differences could relate to item’s amount, classification, presentation or disclosure
Misstatements can be unintentional (error) or due to fraud
Auditor evaluates whether misstatements need to be corrected

9

Unadjusted misstatement worksheet

4. Evaluate results, & document quality control

This working paper would track:
Errors or potential errors that an auditor identified throughout the audit
Prior year misstatements

Helps to identify whether the financial statements may be materially misstated

10

2 Choices if Material Misstatement

4. Evaluate results, & document quality control

F/S Adjusted
Qualified Opinion

11

Standard Unqualified Report if….

5.Issue Audit Report

Audit has taken place
GAAS followed in all respects
Sufficient appropriate evidence has been accumulated & GAAS examination standards have been meet
F/S are fairly presented in accordance with an appropriate basis of accounting
No circumstances exist that would require modifying the report or additional explanation

12

How to decide type of modified report

5.Issue Audit Report

Determine why a departure is required.
Audit Related: Scope has been restricted
Accounting Related: Not prepared in accordance with GAAP

Determine the materiality level
Immaterial
Material but not pervasive
Material and pervasive

13

Type of modified report

F/S are materially misstated + Material but not pervasive = Qualified

Inability to obtain sufficient or appropriate audit evidence + Material but not pervasive = Qualified

F/S are materially misstated + Material and pervasive = Adverse

Inability to obtain sufficient or appropriate audit evidence + Material and pervasive = Disclaim

14

Auditor Communication's

6.Communicate
Who:
Responsible for governance (Audit committee and/or management )

What:

Required:
Illegal acts
Significant Misstatements
Reportable internal control conditions
Subsequent discovery of facts

Optional:
Explain CAS
Demonstrate Independence
Disagreements or difficulties
Assessment of mgmt’s choices
Management Letter

Why:
Assist in important oversight role (governance)