Copyright 2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett Date of t
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12-Copyright 2006 McGraw-Hill Australia Pty Ltd
Revised PPTs t/a Auditing and Assurance Services
in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Chapter 12 Completion and Review
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
The nature of completion and
review procedures
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Date of the Audit Report
• Important because it establishes date of auditor’s
responsibility for knowledge of events that should be reflected in the financial report
• Audit report should be dated when it is actually signed, and no earlier than date of directors’ declaration
• Ensures financial report was completed and formally accepted by officers of company prior to auditor
expressing an opinion
Learning Objective 1:
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Audit procedures after balance date
• Many audit procedures performed after balance date as normal tests of balances, e.g.:
subsequent payment; and
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Analytical procedures after balance date
• Auditor is also required to apply analytical procedures at
or near completion of the audit to:
report;
knowledge of entity; and
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Subsequent Events Review
• AASB 110 (IAS 10) indicates that financial reports
should reflect the effects of certain events occurring up
to time of completion (defined as date of directors’
declaration or approval of financial report by owners or controlling management)
• Auditor’s responsibility to consider subsequent events is extended up to the date on which auditor signs the audit report Refer AUS 706/ASA 560 (ISA 560)
Learning Objective 2:
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Types of Events Subsequent to
Balance Date
• Two types of events may materially affect financial
reports These are:
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Type 1 or Adjusting Events
• Events, both favourable and unfavourable, that provide evidence of, or further elucidate conditions that existed
at balance date
• Financial effect of such events need to be brought to
account (amounts in the financial statements need to be adjusted)
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Examples of Adjusting Events
• Subsequent collection of a material account receivable that has been treated as uncollectable at balance date
• A commercial assessment or legal determination,
subsequent to balance date, that establishes definitively
a claim that was in existence, but of an uncertain
amount, at balance date
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Type 2 or Disclosing Events
• Do not relate to a condition that existed at balance date;
• Include both favourable and unfavourable events that create new conditions, as distinct from any condition that might have existed at balance date;
• If material, disclose in the notes to the accounts
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Examples of Type 2 Events
• A fire or flood loss after balance date, not fully covered
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Events Between Balance Date and
Date of Audit Report
• The auditor has a responsibility to apply audit
procedures sufficient to enable auditor to determine
whether all material Type 1 and Type 2 events have
been appropriately adjusted for (Type 1) or disclosed (Type 2) in the financial report, up until the date of the audit report
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Events subsequent to the date of
the audit report
• Auditor has no responsibility to seek audit evidence to identify such events
• Where auditor becomes aware of events that have a material effect on financial report and the report has not yet been issued (sent to shareholders), auditor should discuss the matter with management and seek to have
an amended financial report issued
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Events subsequent to the issue of
the financial report
• If material events come up or are brought to auditor’s attention after financial report has been sent to
shareholders, auditor should discuss matter with
management
• Where decision made to issue new financial report,
auditor should perform procedures necessary to form
an opinion on revised financial report
• Auditor should take steps to prevent reliance on
superseded financial report and audit report
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Solicitors’ representation letter
• Auditor should obtain letter from solicitors consulted by the client during the year to obtain evidence on
existence, completeness, valuation and presentation of legal issues identified during audit
• All enquiries of legal representatives of clients, and their responses to these enquiries (representations) will be documented in this representation letter
• Example representation letter contained at Exhibit 12.2 (pp 570-571)
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Management representation letter
• A written representation letter, prepared by auditor and signed by management, which formalises management responses to inquiries made by auditor during audit, and also clarifies management’s responsibilities
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Reliability of management
representation letter
• Limited in its reliability as audit evidence, and is usually used to corroborate other evidence (should not replace other evidence gathered by auditor)
• Might be the only (primary) evidence available to
support management’s intentions of future actions
• Example contained at Exhibit 12.3 (pp 574-575)
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Review of working papers and
financial report
• Undertaken at end of the engagement as a final check
to ensure that all significant matters and problems have been identified, considered and satisfactorily resolved
• Must consider size and nature of errors, as they might affect risk assessment and audit testing
• Immaterial errors identified during audit may be
considered material when aggregated, and thus require adjustment
Learning Objective 4:
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Review of the financial report
In considering presentations and disclosures for each
account balance and related note disclosures, the auditor must gather evidence to support the following assertions:
(i) Occurrence and rights and obligations - disclosed
events, transactions and other matters have occurred and pertain to the entity;
(ii) Completeness - all disclosures that should have been
included in the financial report have been included (iii) Classification and understandability – financial;
information is appropriately presented and described
and disclosures are clearly expressed;
(iv) Accuracy and valuation - financial and other information
is disclosed fairly and at appropriate amounts.
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Review of the financial report
(Cont.)
• Having collected evidence on other assertions related to account balances and classes of transactions, auditor will ensure that disclosures are fairly represented
• Auditor will further ensure that the financial information
is appropriately classified and is understandable
• Auditor should also ensure that their name is not
associated with misleading information
• Auditor should finally ‘step back’ and ensure that the
view presented by the financial report and all associated information is consistent with the underlying state of
affairs
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Review of other information contained in
annual report
• Other information in annual report is not part of the
financial report and is not covered by the audit report, e.g directors’ report
• Auditor should review other information to identify:
• Auditor who identifies a material inconsistency or
misstatement of fact needs to determine whether the
audited financial report or the other information needs to
be amended
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Appropriateness of the Going Concern
Basis
• As well as assessing risk of going concern problems at planning stage, AUS 708/ASA 570 (ISA 570) requires auditor to assess once more at final review stage in
order to confirm appropriateness of going concern
principle as a basis for preparing financial report
• If not clear that going concern basis is appropriate,
additional audit procedures might be necessary
Learning Objective 5:
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Assessing going concern at
completion stage
• Additional procedures include:
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Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett
Slides prepared by Roger Simnett
Comfort Letters
• Auditor needs to confirm arrangements made with third parties concerning provision of additional finance to
support audited entity, and the capacity of the third party
to provide promised support
• Often a parent entity will support subsidiary in financial difficulty:
assistance to subsidiary for fixed period.
repayment of financial debts owed by subsidiary.