Audit book by m asif chapter 18 final matters

CHAPTER TWENTY THREEFINAL MATTERS LO # LEARNING OBJCTIVE SYL ICAP'S ABUS REFERENCE ICAP'S S TUDY TEXT REFERENC * PART A: WRI TTEN REPRESENTATION LO 1 DEFINITION OF WRITTEN REPRESENTA

CHAPTER TWENTY THREE

FINAL MATTERS

LO # LEARNING OBJCTIVE SYL ICAP'S ABUS

REFERENCE

ICAP'S S TUDY TEXT REFERENC * PART A: WRI TTEN REPRESENTATION

LO 1 DEFINITION OF WRITTEN REPRESENTATION (CHAPTER 15) SE TION 2

LO 2 WRITTEN REPRESENTATION ABOUT MANAGEMENT’S RESPONSIBILITI ES (CHAPTER 15) SE TION 2

LO 3 WRITTEN REPRESENTATIONS ABOUT SP CIFIC AS ERTIONS (CHAPTER 15) SE TION 2

LO 4 WRITTEN REPRESENATION AS AUDIT EVI DENCE (CHAPTER 15) SE TION 2 PART B: SUBSEQUENT EVENTS

LO 5 EVENTS OC STATEMENTS AND DATE OF AUDITOR’S REPORT URRING BETWE N DATE OF FINANCIAL (CHAPTER 15) SE TION 1

LO 6 FACTS DI AUDITOR’S REPORT) SCO VERED AFTER AUDITOR’S REPORT (REVISION IN (CHAPTER 15) SE TION 1 PART C: ADDITIONAL CONC PTS

LO 7 MANAGEMENT LETTER AND I TS CONTENTS (CHAPTER 5) SE TION 4.3

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PART A – WRITTEN REPRESENTATION

Written representation

A written statement by management provided to the auditor to confirm

certain matters or to support other audit evidence

Form and Date of written representations:

Written representations shall be:

 in the form of a letter

 addressed to auditor

 dated as near as possible, but not after, the date of auditor’s report

Representation

required about

management’s

responsibilities

Management has fulfilled its responsibility for the preparation of financial statements in accordance with the AFRF, as agreed in the terms of the audit engagement

a) Management has provided the auditor with all relevant information and access,

as agreed in the terms of the audit engagement, and

b) All transactions have been recorded in financial statements

Following is a list of other representations which are either:

1 required by different ISAs or

2 requested by auditor to support other audit evidence

Representation

required by

different ISAs

Significant assumptions and accounting estimates are reasonable (ISA 540)

Related party relationships and transactions have been appropriately accounted for and disclosed in accordance with the requirements of AFRF (ISA 550) All events subsequent to the date of financial statements for which AFRF requires adjustment or disclosure, have been adjusted or disclosed (ISA 560)

We have disclosed to you the results of our assessment of the risk that the financial statements may be materially misstated as a result of fraud (ISA 240)

We have disclosed to you all information in relation to fraud or suspected fraud that we are aware of and that affects the entity involving management, employees or others (ISA 240)

We have disclosed to you the identity of the entity’s related parties and all the related-party relationships and transactions of which we are aware (ISA 550)

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The effects of uncorrected misstatements are immaterial, both individually and in the aggregate, to the financial statements

as a whole (ISA 450)

We have disclosed to you all known instances of non-compliance or suspected non-compliance with laws and regulations affecting financial statements (ISA 250) Additional

Representations

requested by

auditor

e.g about Plans or intentions that may affect carrying amount or classification of assets and liabilities

e.g about deficiencies in internal control

1 Like Inquiry, written representation is an audit evidence

2 However, written representations, alone, do not provide sufficient appropriate audit evidence about matters to which they deal

3 It is only a supporting evidence and does not affect nature, timing and extent of other

evidence to be obtained

If written representation is not provided:

If management refuses to provide written representation to auditor, the auditor shall inquire

reason for refusal

Auditor shall:

 Re-evaluate the integrity of management

 Reconsider the impact on other representations and audit evidence

 Take appropriate actions, including considering effect on audit report

If written representation is contradicted by other evidence:

Auditor should consider:

 whether additional audit procedures are needed to resolve contradiction

 whether there is need to revise risk of material misstatement, including risk of fraud

 if auditor has concerns about integrity of management, document those concerns and

consider withdrawing from the audit

PART B – SUBSEQUENT EVENTS

LO 5: EVENTS OC URRING BETWEEN DATE OF FINANCIAL STATEMENTS AND DATE OF

AUDI TOR’S REPORT:

Auditor’s Responsibility:

Auditor’s responsibility is to perform audit procedures to obtain sufficient appropriate audit

evidence that all events subsequent to the date of the financial statements have been identified by

management and have been adjusted or disclosed, as appropriate

For this purpose, auditor performs:

 Active Review of subsequent events (i.e auditor actively searches for significant subsequent

events This review is performed till date of auditor’s report)

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 Passive Review of subsequent events (i.e auditor does not search subsequent events actively; rather he relies on information from management This review is performed after the date of auditor’s report but before financial statements are issued)

Auditor’s Procedures to fulfill responsibility:

Normal audit verification work:

Auditor may find information about subsequent events during his normal audit verification e.g

 In the audit of receivables, cash receipts from customers after the balance sheet date in the audit of receivables or bankruptcy of a debtor after balance sheet date

 In the audit of liabilities, review of subsequent payments to identify unrecorded liabilities

 In the audit of inventory, sale of inventory below cost after balance sheet date

Procedures aimed specifically at identifying subsequent events:

To meet his responsibility, auditor shall perform following procedures:

1) Inquiring of management and TCWG as to whether any subsequent events have occurred which might affect the financial statements (auditor may make specific inquiries relating to events adjusting or non-adjusting events)

2) Obtaining an understanding of procedures established by management to identify subsequent events

3) Reading minutes of subsequent meetings of the entity’s owners, management and TCWG and inquiring about matters discussed at any such meetings for which minutes are not yet available

4) Reading the entity’s subsequent interim financial statements, if any

5) Requesting management to provide written representation that “all events subsequent to the date of the financial statements requiring adjustment or disclosure have been adjusted

or disclosed”

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LO 6: FACTS DISCOVERED AFTER AUDITOR’S REPORT (REVISION IN AUDITOR’S REPORT):

If after the date of auditor’s report, auditor becomes aware a misstatement in financial statements

(e.g an error/fraud in financial statements), auditor shall:

 Discuss with management to determine whether financial statements need amendment

 If amendment is required, auditor shall inquire whether management agrees to amend

financial statements or not

If management agrees to amend financial

statements If management does not agree to amend financial statements

When financial

statements have

not been issued

Management’s Responsibilities:

–Management shall amend financial statements before issuance

Auditor’s Responsibilities:

Auditor shall:

–Carry out necessary audit procedures on the amendment

–Provide a new audit report on the amended financial statements

1 If auditor’s report has not been provided to entity, auditor shall modify the opinion

2 If auditor’s report has been provided to entity, auditor shall

notify management and TCWG not to issue the financial statements to third parties before the necessary amendments

When financial

statements have

been issued

Management’s Responsibilities:

–Management take necessary steps to ensure that users

do not rely on previously issued financial statements

–Management shall amend financial statements to re-issue them These financial statements shall include an additional note to explain the reason for the amendment

Auditor’s Responsibilities:

Auditor shall:

– Review the steps taken by management to ensure that users do not rely on previously issued financial statements

–Carry out necessary audit procedures on the amendment

–Provide a new audit report (on amended financial statements) that shall include an Emphasis of Matter Paragraph or Other Matter Paragraph, referring to the

 note in financial statements that explains reason for the amendment in financial statements, or

 earlier report provided by the auditor

Auditor shall take appropriate action to ensure that users are informed not to rely on financial statements

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PART C – ADDITIONAL CONCEPTS

Management Letter is a document prepared by auditor which states internal control weaknesses

discovered during the audit To provide value-added service to audit client, auditor also

communicate to management recommendations to overcome weakness

Management Letter is normally issued at the conclusion of the audit engagement and contains

following elements:

 Internal Control Weakness

 Risk faced by entity because of weakness

 Suggestions by auditor to remove control weaknesses

 Management’s Response

Professional

Clearance Letter Auditor Predecessor Auditor

Before Acceptance of audit client

To discuss whether there is any professional reason because of which engagement should not be accepted

Engagement Letter Auditor Management At start of the engagement Engagement Letter confirms acceptance and appointment of auditor Confirmation Letter Auditor External Parties During Audit To obtain information about entity from outside parties Representation

Letter Management Auditor Near the end of the audit

It reminds management about their responsibility for preparation of financial statements and for completeness of information provided to auditor

Audit Report Auditor (or TCWG) Members At the end of the audit The audit report expresses opinion on financial statements

Management

Letter/ Letter of

weakness Auditor Management

After the Audit Report

It includes:

–identified weaknesses in internal control, –risks because of weakness in internal

control, and

–recommendations to improve internal

control

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