University:
California State University, Northridge
Course:
ACCT 460 | Auditing Principles and Analytics
Academic year:

2013
Views:

340

Pages:

23
Author:

keniaeveyik

Completing the Audit Chapter 24 Part 2 Learning Objective 4 Conduct a post-balance-sheet review for subsequent events. Period Covered by Subsequent Events Review Client’s ending balance sheet date 12-31-09 Period to which review for subsequent events applies Audit Date client report issues financial date statements 3-11-10 3-26-10 Period for processing the financial statements Types of Subsequent Events  Those that have a direct effect on the financial statements and require adjustment  Those that have do not have a direct effect on the financial statements but for which disclosure is required Requiring Adjustment     Declaration of bankruptcy by a customer with an accounts receivable balance Settlement of a litigation at an amount different from the amount recorded on the books Disposal of equipment not being used in operations at a price below the current book value Sale of investments at a price below recorded cost Advisability of Disclosure Decline in the market value of securities held for temporary investment or resale  Issuance of bonds or equity securities  Decline in the market value of inventory as a consequence of government action barring further sale of a product  Uninsured loss of inventories as a result of fire  A merger or an acquisition  Audit Tests Two categories of audit procedures for the subsequent events review: 1. Procedures normally integrated as a part of the verification of year-end account balances. 2. Procedures performed specifically for the purpose of discovering events or transactions that must be recognized as subsequent events. Audit Tests       Inquire of management Correspond with attorneys Review internal statements prepared subsequent to the balance sheet date Review records prepared subsequent to the balance sheet date Examine minutes issued subsequent to the balance sheet date Obtain a letter of representation Dual Dating  The first date is the date for the completion of field work except for a specific exception  The second date, which is always later, deals with the exception Example: An auditor returned to the client’s premises to perform audit tests pertaining only to the acquisition and completes those tests on March 31. The audit report will be dual-dated as follows: March 11, 2010, except for note 17, which is dated March 31, 2010. Learning Objective 5 Design and perform the final steps in the evidence-accumulation segment of the audit. Final Evidence Accumulation 1. 2. 3. 4. Perform final analytical procedures. Evaluate the going-concern assumption. Obtain a management representation letter. Consider information accompanying the basic financial statements. 5. Read other information in the annual report. Management Representation Letter Purposes of the letter: 1. To impress upon management its responsibility for the assertions in the financial statements. 2. To remind management of potential misstatements or omissions in the financial statements. 3. To document the responses from management to inquiries about various aspects of the audit. Four Categories in Management Representation Letter 1. Financial statements 2. Completeness of information 3. Recognition, measurement, and disclosure 4. Subsequent events Information Accompanying Basic Financial Statements Balance sheet Income statement Statement of cash flows Standard Basic auditor’s financial report statements Footnotes Detailed comparative statements Statistical data Schedule of insurance coverage Information accompanying basic financial statements Separate paragraph – unqualified, qualified, or disclaimer Learning Objective 6 Integrate the audit evidence gathered and evaluate the overall audit results. Evaluate Results  Sufficient appropriate evidence  Evidence supports auditor’s opinion  Financial statement disclosures Audit documentation review Independent review Summary of evidence evaluation Evaluating Results and Reaching Conclusions Actual audit evidence (by cycle, account, and objective) Evaluate results (by account and cycle) Audit procedures Sample size Items to select Timing Estimated misstatement (by account) Achieved audit risk (by account and cycle) Evaluating Results and Reaching Conclusions Evaluate overall financial statements Estimated misstatement (overall statements) Achieved audit risk (overall statements) Issue audit report Issue the Audit Report The audit report is the only thing that most users see in the audit process, and the consequences of issuing an inappropriate report can be severe. Learning Objective 7 Communicate effectively with the audit committee and management. Communicate with the Audit Committee and Management  Communicate fraud and illegal acts  Communicate internal control deficiencies  Other communication with audit committee  Management letters Learning Objective 8 Identify the auditor’s responsibilities when facts affecting the audit report are discovered after its issuance. Review for Subsequent Events and Discovery of Facts Client’s ending balance sheet date Audit report date 12-31-09 Period to which review for subsequent events applies Date client issues financial statements 3-11-10 3-26-10 Period for processing the financial statements Period in which subsequent discovery of facts is made