COMPLETING THE AUDIT

The procedures to “wrap-up” an audit engagement are:

STEP 1: Review for Related Party Transaction

PAS 24 (Related Party Disclosure), a party is related to an entity if:
a) Direct or indirectly through one or more intermediaries, the party:
i. Controls, is controlled by, or is under common control with, the entity
(includes parents, subsidiaries, and fellow subsidiaries);
ii. Has an interest in the entity that gives it significant influence over the entity;
or
iii. Has joint control over the entity;
b) The party is an associate of the entity;
c) The party is a joint venture in which the entity is a venture;
d) The party is a member of the key management personnel of the entity or its parent;
e) The party Is a close member of the family of any individual referred to in (a) or (d);
f) The party is an entity that is controlled, jointly controlled or significantly influenced
by, or for which significant voting power in such entity resides with, direct or
indirectly, any individual referred to in (d) or;
g) The party is a post-employment benefit plan for the benefit of employees of the
entity, or any entity that is a related party of the entity.
The following suggest related party transactions:

 Transaction which have abnormal terms of trade, such as unusual price, interest
rates, guarantees, and repayment terms.
 Transaction which lack an apparent logical business reason for their occurrence.
 Transaction in which substance differ from form.
 Transaction processed in unusual manner
 High volume or significant transactions with certain customers or suppliers as
compared with others.
 Unrecorded transaction such as receipt or provision of management services at
no charge.
Example: Making a loan without scheduled terms for the repayment of the funds.
Management is responsible for the identification and disclosure of related parties and
transactions with such parties. Management is required to implement adequate internal
control to ensure that related party transactions are appropriately identified in the
formation system and disclosed in the financial statements.
 PAS 24 (Related Party Disclosure) provides that if an entity has participated in material
related party transactions, it should disclose the nature of the relationship, information
about the transaction, outstanding balances, provision for doubtful accounts and the
expense recognized which is necessary for an understanding of the potential effect of the
relationship on the financial statements.

STEP 2: Review of Subsequent Events

PSA 560, the term “subsequent events” refers to events occurring between the date of
the financial statements and the date of the auditor’s report, and facts that become
known to the auditor after the auditor’s report.
The audit procedures to identify subsequent events ordinarily include the following:
a. Reviewing the entity’s established procedures to identify subsequent events.
b. Reading the minutes of the meeting of the shareholders, the BOA and committees held
subsequent to the date of the FS
c. reading the entity’s latest available interim FS, appropriate budgets and forecasts
d. Inquiring or extending previous oral or written inquiries, of the entity’s lawyers
concerning litigation and claims
e. Inquiring to management as to whether subsequent events have occurred which might
affect the FS.
PSA 560 (subsequent events) provides that the auditor does not have any responsibility
to perform procedures or make any inquiry regarding the FS after the date of the
auditor’s report. The entity’s management has the responsibility to inform the auditor the
auditor of facts which may affect the FS. If the events may materially affect the FS the
auditor should consider whether the FS needs amendment, discuss the matter with
management, and take the action appropriate in the circumstances.

STEP 3: Make inquiries of a client’s legal counsel

 The auditor is required to communicate directly with a client’s attorney about
liabilities arising from litigation, claims and assessments.
A list of legal issues should be prepared by the client’s management,
rather than the client’s attorney. This information is sent by the auditor to the
attorney, requesting information about:
a. Pending or threatened litigation, claims and assessments, and
b. Unasserted claims and assessments
 The client should request the entity to furnish the following information for all
pending or threatened litigation, claims and assessments, and to comment on
differences between the attorney’s and management’s views:
 a. A description of the nature of the matter, progress to date, and
action the client intends to take.
b. An evaluation of the likelihood of an unfavorable outcome and an
estimate, if one can be made, of the amount or range of potential
loss.
c. A statement that management’s list of pending or threatened
claims is complete, or identification of any omissions.
If the management refuses to give the auditor permission to communicate
with the entity’s lawyer or the lawyer refuses to reply, this would be
considered a SCOPE LIMITATION that would require the auditor to issue either
qualified or disclaimer of opinion. If the lawyer is unable to estimate the
likelihood of an unfavorable outcome including the amount of or range of
potential loss on one or more items, the auditor should consider adding an
emphasis of a matter paragraph to an unmodified report to draw the
attention of the readers of financial statement to this uncertainty.

 In the case of unasserted claims which the client has not disclosed, the lawyer
is not required to note them in his or her reply to the auditor. However, the
lawyer is generally required to inform the client of the omission and to
consider withdrawing if the client fails to inform the auditor.

STEP 4: Obtain a management representation letter

The 580 requires an auditor to obtain sufficient appropriate audit evidence that the
entity’s management
1. The representation letter-
a. Confirms the oral representations given by management to the auditor and
reduces the possibility of misunderstanding between the client and the
auditor.
b. Reminds management of its primary responsibility for the financial
statements.
c. Should be addressed to the auditor.
d. Should be dated as of the audit report date
e. Should be signed by the chief executive officer and the chief financial officer.
f. Is not a substitute for the application of other necessary auditing procedures.
2. If management refuses to provide a representation that the auditor considers
necessary, this constitutes a scope limitation and the auditor should express a
qualified opinion or a disclaimer of opinion.
3. Written representations requested from management may be limited to matters that
are considered either individually or collectively material to the financial statements.
STEP 5: Search for unrecorded liabilities
In certain circumstances, an alternative to sampling for searching for
unrecorded liabilities might be more appropriate, such as when there are relatively
few large vendors that account for a substantial portion of the year's purchases and
the year-end accounts payable. In such a case a more effective and efficient audit
procedure might be auditing reconciliations of recorded payables to vendor's
statements or confirmations. When the risk of unrecorded liabilities is not significant,
a properly designed substantive analytical test might adequately reduce the risk of
undetected material understatement of recorded payables.
Caution should be exercised, however, to ensure that this process is assigned
to a member of the audit team with sufficient experience, judgement, and
knowledge of the client to identify what is unusual.

STEP 6: Perform final review stage analytical procedures

Analytical procedure are required to be performed in the planning and overall review
stages of the audit. According to PSA 520, the auditor should apply analytical procedures at
or near the end of the audit when forming an overall conclusion as to whether the financial
statements as a whole are consistent with the auditor's knowledge of business. Analytical
procedures applied in the completion phase of the audit should focus on:

 Identifying unusual fluctuations that were not previously identified.

 Assessing the validity of the conclusions reached and evaluating the overall
financial statement presentation.

STEP 7: Review adequacy of disclosures using disclosure checklist that lists all
specific disclosures required by PFRS and the SEC, if appropriate
• Preferably there should be disclosure checklist for the same like:

- financial statements disclosure checklist,

- company’s ordinance 5th disclosure checklist

- IFRS / AFRS disclosure checklist

• Don’t leave it on your staff - ask them to fill, but always review by yourself or some senior
person (manager, supervisory)

• Ask your staff to refer it with the financial statements set. It will be helpful in review.

STEP 8: Review for working papers

PURPOSE OF REVIEW
 • ISA 200 "Objectives and general principles governing on audit of financial statements"
the objective of an audit of financial statements as "to enable the auditor to express an opinion
on the financial statements"

• ISA 500 "Audit Evidence" requires that the auditor should obtain sufficient appropriate
audit evidence to be able to draw reasonable conclusion on which to base the audit opinion.

THINGS TO DO AT REVIEW

•The work has been performed in accordance with professional standards and
regulatory and legal requirements and agreed / standard scope.

• The evidence obtained is sufficient and appropriate to support the auditor's report.

• all standard procedure have been performed and documented before the issuance of
the auditor's report

STEP 9: Form an opinion

Is make up one’s mind or decide what one thinks about something.
The best way to offer/form an opinion is:
1. Think before you speak
 Think through exactly what you’re going to say and make sure your word
2. Ask people what they think
 Because sometimes everyone’s going to sway you to one side or the other if
you state that you’re undecided on something important.
3. Research all the different sides
 Talk about doing it because the internet is there to confirm your bias and you
may even respect their process and beliefs.
4. Provide the reasons for your point of view.
 Your opinion gains credibility when it’s backed up with solid data
5. And make sure you have all the facts.
 Everyone has the right to express their opinion, but make sure to do your
research and know the facts first. The more you know, the more you can put
into words what you mean to say.

Contributions:
Step 1-2 Sayat
Step 3-4 Clemencio
Step 5-6 Grantuza
Step 7-8 Austria
Step 9 Lasam
Prepared by:
Clemencio