COMPLETING THE AUDIT AND POST-AUDIT
RESPONSIBILITIES
Accounting 151
After the fieldwork is almost
complete, a series of procedures are
generally carried out to complete or
finish the audit. These procedures
primarily include the following:
A. Identify and evaluate
potential contingencies
and commitments which
may have an effect on the
financial statements.
B. Perform procedures to
identify subsequent events
that may affect the
financial statement under
audit.
C. Review the
reasonableness of
management’s assessment
of the use of the going
concern assumption.
D. Obtain the management
representation letter.
Likewise, wrap up procedures are
performed to eliminate loose ends
and to ensure that all available
information have been
appropriately considered.
IDENTIFYING AND
EVALUATING POTENTIAL
CONTINGENCIES AND
COMMITMENTS
A critical step in the audit process is
the identification and evaluation of
potential contingencies and
commitments that may have an
impact on the financial statements.
Contingencies and commitments
are important to readers of financial
statements because they represent
future cash flow requirements.
PAS 37 provides guidance as to
whether an estimated loss from a
contingency should be recorded or
disclosed. Those estimated losses
that require disclosure are known as
a provision, which is a liability of
uncertain timing or amount. On the
other hand, those estimated losses
that require disclosure only is
known as a contingent liability. A
contingent liability is defined as a
possible obligation that arises from
past events and whose existence
will be confirmed only by the
occurrence or non-occurrence of
one or more uncertain future events
not wholly within the control of the
entity. Alternatively, a contingent
liability is a present obligation that
an outflow of resources will be
required to settle the obligation or
the amount of obligation cannot be
measured with sufficient reliability.
A contingent asset is a possible
asset that arises from past events
and whose existence will be
confirmed only by the occurrence
or non-occurrence of one or more
uncertain future events not wholly
within the control of the entity.
Examples of loss contingencies
include the following:
A. Pending or threatened
litigation for patent
Prepared by: Mohammad Muariff S. Balang, CPA, First Semester, AY
2013-2014
infringement, product
warranties or product
defects.
B. Guaranties of third party
obligations.
C. Discounted notes
receivable or factored
accounts receivable.
D. Disputed income tax
deductions.
E. Estimated losses on
purchase commitments.
F. Line of credit
commitments to third
parties.
Further, PAS 37 prohibits the
recognition of contingent assets and
contingent liabilities. However,
information about contingent
liabilities and contingent assets
must be disclosed in certain
circumstances. Accordingly,
exemption from disclosure is
allowed in situations where the
information would seriously
prejudice the position of the entity
in dispute with other parties.
Audit Procedures for
Commitments and Contingencies
The auditor’s objectives in the audit
of commitments and contingencies
are to determine whether all
significant commitments and
contingencies as of the statement of
financial position date are shown
properly in the financial statements
and the disclosures made are in
accordance with the identified
acceptable financial reporting
framework.
The management, not the auditor, is
responsible for identifying and
deciding the appropriate accounting
treatment for contingent liabilities.
In many audits, it is impractical for
auditors to uncover contingencies
without management’s cooperation.
Hence, searching for potential loss
contingencies requires the auditor’s
exercise not only keen judgment
but some creativity, since the
existence of contingent liabilities is
not always readily apparent.
Because of the nature of
commitments and contingencies,
analytical procedures have limited
application. Some of the procedures
specifically designed to detect
contingent liabilities include the
following:
A. Inquire of management
about the possibility of
unrecorded contingencies.
B. Read minutes of board of
directors’ and
shareholders’ meetings
for indications of lawsuits
or other contingencies.
C. Read correspondence and
communication files of
the client and review
related documents.
D. Read contracts, loan
agreements, lease
Page|1 of 17
 agreements and similar  The settlement
documents. of a lawsuit
E. Analyze legal expenses after the
for the period under audit statement of
year and examine financial
documents from attorneys position date
that may suggest litigation for an amount
is pending or in progress. different from
F. Obtain a letter from each that recorded in
major attorney performing the year-end
legal services for the financial
client as to the status of statements.
pending litigation or other
contingent liabilities. B. Type II subsequent
G. Review current year events – also known as
working papers for nonrecognized subsequent
indication of potential events, these events
contingencies. provide evidence of
H. Examine letters of credit conditions that arose after
in force as of statement of the date of the financial
financial position date and statements and only
obtain confirmation of the require disclosures in the
used and unused balance. financial statements.
I. Review accounting Examples include:
estimates related to  Purchase or
identified contingencies in disposal of a
accordance with business entity.
appropriate auditing  Sale of shares
standards. of stock or
J. Review reports prepared issuance of
by agents of the Bureau of bonds by the
Internal Revenue and entity.
other taxing authorities  Loss of the
such as the Bureau of entity’s
Customs. manufacturing
K. Read news items related facility or assets
to the company, including resulting from a
any media comment or casualty such as
articles which might a fire or flood
indicate the existence of and not fully
environmental or other covered by
liabilities. insurance.
 Losses on
PERFORMING SUBSEQUENT receivables
EVENTS PROCEDURES (PSA caused by
560) Financial statements, and condition such
consequently the auditor’s report, as a casualty
may be affected by certain events arising
that occur after the date of the subsequent to
financial statements. These events the statement of
are referred to as subsequent financial
events. Ordinarily, financial position date.
reporting frameworks identify two
types of subsequent events: Since these events may potentially
affect the financial statements and
A. Type I subsequent the auditor’s report, the
events – also known as management and the auditor
recognized subsequent should consider them. For audit
events, these events purposes, the auditor is
provide evidence of responsible only with those events
conditions that existed at that occur subsequent to the date
the date of the financial of the financial statements but
statements and thus, before the date of the auditor’s
require adjustment of the report and those that become
financial statements. known to the auditor after the date
Examples include: of the auditor’s report.
 An
uncollectible
account
receivable
resulting from
continued
deterioration of
a customer’s
financial
condition
leading to
bankruptcy
after statement
of financial
position date.

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2013-2014 Page|2 of 17
 D. Date the financial
statements are issued –
the date that the
auditor’s report and
audited financial
statements are made
available to third
parties.

The date the financial

statements are issued
generally depends on
the regulatory
environment of the
entity. In some
circumstances, the date
the financial statements
are issued may be the
date that they are filed
with a regulatory
Relevant Dates in the authority. Since audited
Consideration of Subsequent financial statements
Events cannot be issued
without an auditor’s
report, the date that the
A. Date of the financial audited financial
statements – the date of statements are issued
the end of the latest must not only be at or
period covered by the later than the date of the
financial statements. auditor’s report, but
must also be at or later
B. Date of approval of the than the date the
financial statements – auditor’s report is
the earlier date on which provided to the entity.
those with the
recognized authority,  EVENTS OCCURRING
the management or BETWEEN THE DATE OF
those charged with THE FINANCIAL
governance have STATEMENTS AND THE
asserted that all the DATE OF THE AUDITOR’S
statements comprising REPORT
the financial statements
have been prepared and
that those with the The auditor should perform audit
recognized authority procedures designed to obtain
have taken sufficient appropriate audit
responsibility for those evidence that all events occurring
financial statements. between the date of the financial
statements and the date of the
auditor’s report that require
C. Date of the auditor’s adjustment of, or disclosure in, the
report – the date the financial statements have been
auditor dates the report identified. These procedures would
on the financial ordinarily include:
statements in
A. Obtain an understanding
accordance PSA 700.
of any procedures
management has
The auditor’s report established to ensure that
cannot be dated earlier subsequent events are
than the date on which identified.
the auditor has obtained B. Inquire of management
sufficient appropriate and those charged with
audit evidence on which governance where
to base the opinion on appropriate as to whether
the financial statements. any subsequent events
Sufficient appropriate have occurred which
audit evidence includes might affect the financial
evidence that all the statements.
statements that C. Read minutes, if any, of
comprise the financial the meetings, of the
statements have been entity’s owners,
prepared and that those management and those
with the recognized charged with governance,
authority have asserted that have been held after
that they have taken the date of the financial
responsibility for those statements and inquiring
financial statements. about matters discussed at
Consequently, the date any such meetings for
of the auditor’s report which minutes are not yet
cannot be earlier than available.
the date of approval of
D. Read the entity’s latest
the financial statements.
subsequent interim

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2013-2014 Page|3 of 17
 financial statements, if
any.
E. Read the entity’s latest
available budgets, cash
flow forecasts and other
related management
reports for periods after
the date of the financial
statements.
F. Inquire, or extending
previous oral or written
inquiries, of the entity’s
legal counsel concerning
litigation and claims.
G. Consider whether written
representations covering
particular subsequent
events may be necessary
to support other audit
evidence and thereby
obtain sufficient
appropriate audit
evidence.
The auditor should take into
account the auditor’s risk
assessment in determining the
nature and extent of such audit
procedures. The subsequent events
procedures that the auditor
performs may also depend on the
information that is available and, in
particular, the extent to which the
accounting records have been
prepared since the date of the
financial statements. Moreover, the
auditor is not expected to perform
additional audit procedures on
matters to which previously applied
audit procedures have provided
satisfactory conclusions.
When, as a result of the procedures
performed, the auditor identifies
events that require adjustment of, or
disclosure in, the financial
statements, the auditor should
determine whether each such event
is appropriately reflected in those
financial statements.
 FACTS DISCOVERED AFTER
THE DATE OF THE
AUDITOR’S REPORT BUT
BEFORE THE DATE THE
FINANCIAL STATEMENTS
ARE ISSUED
The auditor has no obligation to
perform any audit procedures
regarding the financial statements
after the date of the auditor’s report.
During this period, it is the
responsibility of the management to
inform the auditor of events that
may affect the financial statements.
When, after the date of the auditor’s
report but before the financial
statements are issued, the auditor
becomes aware of a fact which may
materially affect the financial
statements, the auditor should:
A. Discuss the matter with
management and, where
appropriate, those charged
with governance.
B. Determine whether the
financial statements need
amendment.
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2013-2014 Page|4 of 17
C. Inquire how management
intends to address the
matter in the financial
statements.
If management amends the
financial statements, the auditor
should:
A. Carry out the audit
procedures necessary in
the circumstances on the
amendment.
B. Issue a new auditor’s
report on the amended
financial statements. The
new auditor’s report
should not be dated earlier
than the date of approval
of the amended financial
statements.
However, when management does
not amend the financial statements
in circumstances where the auditor
believes they need to be amended,
then:
A. If the auditor’s report has
not yet been provided to
the entity, the auditor
should modify the opinion
as required by PSA 705
and then provide the
auditor’s report to the
entity.
B. If the auditor’s report has
already been provided to
the entity, the auditor
should notify
management and those
charged with governance,
not to issue the financial
statements to third parties
before the necessary
amendments have been
made.
C. If the financial statements
are nevertheless
subsequently issued
without the necessary
amendments, the auditor
should take appropriate
action, to seek to prevent
reliance on the auditor’s
report.
Effect on the Date of the Auditor’s
Report
If the subsequent event is of Type I
that result in adjustment without
disclosure, the audit report should
bear the original audit report date.
This is because the condition
already existed as of the financial
statement date and did not actually
occur in the subsequent period.
However, if the subsequent event is
of Type I that result in adjustment
and disclosure or is of Type II, the
auditor may either:
A. Date the report as of the
completion of the audit
procedures on the new
subsequent event.
In this case, the auditor is
taking responsibility for
all subsequent events that
occur up to the new audit
report date. Thus, the
 auditor will have to
extend the subsequent
event review procedures
to identify other
subsequent events that
may have occurred up to
the new audit report date.
B. Dual date the report such
as “March 16, 2013,
except as to Note 9, which
is as of April 16, 2013.”
Dual dating supplements
the original audit report
date with a current date
limited specifically to the
note describing the
subsequent event. In this
case, the auditor limits his
responsibility for
subsequent events
occurring after the
original date of his report
only to the specific event
referred to in the note.
 FACTS DISCOVERED AFTER
THE FINANCIAL
STATEMENTS
HAVE BEEN ISSUED
After the financial statements have
been issued, the auditor has no
obligation to perform any audit
procedures regarding such financial
statements. However, when, after
the financial statements have been
issued, a fact becomes known to the
auditor that, had it been known to
the auditor at the date of the
auditor’s report, may have caused
the auditor to amend the auditor’s
report, the auditor should:
A. Discuss the matter with
management and, where
appropriate, those charged
with governance.
B. Determine whether the
financial statements need
revision and, if so,
C. Inquire how management
intends to address the
matter in the financial
statements.
If management revises the financial
statements, the auditor should:
A. Carry out the audit
procedures necessary in
the circumstances on the
revisions.
B. Review the steps taken by
management to ensure
that anyone in receipt of
the previously issued
financial statements
together with the auditor’s
report thereon is informed
of the situation.
C. Issue a new auditor’s
report with an Emphasis
of a Matter paragraph on
the revised financial
statements. The new
auditor’s report should
not be dated earlier than
the date of approval of the
amended financial
statements.
Prepared by: Mohammad Muariff S. Balang, CPA, First Semester, AY
2013-2014
If management does not take the
necessary steps to ensure that
anyone in receipt of the previously
issued financial statements is
informed of the situation and does
not revise the financial statements
in circumstances where the auditor
believes they need to be revised, the
auditor should:
A. Notify management and
those charged with
governance, that the
auditor will seek to
prevent future reliance on
the auditor’s report.
B. If, despite such
notification, management
or those charged with
governance do not take
these necessary steps, the
auditor should take
appropriate action to seek
to prevent reliance on the
auditor’s report.
 OMITTED PROCEDURES
DISCOVERED AFTER THE
AUDITORS
REPORT HAS BEEN ISSUED
Auditors are not required to review
working papers once an audit report
is issued. However, an entity’s
quality control program may
disclose the omission of auditing
procedures considered necessary at
the time of the audit. In this
situation the auditor should follow
the following guidelines:
A. Assess the importance of
the omitted procedures to
the auditor’s ability to
support his opinion.
Results of other audit
procedures that were
applied may compensate
for or make the omitted
procedure less important.
Evaluating such results
may involve:
 Reviewing the
working papers.
 Discussing the
circumstances
with the
engagement
personnel.
 Re-evaluating the
scope of the audit.
B. Undertake to apply the
omitted procedures or the
corresponding alternative
procedure.
If the auditor determines
that the omission of the
procedures impairs his
current ability to support
his opinion and the
auditor believes that there
are persons current
relying or likely to rely
on the report, the auditor
should promptly apply
the omitted procedures or
the corresponding
alternative procedures.
Page|5 of 17
 If, after applying the
omitted procedures, the
auditor determines that
the financial statements
are materially misstated
and the auditor’s report is
inappropriate, the auditor
should discuss the matter
with the management and
take steps to prevent
future reliance on the
report.
EVALUATING
REASONABLENESS OF THE
USE OF THE GOING
CONCERN ASSUMPTION (PSA
570)
The going concern assumption is a
fundamental principle in the
preparation of financial statements.
Under the going concern
assumption, an entity is viewed as
continuing in business for the
foreseeable future. Accordingly,
assets and liabilities are recorded on
the basis that the entity will be able
to realize its assets and discharge its
liabilities in the normal course of
business.
Management’s Responsibility
Some financial reporting
frameworks require that general
purpose financial statements be
prepared on a going concern basis,
unless management either intends
to liquidate the entity or to cease
operations, or has no realistic
alternative but to do so. Thus,
managements are explicitly
required to make a specific
assessment of the entity’s ability to
continue as a going concern.
In other financial reporting
frameworks, there may be no
explicit requirement for
management to make a specific
assessment of the entity’s ability to
continue as a going concern.
Nevertheless, since the going
concern assumption is a
fundamental principle in the
preparation of the financial
statements, management has a
responsibility to assess the entity’s
ability to continue as a going
concern even if the financial
reporting framework does not
include an explicit responsibility to
do so.
Management’s assessment of the
entity’s ability to continue as a
going concern involves making a
judgment, at a particular point in
time, about inherently uncertain
future outcomes of events or
conditions. The following factors
are relevant to that judgment:
A. The degree of uncertainty
associated with the
outcome of an event or
condition increases
significantly the further
into the future an event or
condition or the outcome
occurs. For that reason,
most financial reporting
frameworks that require
Prepared by: Mohammad Muariff S. Balang, CPA, First Semester, AY
2013-2014
an explicit management
assessment specify the
period for which
management is required
to take into account all
available information.
B. The size and complexity
of the entity, the nature
and condition of its
business and the degree to
which it is affected by
external factors affect the
judgment regarding the
outcome of events or
conditions.
C. Any judgment about the
future is based on
information available at
the time at which the
judgment is made.
Subsequent events may
result in outcomes that are
inconsistent with
judgments that were
reasonable at the time
they were made.
Auditor’s Responsibility
The auditor’s responsibility is to
obtain sufficient appropriate
evidence about the appropriateness
of management’s use of the going
concern assumption in the
preparation and presentation of the
financial statements and to
conclude whether there is a material
uncertainty about the entity’s
ability to continue as a going
concern. This responsibility exists
even if the financial reporting
framework used in the preparation
of the financial statements does not
include an explicit requirement for
management to make a specific
assessment of the entity’s ability to
continue as a going concern. It is to
be emphasized that the absence of
any reference to going concern
uncertainty in an auditor’s report
cannot be viewed as a guarantee as
to the entity’s ability to continue as
a going concern.
To fulfill his responsibilities with
regards to the use or non-use of the
going concern assumption by the
client’s management, the auditor
should consider the following:
 RISK ASSESSMENT
PROCEDURES AND
RELATED PROCEDURES
A. When performing risk
assessment procedures as
required by PSA 315, the
auditor should consider
whether there are events
or conditions that may
cast significant doubt on
the entity’s ability to
continue as a going
concern.
In so doing, the auditor
should determine whether
management has already
performed a preliminary
assessment of the entity’s
ability to continue as a
going concern and:
Page|6 of 17
  If such an Financial Events and
assessment has Conditions
been
performed, the  Net liability or net
auditor should current liability
discuss the position.
assessment with  Fixed-term
management borrowings
and determine approaching
whether maturity without
management realistic prospects
has identified of renewal or
events or repayment; or
conditions that, excessive reliance
individually or on shortterm
collectively, borrowings to
may cast finance long-term
significant assets.
doubt on the  Indications of
entity’s ability withdrawal of
to continue as a financial support
going concern by creditors.
and, if so,
 Negative
management’s
operating cash
plans to address
flows indicated by
them.
historical or
 If such an prospective
assessment has financial
not yet been statements.
performed, the
 Adverse key
auditor should
financial ratios.
discuss with
management  Substantial
the basis for the operating losses or
intended use of significant
the going deterioration in
concern the value of assets
assumption, and used to generate
inquire of cash flows.
management  Arrears or
whether events discontinuance of
or conditions dividends.
exist that,  Inability to pay
individually or creditors on due
collectively, dates.
may cast  Inability to
significant comply with the
doubt on the terms of loan
entity’s ability agreements.
to continue as a  Change from
going concern. credit to cash-on-
delivery
If events or conditions transactions with
that may cast significant suppliers.
doubt on the entity’s  Inability to obtain
ability to continue as a financing for
going concern are essential new
identified after the product
auditor’s risk assessments development or
are made, the auditor’s other essential
assessment of the risks of investments.
material misstatement
may need to be revised. Operating Events and
Conditions
B. The auditor should remain
alert throughout the audit  Management
for audit evidence of intentions to
events or conditions liquidate the entity
that may cast significant or to cease
doubt on the entity’s operations.
ability to continue as a  Loss of key
going concern. management
personnel without
The following are replacement.
examples of events or  Loss of a major
conditions that, market, key
individually or customers,
collectively, may cast franchise, license,
significant doubt about or principal
the going concern suppliers.
assumption:  Labor difficulties.

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2013-2014 Page|7 of 17
  Shortages of assessment of the entity’s
important ability to continue as a
supplies. going concern is a key
 Emergence of a part of the auditor’s
highly successful consideration of
competitor. management’s use
of the going
Other Events and concern assumption.
Conditions
In evaluating
 Non-compliance management’s
with capital or assessment of the entity’s
other statutory ability to continue as a
requirements. going concern, the
auditor should cover the
 Pending legal or
same period as that used
regulatory
by management to make
proceedings
its assessment as required
against the entity
by the applicable
that may, if
financial reporting
successful, result
framework, or by law or
in claims that the
regulation if it specifies a
entity is unlikely
longer period.
to be able to
satisfy.
 Changes in law or If management’s
regulation or assessment of the entity’s
government policy ability to continue as a
expected to going concern covers less
adversely affect than twelve months from
the entity. the date of the financial
 Uninsured or statements as defined in
underinsured PSA 560 (Redrafted), the
catastrophes when auditor should request
they occur. management to extend its
assessment period to at
least twelve months from
When evaluating the that date. If management
significance of the above is unwilling to make or
list on the entity’s ability extend its assessment
to continue as a going when requested to do so
concern, the auditor by the auditor, the auditor
should remember that should consider the
these events or conditions implications for the
can be mitigated by auditor’s report.
management’s plans for
future actions and other
factors. For example, the B. In evaluating
effect of an entity being management’s
unable to make its normal assessment, the auditor
debt repayments may be should consider whether
counter-balanced by management’s assessment
management’s plans to includes all relevant
maintain adequate cash information of which the
flows by alternative auditor is aware as a
means, such as by result of the audit.
disposing of assets, Moreover, the auditor
rescheduling loan should inquire of
repayments, obtaining management as to its
new equity capital, knowledge of events or
reducing dividend conditions beyond the
payments or disposing period of management’s
operations that produce assessment that may cast
negative cash flows. significant doubt on the
Similarly, the loss of a entity’s ability to
principal supplier may be continue as a going
mitigated by the concern.
availability of a suitable
alternative source of C. When events or
supply. conditions have been
identified that may cast
 EVALUATING significant doubt on the
MANAGEMENT’S entity’s ability to continue
ASSESSMENT OF THE as a going concern, the
ENTITY’S ABILITY TO auditor should obtain
CONTINUE AS A GOING sufficient appropriate
CONCERN audit evidence to
determine whether or not
a material uncertainty
A. The auditor should
exists through performing
evaluate management’s
additional audit
assessment of the entity’s
procedures, including
ability to continue as a
consideration of
going concern.
mitigating factors. These
Management’s

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2013-2014 Page|8 of 17
 procedures should B. When the auditor
include: concludes that the use of
 When the going concern
management assumption is
has not yet appropriate in the
performed an circumstances but a
assessment of material uncertainty
the entity’s exists, the auditor should
ability to determine whether the
continue as a financial statements:
going concern,  Adequately
requesting describe the
management to principal events
make its or conditions
assessment. that may cast
 Evaluating significant
management’s doubt on the
plans for future entity’s ability
actions in to continue as a
relation to its going concern
going concern and
assessment, management’s
whether the plans to deal
outcome of with these
these plans is events or
likely to conditions.
improve the  Disclose clearly
situation and that there is a
whether material
management’s uncertainty
plans are related to
feasible in the events or
circumstances. conditions that
 When the entity may cast
has prepared a significant
cash flow doubt on the
forecast, and entity’s ability
analysis of the to continue as a
forecast is a going concern
significant and, therefore,
factor in that it may be
considering the unable to
future outcome realize its assets
of events or and discharge
conditions in its liabilities in
the evaluation the normal
of course of
management’s business.
plans for future
action. If adequate disclosure is
made in the financial
 AUDIT REPORTING AND statements, the auditor
CONCLUSIONS should express an
unmodified opinion and
A. Based on the audit include an Emphasis of
evidence obtained, the Matter paragraph in the
auditor should conclude auditor’s report to:
whether, in the auditor’s  Highlight the
judgment, a material existence of a
uncertainty exists related material
to events or conditions uncertainty
that, individually or relating to the
collectively, may cast event or
significant doubt on the condition that
entity’s ability to continue may cast
as a going concern. significant
doubt on the
entity’s ability
A material uncertainty
to continue as a
exists when the
going concern.
magnitude of its potential
 Draw attention
impact and likelihood of
to the note in
occurrence is such that, in
the financial
the auditor’s judgment,
statements.
appropriate disclosure of
the nature and
implications of the If adequate disclosure is
uncertainty is necessary not made in the financial
for the fair presentation statements, the auditor
of the financial should express a qualified
statements or for it not to or adverse opinion, as
be misleading. appropriate. The auditor
should state in the

Prepared by: Mohammad Muariff S. Balang, CPA, First Semester, AY

2013-2014 Page|9 of 17
 auditor’s report that there
is a material uncertainty
that may cast significant
doubt about the entity’s
ability to continue as a
going concern.
C. If the financial statements
have been prepared on a
going concern basis but,
in the auditor’s judgment,
management’s use of the
going concern assumption
in the financial statements
is inappropriate, the
auditor should express an
adverse opinion
regardless of whether or
not the financial
statements include
disclosure of the
inappropriateness of
management’s use of the
going concern
assumption.
If the entity’s
management is required,
or elects, to prepare
financial statements when
the use of the going
concern assumption is not
appropriate in the
circumstances, the
financial statements are
prepared on an alternative
basis (e.g., liquidation
basis). The auditor may
be able to perform an
audit of those financial
statements provided that
the auditor determines
that the alternative basis
is an acceptable financial
reporting framework in
the circumstances.
The auditor may be able
to express an unmodified
opinion on those financial
statements, provided
there is adequate
disclosure therein but
may consider it
appropriate or necessary
to include an Emphasis of
Matter paragraph in the
auditor’s report to draw
the user’s attention to that
alternative basis and the
reasons for its use.
 OTHER RESPONSIBILITIES
A. The auditor should
communicate with those
charged with governance
events or conditions
identified that may cast
significant doubt on the
entity’s ability to continue
as a going concern. Such
communication with those
charged with governance
should include the
following:
 Whether the
events or
conditions
constitute a
material
uncertainty.
Prepared by: Mohammad Muariff S. Balang, CPA, First Semester, AY
2013-2014
 Whether the use
of the going
concern
assumption is
appropriate in the
preparation and
presentation of the
financial
statements.
 The adequacy of
related disclosures
in the financial
statements.
B. When there is significant
delay in the approval of
the financial statements
by management or those
charged with governance
after the date of the
financial statements, the
auditor should inquire as
to the reasons for the
delay. When the auditor
believes that the delay
could be related to events
or conditions relating to
the going concern
assessment, the auditor
should perform the
abovementioned
additional audit
procedures necessary, as
well as consider the effect
on the auditor’s
conclusion regarding the
existence of a material
uncertainty.
OBTAIN MANAGEMENT
REPRESENTATION LETTER
(PSA 580)
A written representation is a
written statement by management
provided to the auditor to confirm
certain matters or to support other
audit evidence. Written
representations for purposes of
PSAs do not include financial
statements, the assertions therein,
or supporting books and records.
Written representations are an
important source of audit evidence.
If management modifies or does not
provide the requested written
representations, it may alert the
auditor to the possibility that one or
more significant issues may exist.
Further, a request for written, rather
than oral, representations in many
cases may prompt management to
consider such matters more
rigorously, thereby enhancing the
quality of the representations.
Although written representations
provide necessary audit evidence,
they do not provide sufficient
appropriate audit evidence on their
own about any of the matters with
which they deal. Furthermore, the
fact that management has provided
reliable written representations does
not affect the nature or extent of
other audit evidence that the auditor
obtains about the fulfillment of
management’s responsibilities, or
about specific assertions.
Management written
representations complement the
Page|10 of 17
audit evidence the auditor the matters included in the
accumulates but they do not representations.
substitute for the performance of
audit procedures designed to obtain To reinforce the need for
necessary evidence for the management to make informed
expression of an opinion. In representations, the auditor may
addition, a written representation request that management include in
impresses upon management its the written representations
responsibility for the assertions in confirmation that it has made such
the financial statements. Because of inquiries as it considered
their importance, the auditor is appropriate to place it in the
required to obtain a management position to be able to make the
representation letter. requested written representations.

 FROM WHOM WRITTEN  FORM AND CONTENT OF

REPRESENTATIONS ARE WRITTEN
REQUESTED REPRESENTATIONS

Written representations are The written representations should

requested from those responsible be in the form of a representation
for the preparation and presentation letter addressed to the auditor. This
of the financial statements. Those letter should include:
individuals may vary depending on A. A representation that
the governance structure of the management has fulfilled
entity, and relevant law or its responsibility for the
regulation. However, management, preparation and
rather than those charged with presentation of the
governance, is often the responsible financial statements as set
party. Written representations may out in the terms of the
therefore be requested from the audit engagement.
entity’s chief executive officer and B. A representation that the
chief financial officer, or other financial statements are
equivalent persons in entities that prepared and presented in
do not use such titles. accordance with the
applicable financial
Due to its responsibility for the reporting framework.
preparation and presentation of the C. A representation that
financial statements, and its management has provided
responsibilities for the conduct of the auditor with all
the entity’s business, management relevant information
would be expected to have agreed in the terms of the
sufficient knowledge of the process audit engagement and that
followed by the entity in preparing all transactions have been
and presenting the financial recorded and are reflected
statements and the assertions in the financial
therein on which to base the written statements.
representations. In some cases, D. A representation that
however, management may decide describes management’s
to make inquiries of others who responsibilities as
participate in preparing and described in the terms of
presenting the financial statements the engagement.
and assertions therein, including E. Other representations
individuals who have specialized required by other PSAs
knowledge relating to the matters namely, PSA 240, PSA
about which written representations 250, PSA 450, PSA 540,
are requested. Such individuals may PSA 550, PSA 560 and
include: PSA 570.
A. An actuary responsible F. Other representations the
for actuarially determined auditor determines to be
accounting measurements. necessary to support other
B. Staff engineers who may audit evidence relevant to
have responsibility for the financial statements or
and specialized one or more specific
knowledge about assertions in the financial
environmental liability statements.
measurements.
C. Internal counsel who may
 PERIOD COVERED BY THE
provide information
WRITTEN
essential to provisions for
REPRESENTATIONS
legal claims.

The representation letter should be

In some cases, management may
dated as near as practicable to, but
include in the written
not after, the date of the auditor’s
representations qualifying language
report on the financial statements.
to the effect that representations are
This is because written
made to the best of its knowledge
representations are necessary audit
and belief. It is reasonable for the
evidence, thus, the auditor’s
auditor to accept such wording if
opinion cannot be expressed, and
the auditor is satisfied that the
the auditor’s report cannot be dated,
representations are being made by
before the date of the written
those with appropriate
representations.
responsibilities and knowledge of

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2013-2014 Page|11 of 17

Further, the written representations
should be for all financial
statements and period or periods
referred to in the auditor’s report.
Management needs to reaffirm that
the written representations it
previously made with respect to the
prior periods remain appropriate.
The auditor and management may
agree to a form of written
representation that updates written
representations relating to the prior
periods by addressing whether there
are any changes to such written
representations and, if so, what they
are.
 AUDITOR’S DOUBT AS TO
THE RELIABILITY OF
WRITTEN
REPRESENTATIONS AND
WRITTEN
REPRESENTATIONS
REQUESTED NOT
PROVIDED
If the auditor has concerns about
the competence, integrity, ethical
values or diligence of management,
or about its commitment to or
enforcement of these, the auditor
should determine the effect that
such concerns may have on the
reliability of representations (oral
or written) and audit evidence in
general. If the auditor concludes
that the written representations are
not reliable, the auditor should take
appropriate actions, including
determining the possible effects on
written representations
the opinion in the auditor’s report
in accordance with PSA 705.
If management does not provide
one or more of the requested
written representations, the auditor
should: A. Discuss the matter with
management.
B. Re-evaluate the integrity
of management and
evaluate the effect that
this may have on the
reliability of
representations (oral or
written) and audit
evidence in general.
C. Take appropriate actions,
including determining the
possible effect on the
opinion in the auditor’s
report in accordance with
PSA 705.
However, the auditor is required
disclaim an opinion on the financial
statements in accordance with PSA
705 if:
A. The auditor concludes
that there is sufficient
doubt about the integrity
of management such that
the
about management’s

1
0. We have disclosed to you all information in responsibilities are
not reliable.
B. The written representations about management’s
relation to allegations of fraud, or suspected fraud, affecting the
entity’s financial statements responsibilities are not provided by
management. communicated by employees,
former
employees, analysts, regulators or others. (PSA
A SAMPLE MANAGEMENT REPRESENTATION LETTER
240 )

[Entity Letterhead] 11. We have disclosed to

you all known instances of
compliance [Date]
effects should
preparing financial
To [Auditor’s Name]
non-compliance or suspected non-
with laws and regulations whose
be considered when
statements. (PSA 250)

This representation letter is provided in connection with 12. We have

disclosed to you the identity of the your audit of the financial statements
of ABC Company entity’s related parties and all the related party for the
year ended December 31, 2012 for the purpose relationships and
transactions of which we are of expressing an opinion as to whether the
financial aware. (PSA 550)
statements are presented fairly, in all material respects, 13. [Any other
matters that the auditor may consider in accordance with Philippine
Financial Reporting necessary]
Standards.
(Senior Executive Officer)
We confirm, to the best of our knowledge and belief, (Senior Financial
Officer) having made such inquiries as we considered
necessa
ry for
the
purpose
of
appropr
iately

Prepared by: Mohammad Muariff S. Balang, CPA, First Semester, AY

2013-2014 Page|12 of 17
 informi
ng
ourselv
es :
Financial Statements OTHER AUDIT COMPLETION
PROCEDURES
Other audit procedures performed at the completion stage
1. We have fulfilled our responsibilities for the
of the audit include the following:
preparation and presentation of the financial statements as
set out in the terms of the audit A. Performing final
analytical procedures.
engagement dated [insert date] and, in PSA 520 requires the auditor to
design and perform particular, the financial statements are fairly analytical
procedures near the end of the audit presented in accordance with
Philippine that assist the auditor when forming an overall Financial
Reporting Standards. conclusion as to whether the financial statements

2. Significant assumptions used by us in making are consistent with the

auditor’s understanding of accounting estimates, including those
measured the entity. Analytical procedures applied in this at fair value,
are reasonable. (PSA 540) stage should focus on:
3. Related party relationships and transactions have  Assessing the
validity of the conclusions been appropriately accounted for and
disclosed reached and evaluating the overall financial in accordance
with the requirements of Philippine statement presentation.
Financial Reporting Standards. (PSA 550) The conclusions drawn from the
results of

4. All events subsequent to the date of the financial analytical

procedures designed and

statements and for which Philippine Financial performed in the

overall review stage are

Reporting Standards require adjustment

or intended to corroborate conclusions formed

disclosure have been adjusted or disclosed. (PSA during the audit

of individual components or

560) elements of the financial statements. This

5. The effects of uncorrected misstatements are assists the

auditor to draw reasonable

immaterial, both individually and in

the conclusions on which to base the auditor’s
aggregate, to the financial
statements as a opinion.
whole. A list of the uncorrected misstatements is 
Identifying unusual fluctuations that were not
attached to the representation letter. (PSA
450) previously identified.

6. [Any other matters that the auditor may consider The results of
the analytical procedures

necessary] performed at the overall review stage may

Information Provided identify a previously unrecognized risk of 7. We

have provided you with: material misstatement. In circumstances All
information, such as records and where a previously unrecognized risk has
documentation, and other matters that are been identified, the auditor is
required to relevant to the preparation and revise the auditor’s assessment
of the risks of presentation of the financial statements. material
misstatement and modify the further Additional information that you
have planned audit procedures accordingly.

requested from us. B. Reviewing the working papers and drawing

 Unrestricted access to those within the conclusions on the
results of the audit procedures entity. performed.
8. All transactions have been recorded in the
A review of working papers or the audit
he documentation is undertaken at the engagement
financial statements.
as a final check to ensure that all significant
9. We have disclosed to you the results of our matters and problems have
been identified, assessment of the risk that the financial considered and
satisfactorily resolved. This wrap-up statements may be materially
misstated as a review allows evaluating the performance of less result

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2013-2014 Page|13 of 17
 of fraud. (PSA 240 ) experienced personnel, quality control and 10. We
have disclosed to you all information in reduction of bias. Working
papers may be relation to fraud or suspected fraud that we are
reviewed two or three times by different members aware of and that
affects the entity and involves: of the audit team.

Management.

Employees who have significant roles in C. Obtaining the approval
of the client regarding internal control. disclosures and any
adjustments made to the

Others where the fraud could have a financial statements.

material effect on the financial statements. Since the client is the party
responsible for the financial statements, approval must first be
obtained for the proposed
adjusting entries to the
statements. If
management does not
agree that a misstatement
has occurred or otherwise
decides not to correct the
misstatement, the auditor
includes the details of the
misstatements on a auditor’s report.
summary of audit
differences which shall
form part of the audit
working papers.
D. Evaluation of the overall
financial statements
presentation.
After reaching an
agreement concerning
which proposed audit
adjustments should be
included, the financial
statements is prepared by
the management which
may first be drafted by
the auditor. The
mathematical accuracy of
the statements must be
tested by recomputing
balances and tracing
reported numbers to
specific references within
the working papers.
Additionally, most
auditors use a disclosure
checklist to make sure
that all required
information has been
included in the financial
statements. Such
checklist should be
completed and reviewed
by experienced members
of the audit team.
However, the checklist is
not to be considered as a
substitute of the auditor’s
own knowledge of the
acceptable financial
reporting framework.
E. Review of other
information and
documents that contain
the audited financial
statements and
ascertain their
consistency.
Other information in the
annual report of the client
and documents used in
securities offering is not
part of the financial
report and is not covered
by the auditor’s report.
However, the auditor
should review these other
information to identify
material inconsistencies
and misstatements of
facts which might
mislead the users of the
F. Communication with
management and those
charged with
governance.
Communication of audit
issues and results to
management should be
made. PSA 260 and PSA
265 provide guidance on
this matter.
COMMUNICATION WITH
THOSE CHARGED WITH
GOVERNANCE (PSA 260)
An effective two way
communication between the auditor
and the management and those
charged with governance is an
important aspect of the audit. This
communication assists:
A. The auditor and those
charged with governance
in understanding matters
related to the audit in
context, and in developing
a constructive working
relationship. This
relationship is developed
while maintaining the
auditor’s independence
and objectivity.
B. The auditor in obtaining
from those charged with
governance information
relevant to the audit.
C. Those charged with
governance in fulfilling
their responsibility to
oversee the financial
reporting process, thereby
reducing the risks of
material misstatement of
the financial statements.
 WITH WHOM TO
COMMUNICATE
The auditor should determine the
appropriate person(s) within the
entity’s governance structure with
whom to communicate.
Governance structures vary by
jurisdiction and by entity, reflecting
influences such as different cultural
and legal backgrounds, and size and

Prepared by: Mohammad Muariff S. Balang, CPA, First Semester, AY

2013-2014 Page|14 of 17
ownership characteristics. When issues of risk and
the auditor communicates with a materiality with
subgroup of those charged with the auditor, and to
governance, for example, an audit identify any areas
committee, or an individual, the in which they may
auditor should determine whether request the auditor
the auditor also needs to to undertake
communicate with the governing additional
body. procedures.
 Assist the auditor
In some cases, all of those charged to understand
with governance are involved in better the entity
managing the entity, for example, a and its
small business where a single environment.
owner manages the entity and no
one else has a governance role. In However, care should be
these cases, if matters required by observed when
PSAs are communicated with communicating with
person(s) with management those charged with
responsibilities, and those person(s) governance about the
also have governance planned scope and timing
responsibilities, the matters need of the audit so as not to
not be communicated again with compromise the
those same person(s) in their effectiveness of the audit,
governance role. The auditor should particularly where some
nonetheless be satisfied that or all of those charged
communication with person(s) with with governance are
management responsibilities involved in managing the
adequately informs all of those with entity.
whom the auditor would otherwise
communicate in their governance C. Significant findings on
capacity. the audit including:
 The auditor’s
 MATTERS TO BE views about
COMMUNICATED significant
qualitative aspects
The auditor should communicate of the entity’s
with those charged with accounting
governance: practices
including
A. The responsibilities of the accounting
auditor in relation to the policies,
financial statement audit, accounting
including that: estimates and
 The auditor is financial
responsible for statement
forming and disclosures.
expressing an  Significant
opinion on the difficulties, if any,
financial encountered
statements that during the audit.
have been  Unless all of those
prepared by charged with
management with governance are
the oversight of involved in
those charged managing the
with governance. entity:
 The audit of the a. Signific
financial ant
statements does deficien
not relieve cies, if
management or any, in
those charged the
with governance design,
of their impleme
responsibilities. ntation
or
operatin
B. An overview of the
g
planned scope and timing
effective
of the audit.
ness of
internal
Communication regarding control
the planned scope and that
timing of the audit may: have
 Assist those come to
charged with the
governance to auditor’
understand better s
the consequences attention
of the auditor’s and
work, to discuss have

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2013-2014 Page|15 of 17
 been
commun  ESTABLISHING THE
icated to COMMUNICATION
manage PROCESS
ment.
b. Signific The auditor should communicate
ant with those charged with governance
matters, with the form, timing and expected
if any, general content of communications
arising as follows:
from the
audit
A. The communication with
that
those charged with
were
governance regarding
discusse
significant findings from
d or
the audit should be in
subject
writing when, in the
to
auditor’s professional
correspo
judgment, oral
ndence
communication would not
with
be adequate. Written
manage
communications need not
ment.
include all matters that
c. Written
arose during the course of
represen
the audit.
tations
the
auditor B. The communication
is should be done on a
requesti timely basis.
ng.
The appropriate timing
 Other matters for communications will
arising from the vary with the
audit that, in the circumstances of the
auditor’s engagement. Relevant
professional circumstances include the
judgment, are significance and nature of
significant to the the matter, and the action
oversight of the expected
financial reporting to be taken by those
process, if any. charged with governance

D. In the case of listed

entities, the auditor should
communicate with those C. The communication
charged with governance: between the auditor and
 A statement that those charged with
the engagement governance should be
team and others in adequate for the purpose
the firm as of the audit.
appropriate, the
firm and, when The auditor need not
applicable, design specific
network firms procedures to support the
have complied evaluation of the two-way
with relevant communication between
ethical the auditor and those
requirements with charged with governance.
regards to Rather, that evaluation
independence. may be based on
 All relationships observations resulting
and other matters from audit procedures
between the firm, performed for other
network firms, purposes. If it has not, the
and the entity that, auditor should evaluate
in the effect, if any, on the
the auditor’s auditor’s assessment of
professional the risks of material
judgment, may misstatement and ability
reasonably be to obtain sufficient
thought to bear on appropriate audit
independence. evidence, and should take
 The related appropriate action.
safeguards that
have been applied  DOCUMENTATION
to eliminate
identified threats Where matters required to be
to independence communicated are communicated
or reduce them to orally, the auditor should document
an acceptable them, and when and to whom they
level. were communicated.

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2013-2014 Page|16 of 17
Documentation of oral
communication may include a copy
of minutes prepared by the entity
retained as part of the audit
documentation where those minutes
are an appropriate record of the
communication. Where matters
have been communicated in
writing, the auditor should retain a
copy of the communication as part
of the audit documentation.

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2013-2014 Page|17 of 17