COMPLETING THE

AUDIT

Module 9
 Learning Outcomes
After studying this module, the students are expected to:

▪ Identify the different considerations and audit procedures

performed to complete an audit engagement.

▪ Describe the requirements of PSAs for the different considerations

in completing the audit engagement.

▪ Describe the purpose and content of management representation

letters, management letter and significance of communication with
management and those charged with governance.
CONSIDERATIONS IN COMPLETING THE AUDIT ENAGEMENT

1. Identify and Evaluate Contingencies and Commitments

2. Perform Subsequent Events Procedures

3. Evaluate Going Concern Assumption

4. Identify Related Party Transactions

5. Obtain Management Representation Letter

Audit Procedures for Contingencies and Commitments

1. Inquiry with management, and those charged with governance, regarding possible
transactions which qualify for recognition in the financial statements.

2. Read the permanent file of the client, and review related documents, such as
contracts, loan
agreements.

3. Read correspondence and communication files of the client, such as letters sent
to/sent by government agencies, legal counsel, and other entities.

4. Review the minutes of meetings of the Board of Directors and the minutes of
meetings of shareholders for possible lawsuits and contingencies.

5. Send out confirmation letters with legal counsel and inspect replies for any pending
litigation or contingent liabilities.
▪ Events after the balance sheet
date are known as subsequent
events.
Subsequent
▪ PSA 560 Subsequent Events
requires the auditor to perform
procedures designed to obtain
sufficient appropriate audit Events
evidence that all events up to
the date of the auditor’s report
that may require adjustment
of, or disclosure in, the financial Financial
statements have been Statements
identified.
 Three major time periods involved
in
considering subsequent events:
• The period from the balance sheet date up to the
date of the auditor’s report.
1
• The period from the date of the auditor’s report up
to the date when the financial statements are
2 issued.
• The period from the time the financial statements
3 were issued onwards.
 Types of Subsequent
Events

Adjusting
events Non-adjusti
ng events
Audit Procedures to Identify Subsequent Events
1. Obtain an understanding of any procedures management has
established to ensure that subsequent events are identified.

2. Inquire of management and, where appropriate, those charged

with governance as to whether any subsequent events have
occurred which might affect the financial statements.

3. Read minutes of the meetings of shareholders, the board of

directors and audit and executive committees held after period
end and inquiring about matters discussed at meetings for which
minutes are not yet available.
Audit Procedures to Identify Subsequent Events

4. Read the entity’s latest available interim financial statements and,

as
considered necessary and appropriate, budgets, cash flow
forecasts and
other related management reports.

5. Inquiring of management as to whether any subsequent events

have
occurred which might affect the financial statements.
Poll Question #1
GOING CONCERN
CONSIDERATION

Going
Not
Going
The objectives of the auditor regarding the entity’s
going concern are:
 
a. To obtain sufficient appropriate audit evidence regarding the
appropriateness of management’s use of the going concern
basis of accounting in the preparation of the financial
statements;

b. To conclude, based on the audit evidence obtained, whether a

material uncertainty exists related to events or conditions that
may cast significant doubt on the entity’s ability to continue as
a going concern; and

c. To report in accordance with PSA 570.

Examples of Events or Conditions That May Cast
Significant Doubt on the Entity’s Ability to Continue as
a Going Concern:
Financial
▪ Net liability or net current liability position.
▪ Fixed-term borrowings approaching maturity without realistic prospects of
renewal or repayment; or excessive reliance on short-term borrowings to finance
long-term assets.
▪ Indications of withdrawal of financial support by creditors.
▪ Negative operating cash flows indicated by historical or prospective financial
statements.
▪ Adverse key financial ratios.
▪ Substantial operating losses or significant deterioration in the value of assets
used to generate cash flows.
▪ Inability to pay creditors on due dates.
▪ Inability to comply with the terms of loan agreements.
 Examples of Events or Conditions That May Cast
Significant Doubt on the Entity’s Ability to Continue as
a Going Concern:
Operating
▪ Management intentions to liquidate the entity or to cease operations.
▪ Loss of key management without replacement.
▪ Loss of a major market, key customer(s), franchise, license, or principal supplier(s).
▪ Labor difficulties.
▪ Shortages of important supplies.
 
Other
▪ Non-compliance with statutory or regulatory requirements.
▪ Pending legal or regulatory proceedings against the entity that may, if successful,
result in claims that the entity is unlikely to be able to satisfy.
▪ Changes in law or regulation or government policy expected to adversely affect the
entity.
▪ Uninsured or underinsured catastrophes when they occur.
 Related Parties and Related-Party
Transactions
▪ The auditor should perform audit procedures to obtain sufficient
appropriate audit evidence regarding the identification and
disclosure by management of related parties and the effect of
related party transactions that are material to the financial
statements.

▪ Management is responsible for the identification and disclosure

of related parties and transactions with such parties.

▪ The auditor needs to have a level of knowledge of the entity’s

business and industry that will enable identification of the
events, transactions and practices that may have a material
effect on the financial statements.
 Obtain Management Representation
Letter
▪ PSA 580 Written Representations, states that “The
auditor shall request written representations from
management with appropriate responsibilities for the
financial statements and knowledge of the matters
concerned.”

▪ A written representation is a written statement by

management, signed by two responsible company
officials, provided to the auditor to confirm certain
representations, and matters to support financial
statements assertions and other audit evidence.
 Action if Management Refuses to
Provide
Representation Letter
▪ 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 .
Poll Question #2
 Learning Outcomes
After studying this module, the students are expected to:

▪ Identify the different considerations and audit procedures

performed to complete an audit engagement.

▪ Describe the requirements of PSAs for the different considerations

in completing the audit engagement.

▪ Describe the purpose and content of management representation

letters, management letter and significance of communication with
management and those charged with governance.