Completion of the Audit:

Evaluating, Concluding and

Reporting
Learning outcomes:
After completion of this study unit you should be
able to (From Competency Framework):
• Evaluate the evidence and draws conclusions
(Level I)
• Evaluates the sufficiency and significance of the evidence
and/or results of analysis
• Draws conclusions as to whether each procedure performed
meets its objective
• Identifies and evaluates inconsistencies, unexpected
circumstances or findings, or findings that indicate possible
fraud, error or illegal acts and assess the impact on the
report
• Analyses and decides on the reasonableness of the
conclusions on the subject matter, based on an
understanding of the nature of the business and its
operations for the period and on the outcome of assurance
procedures
• Determines whether the subject matter conforms to the set of
criteria used for evaluation
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Learning outcomes:
After completion of this study unit you should be able to
(From Competency Framework):
• Evaluate the evidence and draws conclusions (Level I)
• Evaluates the reasonableness / fair presentation of the subject
matter as a whole
• Analyses the impact of unresolved uncorrected misstatements /
scope limitations in the context of materiality, and decides on the
need to gather additional evidence or to extend the scope of
procedures
• Assess the need to make corrections to the subject matter or other
remediation.
• Drafts the report upon completion of the Engagement
(Level X)
• Develops an appropriate report in accordance with the terms of the
engagement, and the applicable statutory, regulatory or
professional requirements
• Identifies and considers the impact of subsequent events on the
report
• Considers the impact of other information in documents containing
assurance reports on the report
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Standards applicable (Evaluating and
Concluding)
• ISA220 – Quality control
• ISA230 – Documentation
• ISA450 – Evaluation of misstatements
• ISA500 & ISA501 – Audit evidence
• ISA520 – Analytical procedures
• ISA550 – Related Parties
• ISA560 – Subsequent events
• ISA570 – Going concern
• Guidance "Trading whilst factually insolvent"
• SAICA 02/02 – Subordination agreements
• SAICA 03/02 – Letters of support
• IAS10 – Events after the BS date
• IAS37 – Provisions, Contingent liabilities and contingent assets

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Study Resources

Class 1 - Framework for Completion of the Audit / ISA's:

• Dynamic Auditing Chapter 14
• ISA450 – Evaluation of misstatements
• ISA220, 320, 330, SAAPS4, ISA580
Class 2 - Events after balance sheet date
• Your choice – Auditing Notes or Dynamic Auditing
• ISA560 Subsequent Events & RECP671 Notes on IAS10 and IAS37
Class 3 - Going concern & Factually Insolvency
• Your choice – Auditing Notes or Dynamic Auditing
• Subordination agreements – Dynamic Auditing
• Guidance "Trading whilst factually insolvent"
Class 4 & 5: Reporting & KAM
• Auditing Notes

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Were are we in the Audit Process?

PLANNING
Pre-
engagement
Activities

Reporting

CONTROL
TESTS

Completion
Substantive Testing

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Completion of the audit
Concluding &
Formulating
An audit
Consider opinion Quality
Subsequent 7 control
Events & Admin
6
5 1-6

Completion
7 steps
Consider 4 1 Sufficient &
Going Appropriate
Concern 3 2 Evidence?

Overall Final
evaluation Materiality
of financial "Overs and
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LOOKING TO THE FUTURE – THE GOAL

Audit opinion

Unmodified Modified

Unqualified
PLUS
Unqualified emphasis of Qualified Adverse Withhelding of
matter opinion opinion opinion
paragraph

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AUDIT OPINION
Material Matters Found?

NO YES

Audit Report = Unqualified (ISA Matters have an impact on the audit

700) opinion

No (ISA706) Yes (ISA705)

Emphasis of
See next slide
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NUST paragraph
AUDIT OPINION

YES!!! Matters have an impact on the audit

opinion…

Reason: Limitation on Scope – Unable to Reason: Difference with Framework

obtain sufficient appropriate audit (Difference in opinion) – Based on evidence
evidence – There is a Uncertainty. obtained, the financial statements as a whole
are NOT free from material misstatements.

Effect: Only Effect: Material Reason: Only Reason: Material

Material and Pervasive Material and Pervasive

Disclaimer of
Qualified Qualified Adverse opinion
opinion
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Overview of the Completion Stage
• Timing
• At the end of the audit after the audit work has been
completed and the draft financial statements received
• The last step before the auditor issues his/her audit report
• Reasons for the performance of the procedures
• Ensure that sufficient and appropriate audit evidence
was obtained to justify the opinion on the statements and to
limit the audit risk
• Form an opinion on the fair presentation of the financial
statements and
• Be able to issue an audit report
• Persons responsible for the completion of the
audit procedures
• Staff with the necessary experience and competence to
exercise professional judgement namely
• Audit seniors
• Audit managers
• Audit partners
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GOAL….
• Issue an audit report based on information obtained
throughout the audit.

The overall objective of the auditor are:

• To obtain reasonable assurance about whether the
financial statements as a whole
• Are free from material misstatement, whether due to
fraud or error,
• Thereby enabling the auditor to express an opinion on
whether the financial statements are prepared,
• In all material aspects
• In accordance with an applicable financial reporting
framework (IFRS/IAS's) and
• To report on the financial statements
• Communicate as required by the ISA's and in
accordance with the auditors
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Overview of the Completion Stage
STEPS IN COMPLETION (ONLY A FRAMEWORK):
STEP 1: Do you have sufficient and appropriate
audit evidence? (ISA230, ISA500) – Obtain
all audit evidence – IF YES – Move on.
STEP 2:Evaluate misstatements, Final Materiality
and search for unrecorded misstatements.
STEP3: Overall Review of financial information
STEP4: Going concern
STEP5: Subsequent events
STEP6: Concluding and Reporting (Done separately)
STEP7: Post-audit review (admin)

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AUDIT OPINION

STEP 1 YES!!! Matters have an impact on the audit

STEP 2
opinion…

Reason: Difference with Framework

Reason: Limitation on Scope –
Unable to obtain sufficient
appropriate audit evidence – There
is a Uncertainty.
(Difference in opinion - facts) – Based on
evidence obtained, the financial statements
as a whole are NOT free from material
misstatements.

Effect: Only Effect: Material Reason: Only Reason: Material

Material and Pervasive Material and Pervasive

Disclaimer of
Qualified Qualified Adverse opinion
opinion
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 Step 1: Do you have sufficient and appropriate audit evidence?

• The working papers is reviewed (ISQC1/ISA220 -

Review) by a senior person to ensure that sufficient
and appropriate audit (SCOPE LIMITATION?)
evidence have been obtained. Hierarchy of audit
evidence is considered (ISA500).
• Sufficient = Quantity (Affected by RMM and Quality of audit
evidence)
• Appropriate = Relevance (Addresses the Assertion being
tested) and Reliable (Source and Nature)
• Working papers (ISA220, 230 – Everything that should be
there – Reviewed by senior)

• Obtain the following from the client:

• Attorney's Letter – Enquiry from Legal Advisors (ISA501 &
SAAPS4)
• Management Representation Letter (ISA580)

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 Step 1: Do you have sufficient and appropriate audit evidence?

ISA330 par 18 states that Irrespective of the assessed risks of material

misstatement, the auditor SHALL design and perform Substantive
procedures for EACH MATERIAL class of transactions, account balance
and disclosure…

• ISA330 par 21 states that when the approach

to a significant risk consists only of
substantive procedures, those procedures
shall include tests of DETAIL.

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When is the evidence sufficient?

Transactions
Balances

Completeness
Completeness
Occurrence
Existence
Accuracy
Accuracy, Valuation
and allocation
Cut-off
Rights and
Obligations
Classification

Classification
Presentation &
Disclosure
Presentation &
Audit Opinion Disclosure
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Audit Opinion
 Step 2: Evaluation of misstatements identified during the audit (ISA450)

4. For purposes of the ISAs, the following terms have

the meanings attributed below:
(a) Misstatement – A difference between the amount,
classification, presentation, or disclosure of a
reported financial statement item and the amount,
classification, presentation, or disclosure that is
required for the item to be in accordance with the
applicable financial reporting framework.
Misstatements can arise from error or fraud. (Ref:
Para. A1)
(b) Uncorrected misstatements – Misstatements that the
auditor has accumulated during the audit and that
have not been corrected.
The difference between what Management included
in the AFS and what the Auditor say the amount,
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 Step 2: Evaluation of misstatements identified during the audit (ISA450)

Accumulation of Identified Misstatements

PAR 5. The auditor shall accumulate
misstatements identified during the audit, other
than those that are clearly trivial. (Ref: Para. A2–
A3)

Clearly Trivial (Doesn't mean "not material")

An amount that the auditor calculated. Any misstatement that was found
that is below this figure, needn't be taken to the "schedule of uncorrected
misstatements" (The accumulation of the amounts will not have a material
effect)
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 Step 2: Evaluation of misstatements identified during the audit (ISA450)

ISA450 A3. To assist the auditor in evaluating the effect of

misstatements accumulated during the audit and in
communicating misstatements to management and those
charged with governance, it may be useful to distinguish
between factual misstatements, judgmental
misstatements and projected misstatements.
• Factual misstatements are misstatements about which
there is no doubt.
• Judgmental misstatements are differences arising from
the judgments of management concerning accounting
estimates that the auditor considers unreasonable, or the
selection or application of accounting policies that the
auditor considers inappropriate.
• Projected misstatements are the auditor’s best estimate
of misstatements in populations, involving the projection of
misstatements identified in audit samples to the entire
populations from which the samples were drawn.
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 Step 2: Evaluation of misstatements identified during the audit (ISA450)
Consideration of Identified Misstatements as the Audit Progresses
6. The auditor shall determine whether the overall audit strategy and
audit plan need to be revised if:
(a) The nature of identified misstatements and the circumstances of their
occurrence indicate that other misstatements may exist that, when
aggregated with misstatements accumulated during the audit, could be
material; or (Ref: Para. A4)
(b) The aggregate of misstatements accumulated during the audit
approaches materiality determined in accordance with ISA 320. (Ref:
Para. A5)

WHAT TO DO?
WHAT TO DO?

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 Step 2: Evaluation of misstatements identified during the audit (ISA450)

Communication and Correction of Misstatements

8. The auditor shall communicate on a timely basis all
misstatements accumulated during the audit with the appropriate
level of management, (Ref: Para. A7–A9)
9. If management refuses to correct some or all of the
misstatements communicated by the auditor, the auditor shall
obtain an understanding of management’s reasons for not making
the corrections and shall take that understanding into account
when evaluating whether the financial statements as a whole are
free from material misstatement. (Ref: Para. A10)
12. The auditor shall communicate with those charged with
governance uncorrected misstatements and the effect that they,
individually or in aggregate, may have on the opinion in the
auditor’s report. The auditor’s communication shall identify material
uncorrected misstatements individually. The auditor shall request
that uncorrected misstatements be corrected. (Ref: Para. A21–
A23)
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 Step 2: Evaluation of misstatements identified during the audit (ISA450)

Step 2.1 Determine FINAL Materiality (BASED ON ACTUAL

FIGURES)
• ISA320 deals with Calculating Materiality for PLANNING and
PERFORMING the audit.
• ISA450 deals with the evaluation of misstatement identified during
the audit.
• ISA450 par A11 (ISA450 par 10). The auditor’s determination of
materiality in accordance with ISA 320 is often based on estimates of
the entity’s financial results, because the actual financial results may
not yet be known. Therefore, prior to the auditor’s evaluation of the
effect of uncorrected misstatements, it may be necessary to revise
materiality determined in accordance with ISA 320 based on the
actual financial results.
You use the same steps as you did
when calculating planning
materiality EXCEPT FOR you MUST
use ACTUAL figures now.
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 Step 2: Evaluation of misstatements identified during the audit (ISA450)

ISA450 11. The auditor shall determine whether uncorrected

misstatements are material, individually or in aggregate. In
making this determination, the auditor shall consider:
(a) The size and nature of the misstatements, both in
relation to particular classes of transactions, account
balances or disclosures and the financial statements as a
whole, and the particular circumstances of their occurrence;
and (Ref: Para. A13–A17, A19–A20)
(b) The effect of uncorrected misstatements related to prior
periods on the relevant classes of transactions, account
balances or disclosures, and the financial statements as a
whole. (Ref: Para. A18)
THIS IS
IMPORTANT!!!

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 Step 2: Evaluation of misstatements identified during the audit (ISA450)

Written Representations
14. The auditor shall request a written representation from
management and, where appropriate, those charged with
governance whether they believe the effects of uncorrected
misstatements are immaterial, individually and in aggregate, to
the financial statements as a whole. A summary of such items
shall be included in or attached to the written representation.
(Ref: Para. A24)
Documentation
15. The auditor shall include in the audit documentation:5 (Ref:
Para. A25)
• (a) The amount below which misstatements would be regarded
as clearly trivial (paragraph 5);
• (b) All misstatements accumulated during the audit and
whether they have been corrected (paragraphs 5, 8 and 12);
and
• (c) The auditor’s conclusion as to whether uncorrected
misstatements are material, individually or in aggregate, and the
basis for that conclusion (paragraph 11).
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 Step 2: Evaluation of misstatements identified during the audit (ISA450)

That was FUN reading, but what does it mean???

1. Determine final materiality (BASED ON FINAL
FIGURES, RISKS)
o Do it yourself, if figures is given in a question – CTA, It will not be
asked separately.
2. Consider the nature (type) of differences
- differences and identified misstatements (Factual)
- Judgmental and Projected misstatements
• All of the identified misstatements must then be
accumulated on a "Schedule of overs and Unders"
(This section will be asked with Reporting)
• Any trivial amounts will not be added because it will
not affect the financial statements (See ISA450.A3 for
further discussion)
• The auditor will communicate the misstatements to
management so management can decide what
adjustments they are going to make
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 Step 2: Evaluation of misstatements identified during the audit (ISA450)

3. Consider the state of provisions and contingent

liabilities – NB!!!
4. Consider whether audit differences are material
(AMOUNTS AND NATURE)
1. List all audit differences on schedule of overs and unders (Include
previous years misstatements)
2. Consider difference individually and in aggregate
- Non material differences: (Considerations/Actions)
 report to management
 consider whether the cumulative effect is not material
 Carry forward to next year
• Material differences:(Considerations/Actions)
 request the client to change the financial statements
 YES – unqualified audit report
 NO - qualified audit report
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 Step 2: Evaluation of misstatements identified during the audit (ISA450)

5. Search for information that could affect the fair

presentation of the financial statements
- Search for unrecorded liabilities (SAAPS4/ISA501)
- Minutes for indications
- Enquiry from legal advisors (ISA501)
- Enquiry from management / Man Rep Letter
- Read correspondence – ZIMRA, Supplier, client, bankers
- Read contracts
- Inspect accounting records
- Related parties transactions (ISA550) – Trx - Companies act
- Previous year working papers for names
- Review controls over
- Share registers/Co returns
- Minutes
- Tax returns
- Man Rep Letter
- Etc
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FINAL MATERIALITY Accumulation of errors
(Schedule of journals to process to correct)
Description WP Refer TOTAL Assets Liabilities Equity Income Expenditure
Errors
value
PLANNING MATERIALITY = R100 000 FINAL MATERIALITY = R120 000

Prior year 50000 50000 -50000

Current year

Depreciatio A20.2 60000 -60000 -60000

Tax effect G34.6 16800 16800 16800

Net effect 43200 -43200 -43200
Total 6800 -50000 -43200
misstatemen
t
CONCLUSION: Individual and in aggregate not material.

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 EXAMPLE

The previous year's income were overstated due to cutt-off and Revenue
was accounted for in the current financial year with R300 000.

Overstatement in Income and debtors of R500 000

Overstatement in Assets of R250 000 and understatement of

depreciation R250 000.

Overstatement in Liabilities of R300 000 (Expenses overstated)

Understatement in "Allowance for credit losses" in SOFP of R500 000

Final materiality is R1 000 000

REQUIRED:
Draw up a schedule of "Overs and Unders". Use the following format

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EXAMPLE OF "SCHEDULE OF OVERS AND UNDERS"

Assets Liabilities Equity

Previous Overstated -300 000 -300 000
Factual
Reversal Understated 300 000 300 000
Factual
Income Overstated -500 000 -500 000
Factual
Assets Overstated -250 000 -250 000
Factual
Liabilities Overstated - 300000 +300 000
Factual
Allowance Understated -500 000 -500 000
Judgmental
TOTAL -1 250 000 - 300 000 = -950 000
Overstated Overstated Overstated

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 Step 3: Overall Review of the Financial information

The auditor should perform an overall review of the financial information to

determine if it is fairly stated in the financial statements.
1. Obtain draft financial statements (TIE IN)
• Obtain the draft financial statements during the completion of the audit
process and:
• Test the casting and calculations on the statements
• Cross reference (and agree) the draft financial statements to the trial
balance, lead schedules and working papers.

Substantive Procedures Related to the Financial Statement

Closing Process
ISA330.20. The auditor’s substantive procedures shall include the
following audit procedures related to the financial statement closing
process:
(a) Agreeing or reconciling the financial statements with the
underlying accounting records; and
(b) Examining material journal entries and other adjustments made
during the course of preparing the financial statements. (Ref:
Para. A52)
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 Step 3: Overall Review of the Financial information

Adequacy of Presentation and Disclosure

ISA330.24.
The auditor shall perform audit procedures to evaluate whether the overall
presentation of the financial statements, including the related disclosures, is in
accordance with the applicable financial reporting framework. (Ref: Para. A59)

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 Step 3: Overall Review of the Financial information

The auditor should perform an overall review of

the financial information to determine if it is
fairly stated in the financial statements.
2. Final Analytical Procedures
• Perform Analytical Procedures based on the draft
financial statements.
• Test of Reasonableness to determine whether the
conclusion on the line items is reasonable and in line
with the auditors knowledge.

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 Step 3: Overall Review of the Financial information
3. Consider the fair presentation of the financial
statements
Factors to consider:
a. Compliance with the fundamental accounting
principles:
• Matching, Prudence, Consistency, Going concern
b. The accounting policies applied
• Compliance with IFRS
• Applicability and
• Consistent application of the policies
c. Financial Position and results of operations
• Consider whether the position and results of the operations as
reflected in the statements, agree with the audit evidence obtained
from the working papers and the auditors knowledge of the
business.
d. Fairness of presentation and disclosure
• Consider whether the amounts in the AFS are in accordance with
IFRS and Companies Act and correctly classified and disclosed.
• Consider compliance with statutory requirements and regulations.
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 Step 4-6
Step 4 = Going concern considerations (To be done in next
class)
Step 5 = Subsequent events (To be done in next class)
Step 6 = Concluding and Reporting (Some sections to be
done later)
• Formulating an opinion (ISA700, 705 & 706)
• Performing further quality control reviews (ECQR)
• Other information (ISA720)
• Compare draft audited financial statements to the final financial
statements
• Reporting to
• Shareholders and
• Management (ISA260 & ISA265)

Step 7 = Post Audit Review (Admin)

• Perform staff evaluations
• Consider aspects of importance in respect of future audits and
document them in the next year's working papers
• Consider viability of re-engagement and issue of letter of engagement
if necessary
• Invoicing the client.
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Completion of the Audit:
Specific ISA standards
applicable
Standards
Standard applicable in the Completion stage and
which have been done.
ISA220, ISA230, ISA500, ISA450, ISA520, ISA550
= Done

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Standards
Why do we do enquiries regarding litigation & claims?

Unrecorded liabilities is normally a risk. Companies want to overstate

assets & understate liabilities. Companies do that by off-balance sheet
transactions & non recording of liabilities. Therefore, enquiries regarding
litigation & claims are 1 of the methods that auditors can identify
unrecorded liabilities.

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ISA501 – Audit evidence – Specific considerations
Level 2
for selected items (Reliance on expert)
Relevant sections = Par 3(b), Par 9 – 12 & Par A17 – A25
Par3b: The objective of the auditor is to obtain sufficient appropriate audit
evidence regarding the COMPLETENESS of litigations and claims involving
the entity
The auditor shall design and perform procedures to identify litigation and
claims involving the entity that may give rise to the risk of material
misstatements by:
• Enquiry of management and internal legal council
• Reviewing minutes of management and internal legal council meetings
• Reviewing legal expenses accounts; and
• Enquiry of EXTERNAL legal council.

If above indicates more claims etc, the auditor must seek DIRECT
COMMUNICATION with the entity's legal counsel.
Prepare a letter of enquiry, prepared by management and sent by the auditor,
requesting legal counsel to comm directly with auditors. (MODIFY REPORT – If
not = Par11.
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ISA501 – Audit evidence – Specific considerations
Level 2
for selected items (Reliance on expert)
11. If:
(a) management refuses to give the auditor permission to
communicate or meet with the entity’s external legal counsel, OR
the entity’s external legal counsel refuses to respond appropriately
to the letter of inquiry, or is prohibited from responding; AND
(b) the auditor is unable to obtain sufficient appropriate audit
evidence by performing alternative audit procedures,
the auditor shall modify the opinion in the auditor’s report in
accordance with ISA 705

12. The auditor shall request management and, where appropriate,

those charged with governance to provide written representations
that all known actual or possible litigation and claims whose effects
should be considered when preparing the financial statements have
been disclosed to the auditor and accounted for and disclosed in
accordance with the applicable financial reporting framework.

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ISA501 – Audit evidence – Specific considerations
for selected items (Reliance on expert)
The following could be done:
• General Enquiries may be made or
• Specific enquires or
• Meeting with the client. (Complex situations)

ALL OF THE ABOVE NEED CLIENT PERMISSION

IN WRITING

The above is done at the beginning and also at

the date of the audit report…end
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CLASS QUESTION

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