19.

Review & Finalisation

SUBSEQUENT EVENTS
Events occurring between the date of financial statement and the date of auditor's report, and facts that
become known to the auditor after the date of auditor’s report are called subsequent events. Financial
statements are affected by some events that occur after the date of financial statements. They are of
two kinds:

 Adjusting events are those that provide evidence of conditions that existed at the date of
financial statements Eg: Settlement of court case.
 Non-adjusting events are those that provide existence of conditions that arose after the date of
FS Eg: Fire causing loss of inventory, dividends declared after the year end.
Active duty: Year end to Auditor’s report signed.

 Review management established procedures.

 Review minutes of board meeting from date of FS to date of audit report being signed.
 Enquire of the management the occurrence of any sub event.
 Enquire of the entity’s legal counsel the status of ongoing cases, if any.
 Read the latest available interim FS.
 Obtain written representation from management regarding completeness of sub events.
Passive duty: Auditor becomes aware of a material subsequent event during
a) Auditor’s report signed to FS issued.
 Discuss with management whether FS needs amendment.
 If management amends the FS, then extend audit procedures to the items that require
amendment or disclosure and issue a new, unmodified auditor’s report.
 If management refuses to amend the FS, then auditor should either: (if not yet
released report) reissue a report with a modified opinion or seek legal advice (if
already released)
b) FS issued to AGM.
 Discuss matter with management
 If management amends the FS, auditor should issue a new auditor’s report with an
emphasis of matter or other matter para to explain the revision to previously issued
FS.
 If management refuses to amend FS, seek legal advice.

GOING CONCERN
ISA 570 objectives:

 Obtain sufficient and appropriate audit evidence and conclude on the appropriateness of the
management’s use of going concern basis of accounting.
 To conclude the existence of a material uncertainty related to events or conditions that
significantly cast doubt on the going concern status of the entity.
 Report according to ISA 570.

Going concern indicators:

 i. Financial
 Net liability or net current liability position
 Indicators of withdrawal of financial support by creditors
 Arrears or discontinuance of dividends
 Inability to comply with loan agreements
 Change from credit to COD terms with suppliers
 Inability to obtain new finance
ii. Operational
 Loss of key management without replacement
 Shortage of imp supplies
 Labour difficulties
 Loss of major market, key customer, license or main supplier
 Mgmt inention to liquidate the entity or cease operations
iii. Other
 Non-compliance with capital or other statutory requirements
 Uninsured or underinsured catastrophes when they occur

Management’s assessment of entity’s ability to continue as going concern should be at least 12

months from date of FS. Auditor may also enquire of the management its knowledge of events or
conditions beyond the assessment period that threatens its going concern status.
If events or conditions have been identified that cast a significant doubt on the going concern status of
the entity, perform additional audit procedures to obtain evidence for material uncertainty. Such as:

 Ask the management to prepare an assessment if they have not already.

 Evaluate the reliability of data used for preparation of cash flow forecasts and consider the
assumptions used to make the forecast
 Evaluate management’s plan for future action
 Consider whether any new info has come to light since the date of assessment
 Request a written representation from the management and those charged with governance
about plans for future action and feasibility of these plans.
WRITTEN REPRESENTATIONS
Written statements by management provided to the auditor to confirm certain matters or support other
evidence. It does not include financial statements, assertions or supporting books and records.
Three areas where it is necessary:
i. Several ISAs require written representation, such as, fraud, laws and regulation, going
concern, estimates, sub events.
ii. To support audit evidence relevant to FS if determined by the auditor.
iii. To confirm that the management has fulfilled its responsibility regarding preparation of FS,
that all transactions have been recorded and that all relevant info has been provided to the
auditor.
Obtaining WR
i. Agree procedures at an early stage (eg letter of engagement)
ii. Discuss the content of the letter with management.
iii. Print on the client’s headed paper and to be signed by management.
iv. Dated as close to auditor’s report being signed as possible but not after it.
If WR is not provided:
i. Discuss matter with management.
ii. Re-evaluate the integrity of the management and evaluate its effect on the reliability of
representation and audit evidence.
iii. Take appropriate actions, including determining the impact on auditor’s report.

OVERALL REVIEW OF FS
Auditor shall design and perform analytical procedures to assist in forming overall conclusion.
Misstatement – A difference between the reported amount, classification, presentation or disclosure of
FS items and the amount, classification, presentation or disclosure as required by the applicable
financial reporting framework.
An uncorrected misstatement is a misstatement that the auditor has accumulated during the audit that
has not been corrected. The auditor should maintain a schedule of misstatements identified that have
not been corrected.
Individually immaterial ones could aggregate to form a material misstatement.
Auditor is required to communicate the uncorrected misstatements and their effect to those charged
with governance. Auditor should request for them to be corrected and shall also communicate prior
period misstatements. He should ask for a WR from management and those charged with governance,
as to whether they believe it is immaterial (individually or as a whole).
Auditor should document:
i. Amount below which misstatements would be regarded as clearly trivial.
ii. All misstatements accumulated during audit and whether they have been corrected.
iii. The auditor’s conclusion as to whether the uncorrected misstatements are material and the
basis of conclusion.