Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao
Since 1977
AT.3513
Completing the Audit
Introduction
In this phase of the audit, the auditor evaluates the results
of the audit procedures performed to formulate the
appropriate opinion to be issued by the auditor. In addition,
this part of the audit also provides an opportunity to the
auditor to cover other areas that were not specifically
considered during the substantive procedures phase of the
audit like those related to presentation and disclosures.
The role of the more senior members of the audit team is
very important at this part of the audit. Their knowledge
and experience will play a very big part in coming up with
the decision as to the type of opinion the auditor will
ultimately issue at the end of the audit based on the results
of the audit procedures gathered by the audit team
throughout the audit period.
The procedures usually performed during the completion
phase or wrap-up phase of the audit includes:
1. Performing review for litigation, claims, other
contingencies and commitments
2. Performing review of disclosures (e.g., accounting
estimates including fair value estimates, related
parties, segment information)
3. Performing review for subsequent events (events after
the end of reporting period), including the
consideration of subsequent discovery of facts and
omitted procedures
4. Considering appropriateness of going concern
assumptions
5. Performing final analytical procedures
6. Obtaining management representation letter
7. Other audit procedures.
Litigation, Claims, Other Contingencies and
Commitments
Management is responsible for identifying, evaluating, and
ensuring proper accounting, including disclosures, for
litigation, claims, other contingencies and commitments
involving the entity.
Examples of litigation, claims, other contingencies and
commitments of concern to auditor are:
• Pending litigation for patent infringement, etc.
• Product warranties and notes receivable discounted
• Guarantees of obligations of others
• Unused balances of outstanding letters of credit
The auditor obtains evidence relating to
• The existence of conditions indicating an uncertainty
• The period in which the cause of uncertainty occurred
• The probability of an unfavorable outcome
• The amount or range of potential loss
Auditing Accounting Estimates, Fair Value
Accounting Estimates and Related Disclosures
Management is responsible for making accounting
estimates that are reasonable when preparing and
presenting financial statements.
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SOLIMAN/UY/AGUILA/RICAFRENTE
October 2023
The objective of the auditor is to obtain sufficient
appropriate audit evidence about whether:
1. accounting estimates, including fair value accounting
estimates, in the financial statements, whether
recognized or disclosed, are reasonable; and
2. related disclosures in the financial statements are
adequate, in the context of the applicable financial
reporting framework.
Obtaining sufficient appropriate evidence is particularly
difficult when auditing client accounting estimates (e.g.,
allowance for doubtful accounts, loss reserves, pension
expenses). When evaluating reasonableness, the auditor
concentrates on assumptions or factors
• Significant to the estimate
• Sensitive to variation
• Apparent deviations from historical patterns
• Subjective and susceptible to bias or misstatement
The three basic approaches for evaluating the
reasonableness of these estimates are:
1. to review and test management’s process of deriving
the estimate (consider the reasonableness and accuracy
of management’s approach);
2. develop one’s own expectation of the accounting
estimate and compare it to management’s; and
3. review subsequent events or transactions occurring
prior to the completion of fieldwork which bear on the
estimate.
Related Parties
Management is responsible identifying and ensuring
sufficiency of related party disclosures on the financial
statements.
The auditor shall obtain evidence about the sufficiency and
appropriateness of related party disclosures.
The auditor shall inquire of management regarding:
1. The identity of the entity’s related parties, including
changes from the prior period;
2. The nature of the relationships between the entity
and these related parties; and
3. Whether the entity entered into any transactions
with these related parties during the period and, if
so, the type and purpose of the transactions.
During the audit, the auditor shall remain alert, when
inspecting records or documents, for arrangements or other
information that may indicate the existence of related party
relationships or transactions that management has not
previously identified or disclosed to the auditor.
Indications of the existence of related parties may include:
• Borrowing or lending at no interest or at rates
significantly different from market rates
• Sales of real estate at prices significantly different from
appraised values
• Exchanges of similar property in nonmonetary
transactions
• Loans with no scheduled terms
• Business with major customers, suppliers, etc.
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• Services being provided (received) at unreasonable
prices
• Accounting records for large, unusual transactions
• Confirmations
• Invoices from lawyers
In particular, the auditor shall inspect the following for
indications of the existence of related party relationships or
transactions that management has not previously identified
or disclosed to the auditor:
1. Bank and legal confirmations obtained as part of the
auditor’s procedures;
2. Minutes of meetings of shareholders and of those
charged with governance; and
3. Such other records or documents as the auditor
considers necessary in the circumstances of the entity,
such as SEC filings, conflict of interest
statements, pensions, other trusts, and identify officers
thereof, etc.
***
Answer question nos. 1 to 13:
1. Upon completion of the audit, the auditor reviews the
financial statements to ensure that they are consistent
with the auditor's understanding of the entity. Which of
the following areas would not typically be reviewed
during this process?
a. Review of subsequent events after the period end
b. Assessment of going concern
c. Review of the entity's budget for the next fiscal year
d. Consideration of whether disclosures in the financial
statements are adequate
2. If a material misstatement is detected during the final
review stage of an audit and it's corrected by
management, what should the auditor do next?
a. Issue an adverse opinion on the financial
statements
b. Continue with the original planned audit procedures
c. Consider whether other misstatements may exist
and modify the audit procedures accordingly
d. Immediately report the incident to the entity's
regulatory authorities
3. The primary source of information to be reported about
litigation, claims, and assessments is the client’s
management. The primary reason an auditor requests
that letters of inquiry be sent to a client’s attorneys is
to provide the auditor with
a. The probable outcome of asserted claims and
pending or threatened litigation.
b. Corroboration of the information furnished by
management about litigation, claims, and
assessments.
c. The attorneys’ opinions of the client’s historical
experiences in recent similar litigation.
d. A description and evaluation of litigation, claims,
and assessments that existed at the balance sheet
date.
4. When auditing contingent liabilities, which of the
following procedures would be least effective?
a. Reading the minutes of the board of directors.
b. Reviewing the bank confirmation letter.
c. Examining invoices for professional services or
analyzing legal expense and review invoices and
statements from outside legal counsel.
d. Examining customer confirmation replies.
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5. In evaluating an entity's accounting estimates, one of
an auditor's objectives is to determine whether the
estimates are
a. Not subject to bias.
b. Consistent with industry guidelines.
c. Based on objective assumptions.
d. Reasonable in the circumstances.
6. Which of the following procedures would an auditor
ordinarily perform first in evaluating management's
accounting estimates for reasonableness?
a. Develop independent expectations of
management's estimates.
b. Consider the appropriateness of the key factors or
assumptions used in preparing the estimates.
c. Test the calculations used by management in
developing the estimates.
d. Obtain an understanding of how management
developed its estimates.
7. In evaluating the assumptions on which the estimate is
based, the auditor would need to pay particular
attention to assumptions which are
a. Reasonable in light of actual results in prior periods.
b. Consistent with those used for other accounting
estimates.
c. Consistent with management’s plans which appear
appropriate.
d. Subjective or susceptible to bias resulting in
material misstatement.
8. Regarding fair value measurements and disclosures, the
auditor is not required to
a. Obtain evidence about management's intent to
carry out specific courses of action, and consider its
ability to do so, where relevant to the fair value.
b. Evaluate whether the entity's method for its fair
value measurements is applied consistently.
c. Use the work of an expert.
d. Test the entity's fair value measurements and
disclosures.
9. When testing the entity's fair value measurements and
disclosures, the auditor evaluates whether:
a. The assumptions used by management are
reasonable.
b. The fair value measurement was determined using
an appropriate model, if applicable.
c. Management used relevant information that was
reasonably available at the time.
d. All of the above.
10. Which statement is incorrect regarding the auditor's
responsibilities and audit procedures regarding related
parties and transactions with such parties?
a. The auditor should perform audit procedures
designed 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.
b. An audit cannot be expected to detect all related
party transactions.
c. The auditor is responsible for the identification and
disclosure of related parties and transactions with
such parties.
d. 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.
11. When auditing related-party transactions, an auditor
places primary emphasis on
a. Confirming the existence of the related parties.
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b. Verifying the valuation of the related-party
transactions.
c. Evaluating the disclosure of the related-party
transactions.
d. Ascertaining the rights and obligations of the related
parties.
12. Which of the following least likely indicates the
existence of previously unidentified related parties?
a. Transactions which have abnormal terms of trade,
such as unusual prices, interest rates, guarantees,
and repayment terms.
b. Transactions which lack an apparent logical
business reason for their occurrence.
c. Transactions in which substance does not differ
from form.
d. Unrecorded transactions such as the receipt or
provision of management services at no charge.
13. In obtaining evidence about presentation and disclosure
of operating segment information in the financial
statements, the auditor shall perform the following,
except
a. Obtain an understanding of the methods used by
management in determining segment information.
b. Evaluate whether appropriate disclosure is made in
accordance with the applicable financial reporting
framework
c. Testing the application of management’s methods
in determining segment information.
d. All of the above should be performed.
***
Subsequent Events (including subsequent discovery
of facts and omitted procedures)
These are:
• events occurring between the date of the financial
statements and the date of the auditor’s report, and
• facts that become known to the auditor after the date
of the auditor’s report.
The date of the financial statements pertains to the date of
the end of the latest period covered by the financial
statements. On the other hand, the date of the auditor’s
report is the date the auditor dates the report on the
financial statements, which:
• cannot be dated earlier than the date on which the
auditor has obtained sufficient appropriate audit
evidence (completion of fieldwork/audit) on which to
base the opinion on the financial statements, and
• cannot be earlier than the date of approval of the
financial statements.
Date of approval of the financial statements is the date on
which all the statements that comprise the financial
statements have been prepared and those with the
recognized authority have asserted that they have taken
responsibility for those financial statements. Another
important date to take note is the date the financial
statements are issued, which is the date that the auditor’s
report and audited financial statements are made available
to third parties.
Types of Subsequent Events
The two types of subsequent events are:
1. Type 1 – Adjusting events are those that provide
evidence of conditions that existed at the date of the
financial statements.
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2. Type 2 – Non-adjusting events are those that provide
evidence of conditions that arose after the date of the
financial statements.
***
Answer questions no. 14 to 25
14. The auditor shall perform audit procedures designed to
obtain sufficient appropriate audit evidence that all
events occurring between the date of the financial
statements and the date of the auditor’s report that
require adjustment of, or disclosure in, the financial
statements have been identified. The auditor is not,
however, expected to perform additional audit
procedures on all matters to which previously applied
audit procedures have provided satisfactory
conclusions.
When the auditor identifies events that materially affect
the financial statements, the auditor shall determine
whether such events are properly accounted for and
adequately disclosed in the financial statements.
a. True, True c. False, True
b. False, False d. True, False
15. Which of the following is least likely a procedure that
would be performed by the auditor near the auditor’s
report date?
a. Reviewing the procedures that management has
established to ensure that subsequent events are
identified and discussing with certain officers the
current status of items in the financial statements
that were accounted for on the basis of tentative,
preliminary, or inconclusive data.
b. Inquiring of management as to whether any
subsequent events have occurred which might
affect the financial statements.
c. Reading the minutes of the meetings of
shareholders, the board of directors and audit
executive committees held throughout the audit
year.
d. Reading/comparing the entity’s latest available
interim financial statements.
16. After an auditor has issued an audit report on a
nonpublic entity, there is no obligation to make any
further audit tests or inquiries with respect to the
audited financial statements covered by that report
unless
a. New information comes to the auditor's attention
concerning an event that occurred prior to the date
of the auditor's report that may have affected the
auditor's report.
b. Material adverse events occur after the date of the
report.
c. Final determination or resolution was made on
matters that had resulted in a qualification in the
auditor's report.
d. Final determination or resolution was made of a
contingency that had been disclosed.
17. The auditor has no obligation to perform any audit
procedures regarding the financial statements after the
date of the auditor’s report. However, when, after the
date of the auditor’s report but before the date the
financial statements are issued, the auditor becomes
aware of a fact which may materially affect the financial
statements, the auditor shall:
I. Determine whether management will amend
financial statements
II. Discuss the matter with management
III. Determine whether the financial statements need
amendment
a. I, II and III c. II, III and I
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b. II, I and III d. III, I and II
18. In relation to the preceding number, if management
amends the financial statements, the auditor shall:
I. Carry out the audit procedures necessary in the
circumstances
II. 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
III. Issue a new auditor’s report on the amended
financial statements
a. I, II and III c. II, III and I
b. I and III d. III, I and II
19. After the financial statements have been issued, the
auditor has no obligation to perform any audit
procedures regarding such financial statements.
However, if after the financial statements have been
issued, the auditor becomes aware of a fact that existed
at the date of the auditor’s report and that, if known at
that date, may have caused the financial statements to
be amended or the auditor to modify the auditor’s
report, the auditor shall
I. Discuss the matter with management
II. Determine whether the financial statements need
amendment
III. Determine whether management will amend
financial statements
a. I, II and III c. II, III and I
b. II, I and III d. III, I and II
20. In relation to preceding number, if management
amends the financial statements, the auditor shall:
I. Carry out the audit procedures necessary in the
circumstances
II. 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
III. Issue a new auditor’s report on the amended
financial statements
a. I, II and III c. II, III and I
b. II, I and III d. III, I and II
21. When management does not amend the financial
statements in circumstances where the auditor believes
they need to be amended, then (choose the correct
statement/s)
I. If the auditor’s report has not yet been issued to the
entity, the auditor shall modify the opinion
appropriately so that the auditor expresses a
qualified opinion or an adverse opinion.
II. If the auditor’s report has already been issued to the
entity, the auditor shall notify management or those
charged with governance, as appropriate, not to
issue the financial statements and the auditor’s
report thereon to third parties. If the financial
statements are nevertheless subsequently issued,
the auditor shall take action, in light of the auditor’s
legal rights and obligations and the
recommendations of the auditor’s legal counsel, to
prevent reliance on the auditor’s report.
a. I and II c. II only
b. I only d. Neither I nor II
22. An auditor is considering whether the omission of a
substantive procedure considered necessary at the time
of an audit may impair the auditor's present ability to
support the previously expressed opinion. The auditor
need not apply the omitted procedure if the
a. Financial statements and auditor's report were not
distributed beyond management and the board of
directors.
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b. Auditor's previously expressed opinion was qualified
because of a departure from GAAP.
c. Results of other procedures that were applied tend
to compensate for the procedure omitted.
d. Omission is due to unreasonable delays by client
personnel in providing data on a timely basis.
23. On March 15, 2020, Aris, CPA, issued an unqualified
opinion on a client's audited financial statements for the
year ended December 31, 2019. On May 4, 2020, Aris'
internal inspection program disclosed that engagement
personnel failed to observe the client's physical
inventory. Omission of this procedure impairs Aris’
present ability to support the unqualified opinion. If the
stockholders are currently relying on the opinion, Aris
should first
a. Advise management to disclose to the stockholders
that Kent's unqualified opinion should not be relied
on.
b. Undertake to apply alternative procedures that
would provide a satisfactory basis for the
unqualified opinion.
c. Reissue the auditor's report and add an explanatory
paragraph describing the departure from generally
accepted auditing standards.
d. Compensate for the omitted procedure by
performing tests of controls to reduce audit risk to
a sufficiently low level.
24. An auditor’s decision concerning whether or not to “dual
date” the audit report is based upon the auditor’s
willingness to:
a. extend auditing procedures and assume
responsibility for a greater period of time.
b. accept responsibility for subsequent events.
c. permit inclusion of a footnote captioned: event
(unaudited) subsequent to the date of the auditor’s
report.
d. assume responsibility for events subsequent to the
issuance of the auditor’s report.
25. An auditor issued an audit report that was dual-dated
for a subsequent event occurring after the date of the
auditor’s report but before issuance of the related
financial statements. The auditor’s responsibility for
events occurring subsequent to the original report date
was
a. Limited to include only events occurring before the
date of the last subsequent event referenced.
b. Extended to subsequent events occurring through
the date of issuance of the related financial
statements.
c. Extended to include all events occurring since the
original report date.
d. Limited to the specific event referenced.
***
Going Concern Considerations
The going concern assumption is a fundamental principle in
the preparation of financial statements. The auditor’s going
concern considerations normally include the following
areas:
• Accounting framework
• Auditing management’s assessment of going
concern
• Events or conditions that may cast significant
doubts about the entity’s ability to continue as a
going concern
• Determining the implications for the auditor’s report
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Accounting framework
PAS 1, Presentation of Financial Statements, requires an
assessment by management about an entity’s ability to
continue as a going concern for at least twelve months and
disclose any material uncertainties that may cast significant
doubt upon an entity’s ability to continue as a going
concern.
Auditing Management’s Assessment of Going Concern
The auditor shall evaluate management’s assessment of
going concern assumption by considering:
• The process that management followed to make its
assessment
• The assumptions on which the assessment is based
• Management’s plans for future actions
• Whether management’s plans are feasible in the
circumstances.
***
Answer question nos. 26 to 34
26. When performing risk assessment procedures to obtain
an understanding of the entity and to assess the entity’s
going concern, the auditor shall:
I. Inquire of management as to whether events or
conditions exist that, individually or collectively,
may cast significant doubt about the going concern
assumption
II. Consider management’s assessment of the entity’s
ability to continue as a going concern, if such an
assessment has been performed, to determine
whether management has identified events or
conditions that may cast significant doubt on the
entity’s ability to continue as a going concern and
management’s plans to address them
III. Discuss with management the basis for its intended
use of the going concern assumption, if
management has not yet performed such an
assessment
a. I only
b. I and II
c. I and III
d. I, II and III
27. Examples of events or conditions which individually or
collectively, may cast significant doubt about the going
concern assumption include the following except:
a. Net liability or net current liability position.
b. Change from credit to cash-on-delivery transactions
with suppliers.
c. Labor difficulties or shortages of important supplies.
d. Compliance with capital or other statutory
requirements.
28. Which of the following conditions or events most likely
would cause an auditor to have substantial doubt about
an entity’s ability to continue as a going concern?
a. Cash flows from operating activities are negative.
b. Research and development projects are postponed.
c. Significant related party transactions are pervasive.
d. Stock dividends replace annual cash dividends.
29. When events or conditions have been identified which
may cast significant doubt on the entity’s ability to
continue as a going concern, the auditor shall (choose
the incorrect statement)
a. Obtain sufficient appropriate audit evidence to
determine whether or not a material uncertainty
exists through performing additional audit
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procedures, including consideration of other
mitigating factors.
b. Evaluate management’s plans for future actions
based on its going concern assessment and whether
the outcome of these plans will improve the
situation, and obtain sufficient appropriate audit
evidence that management’s plans are feasible in
the circumstances.
c. Determine whether any additional facts or
information have become available since the date
on which management made its assessment.
d. Not request specific written representations from
management regarding its plans for future action.
30. Which of the following audit procedures would most
likely assist an auditor in identifying conditions and
events that may indicate there could be substantial
doubt about an entity’s ability to continue as a going
concern?
a. Review compliance with the terms of debt
agreements.
b. Confirmation of accounts receivable from principal
customers.
c. Reconciliation of interest expense with debt
outstanding.
d. Confirmation of bank balances.
31. Halo Company’s financial statements adequately
disclosed uncertainties that concern future events, the
outcome of which are not susceptible of reasonable
estimation. The auditor’s report should include a(an)
a. Unqualified opinion.
b. “Subject to” qualified opinion.
c. “Except for” qualified opinion.
d. Adverse opinion.
32. In extreme cases such as situations involving multiple
uncertainties that are significant to the financial
statements, the auditor
a. may consider to express a disclaimer of opinion
b. may qualify his opinion instead of issuing an
unqualified opinion with emphasis of matter
paragraph
c. may issue an adverse opinion because of their
significance
d. may issue a “subject to” opinion because the
situations related to uncertainties
33. The primary objective of analytical procedures used in
the final review stage of an audit is to
a. Obtain evidence from details testing to corroborate
particular assertions.
b. Identify areas that represent specific risks relevant
to the audit.
c. Assist the auditor in assessing the validity of the
conclusions reached.
d. Satisfy doubts when questions arise about a client’s
ability to continue in existence.
34. Analytical procedures used in the overall review stage
of an audit generally include
a. Considering unusual or unexpected account
balances that were not previously identified.
b. Performing tests of transactions to corroborate
management’s financial statement assertions.
c. Gathering evidence concerning account balances
that have not changed from the prior year.
d. Retesting controls that appeared to be ineffective
during the assessment of control risk.
***
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Written Representations
A written statement by management provided to the auditor
to confirm certain matters or to support other audit
evidence. Written representations in this context do not
include financial statements, the assertions therein, or
supporting books and records.
Written Representations as Audit Evidence
Considered part of audit evidence. However, written
representations alone do not provide sufficient appropriate
audit evidence, and does not affect the nature or extent of
other audit evidence that the auditor should obtain.
Source of Written Representations
The auditor shall request written representations from
management with appropriate responsibilities for the
financial statements and knowledge of the matters
concerned. Normally from: chief executive officer, chief
financial officer, other equivalent persons; or TCWG.
Dates and Periods Covered by Written Representation
The date of the written representations shall be as near as
practicable to, but not after, the date of the auditor’s report
on the financial statements. The written representations
shall be for all financial statements and period(s) referred
to in the auditor’s report.
***
Answer question nos. 35 to 40
35. A purpose of a management representation letter is to
reduce
a. Audit risk to an aggregate level of misstatement
that could be considered material.
b. An auditor's responsibility to detect material mis-
statements only to the extent that the letter is relied
on.
c. The possibility of a misunderstanding concerning
management's responsibility for the financial
statements.
d. The scope of an auditor's procedures concerning
related-party transactions and subsequent events.
36. The objective of the auditor, as required by PSA 580 is
to corroborate, by means of written representations
I. The validity of the premises, relating to
management’s responsibilities, on which an audit is
conducted
II. Other audit evidence obtained with regard to specific
assertions in the financial statements
a. I only c. I and II
b. II only d. Neither I nor II
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37. When considering the use of management’s written
representations as audit evidence about the
completeness assertion, an auditor should understand
that such representations
a. Complement, but do not replace, substantive tests
designed to support the assertion.
b. Constitute sufficient evidence to support the
assertion when considered in combination with a
sufficiently low assessed level of control risk.
c. Are not part of the evidence considered to support
the assertion.
d. Replace a low assessed level of control risk as
evidence to support the assertion.
38. Items for inclusion in management representation letter
are normally:
a. Determined by management.
b. Covering all the accounts in the financial statements
c. Determined by auditors based on the circumstances
of the engagement.
d. Based on AASC’s standard list.
39. What is (are) the circumstances the may cause the
auditor to doubt the reliability of one or more written
representations
I. One or more written representations are
inconsistent with other audit evidence
II. The auditor has identified significant issues related
to management’s commitment to competence,
communication and enforcement of integrity and
ethical values, or diligence.
a. I only c. Either I or II
b. II only d. Neither I nor II
40. When relevant parties do not provide the general
written representations about the premises, relating to
management’s responsibilities, on which an audit is
conducted, the auditor is unable to obtain sufficient
appropriate audit evidence. If the possible effects on the
financial statements of such inability are pervasive, the
auditor shall disclaim an opinion on the financial
statements.
When relevant parties do not provide specific written
representations requested by the auditor, it constitutes
a scope limitation. Where this is the case, the auditor
shall consider the effect on the opinion in the auditor’s
report in accordance with PSA 705.
a. True, True c. False, True
b. False, False d. True, False
***End***
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