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Completing The Audit: - Yogi Berra, Former Catcher For The New York Yankees
Completing The Audit: - Yogi Berra, Former Catcher For The New York Yankees
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved .
11-2
Considerations in Completing the
Audit
• Roll-forward work • Subsequent events
• Revenue and expense • Audit documentation
accounts review
• Attorney letters • Subsequent discovery of
• Management facts
representations • Omitted audit procedures
• Going-concern assessment • Management letter
• Adjusting entries • Communications with
those charged with
governance
11-3
• Auditors
– Initiate request for attorney letter
• Client
– Prepare listing, description, and evaluation of litigation,
claims, and assessments for letter
– Send letter to attorney including information related to
litigation, claims, and assessments
• Attorney
– Respond to auditors regarding client’s description of
litigation, claims, and assessments contained in
attorney letter
11-9
Management Representations
• Provided by management to auditors
• Dated using audit completion date
• Broad purpose
– Impress upon management its primary responsibility for
the financial statements
– May establish auditors’ defense if a question related to
inquiries subsequently arises
• Qualify or disclaim an opinion if not provided by
the client
11-12
Management Representations
• Required without regard to materiality:
– Management responsibility for the fairness of the
financial statements
– Availability of all financial records and data
– Management responsibility for design and
implementation of programs and controls related to
fraud
– Disclosure of significant deficiencies in internal control
– Information concerning fraud involving the client
11-13
• If subject to requirements of AS 5
– Management has performed as assessment of
I/C
– Management’s conclusion with respect to the
operating effectiveness of its I/C
– No subsequent changes in I/C that significantly
affect I/C
– No control deficiencies from prior engagements
have not been properly resolved
11-14
Evaluating Materiality
• Rollover method considers the current
period income effect(s) of misstatements
• Iron curtain method considers the
aggregate effect of the adjustments on the
entity’s balance sheet
• SAB 108 requires adjustments to be
proposed if material under either approach
11-16
Activities Between End of Year and
Audit Completion Date
• Revenue and expense accounts
• Attorney letters
• Management representations
• Subsequent events
• Audit documentation review
11-17
Subsequent Period
Audit Audit report
Beginning End of completion release
of year year date date
Subsequent
Period
Audit Procedures
Subsequent Events
• Type I
– Provide new information about conditions existing at
balance sheet date
– Adjust financial statements to reflect new information
• Type II
– Involve events occurring after balance sheet date
– Disclose in financial statements
– Prepare pro forma financial statements
11-20
When are Subsequent Events
Identified?
• Prior to audit completion date
– Perform audit procedures and ensure proper
disclosure
• Following audit completion date but prior
to audit report release date
– Dual date audit report
• Following audit report release date
– “Subsequent discovery of facts”
11-21
Activities Between End of Year and
Audit Completion Date
• Revenue and expense accounts
• Attorney letters
• Management representations
• Subsequent events
• Audit documentation review
11-22
Omitted Procedures
• Perform procedures if:
– Omitted procedures are important
– Individuals are currently relying on financial statements and
auditors’ reports
• If previous opinion can be supported, no further action
necessary
• If previous opinion cannot be supported
– Withdraw the original report
– Issue revised reports
– Inform persons currently relying on the financial statements
11-26
Communication with Individuals
Charged with Governance
• Auditors’ responsibility under • Material, uncorrected
GAAS misstatements
• Overview of planned scope and • Representations requested from
timing of audit management
• Judgment about quality of • Management consultations with
accounting policies, estimates, other auditors
and disclosures • Significant issues discussed
• Significant difficulties with management
encountered during audit • Other findings or issues
• Uncorrected misstatements significant and relevant to those
• Disagreements with charged with governance
management
11-27
Management Letters
• Not required under GAAS
• Are prepared as a by-product of procedures
performed in audit
• Provide recommendations to client for
improving effectiveness and efficiency of
operations
• Delivered by auditors to client following
audit engagement
11-28
Summary of Audit
Communications