Audit Completion

Chapter
Chapter24
24
Audit
AuditCompletion
Completion
Copyright © 2014 Pearson Education

Design and perform audit tests related to
presentation and disclosure audit objectives.
Conduct a review for contingent liabilities
and commitments.
Obtain and evaluate letters from the client’s
attorneys.
Conduct a post-balance-sheet review for
subsequent events.
24-2
Design and perform the final steps in the
evidence-accumulation segment of the audit.
Integrate the audit evidence gathered and
evaluate the overall audit results.
Communicate effectively with the audit
committee and management.
Identify the auditor’s responsibilities when
facts affecting the audit report are discovered
after its issuance.
24-3
1
Design and perform audit tests related to
presentation and disclosure audit objectives.
24-4
24-5
2
Conduct a review for contingent liabilities and
commitments.
24-6
A contingent liability is a potential future
obligation to an outside party for an
unknown amount resulting from activities
that have already taken place.
24-7
24-8
 Pending litigation for patent infringement,
product liability, or other actions
 Product warranties
 Notes receivable discounted
 Guarantees of obligations of others
 Unused balances of outstanding letters of credit
24-9
Audit Procedures
Review
Management Review BOD
Revenue
Inquiry Meeting
Agent
Minutes
Reports
24-10
Audit Procedures
Obtain
Examine
Review attorney
Letters of
legal invoices letters
Credit
re: litigation
Review Audit work papers for signs of contingencies

24-11
3
Obtain and evaluate letters from the client’s
attorneys.
24-12
A list including: (1) pending threatened litigation
and (2) asserted or unasserted claims or
assessments with which the attorney
has had involvement.
Request that the attorney furnish information

or comment about the progress of each item listed.
24-13
A request of the law firm to identify any unlisted
pending or threatened legal actions or a
statement that the client’s list is complete.
A statement informing the attorney of the attorney’s

responsibility to inform management of legal matters
requiring disclosure in the financial statements
and to respond directly to the auditor.
24-14
Rules require attorneys serving public companies
to report material violations of federal securities
laws committed by the company.
The American Bar Association amended its

attorney-client confidentiality rules to permit
attorneys to breach confidentiality if a client
is committing a crime or fraud.
24-15
4
Conduct a post-balance-sheet review for
subsequent events.
24-16
24-17
 Those that have a direct effect
on the financial statements
and require adjustment
 Those that do not have a direct
effect on the financial statements
but for which disclosure is required
24-18
 Declaration of bankruptcy by a customer
with an accounts receivable balance
 Settlement of a litigation at an amount
different from the amount recorded
on the books
 Disposal of equipment not being used in
operations at a price below the current
book value
24-19
Issuance of bonds or equity securities
 Decline in the market value of inventory
as a consequence of government action
barring further sale of a product
 Uninsured loss of inventories as a result
of fire
 A merger or an acquisition
24-20
Two categories of audit procedures
for the subsequent events review:
1. Procedures normally integrated as
a part of the verification of year-end
account balances.
2. Procedures performed specifically for
the purpose of discovering events or
transactions that must be recognized
as subsequent events.
24-21
 Review records prepared subsequent
to the balance sheet date
 Review internal statements prepared
subsequent to the balance sheet date
 Examine minutes issued subsequent
to the balance sheet date
 Correspond with attorneys
 Inquire of management
 Obtain a letter of representation
24-22
The first date is the date for the completion
of field work except for a specific exception
 The second date, which is always later,

deals with the exception
Example: An auditor returned to the client’s premises to

perform audit tests pertaining only to the acquisition and
completes those tests on March 31. The audit report will
be dual-dated as follows: March 11, 2013, except for note
17, which is dated March 31, 2013.
24-23
5
Design and perform the final steps in the
evidence-accumulation segment of the audit.
24-24
The five types of final evidence accumulation
1. Perform final analytical procedures.

2. Evaluate the going concern assumption.
3. Obtain a management representation letter.
4. Consider supplementary information in
relation to financial statements as a whole.
5. Read other information in the annual report.
24-25
Partner reads financial statements and footnotes
Unusual or Unusual
Considers
unexpected items not
adequacy of
balances or previously
evidence
relationships identified
24-26
Evaluate a client’s ability to continue operating
another year
Use analytical
Assess as Update
procedures &
part of initial based on
make final
planning audit results
assessment
24-27
Purposes of the letter:
1. To impress upon management its responsibility
for the assertions in the financial statements.
2. To remind management of potential misstatements
or omissions in the financial statements.
3. To document the responses from management
to inquiries about various aspects of the audit.
24-28
Auditing standards suggest four categories of
specific matters:
Responsibility Completeness Recognition, Recording and

for financial of measurement, disclosing
statements information and disclosure subsequent
events
24-29
24-30
6
Integrate the audit evidence gathered and
evaluate the overall audit results.
24-31
 Sufficient appropriate evidence
 Evidence supports auditor’s opinion
 Financial statement disclosures
 Audit documentation review
 Independent review
 Summary of evidence evaluation
24-32
24-33
The audit report is the only thing that most
users see in the audit process, and the
consequences of issuing an inappropriate
report can be severe.
24-34
7
Communicate effectively with the audit
committee and management.
24-35
 Communicate fraud and illegal acts
 Communicate internal control deficiencies
 Other communication with audit committee
 Management letters
24-36
8
Identify the auditor’s responsibilities when
facts affecting the audit report are
discovered after its issuance.
24-37
24-38
24-39 Copyright © 2014 Pearson Education
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Printed in the United States of America.
24-40

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Chapter

Copyright © 2014 Pearson Education

Review Audit work papers for signs of contingencies

Request that the attorney furnish information

A statement informing the attorney of the attorney’s

The American Bar Association amended its

 The second date, which is always later,

Example: An auditor returned to the client’s premises to

1. Perform final analytical procedures.

Responsibility Completeness Recognition, Recording and

All rights reserved. No part of this publication may be reproduced,

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