Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett.

Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett

Slides prepared by Roger Simnett1

CHAPTER 12

COMPLETION AND REVIEW



THE NATURE OF COMPLETION AND REVIEW PROCEDURES



DATE OF AUDIT REPORT• Important because it establishes date of

auditor’s responsibility for knowledge of events that should be reflected in financial report.

• Audit report should be dated when it is actually signed, and no earlier than date of directors’ declaration.

• Ensures financial report was completed and formally accepted by officers of company prior to auditor expressing an opinion.



AUDIT PROCEDURES AFTER BALANCE DATE

• Many audit procedures performed after balance date as normal tests of balances, e.g.: Cut-off tests Collectability of accounts

receivable determined by subsequent payment

Out-of-period liability search



ANALYTICAL PROCEDURES AFTER BALANCE DATE

Auditor also required to apply analyticalprocedures at or near completion of audit

to:• Assist in overall review of

reasonableness of financial report• Ensure financial report is consistent with

auditor’s knowledge of entity• Corroborate conclusions formed during

audit



SUBSEQUENT EVENTS REVIEW• AASB 1002 (IAS 10) indicates that

financial report should reflect the effects of certain events occurring up to time of completion, which is defined as date of approval of financial report by owners or controlling management.

• Auditor’s responsibility to consider subsequent events extended up to date on which auditor signs audit report.



TYPES OF EVENTS SUBSEQUENT TO BALANCE DATE

Two types of events may materiallyaffect financial reports. These are:• Type 1 or adjusting events• Type 2 or disclosing events



TYPE 1 OR ADJUSTING EVENTS• Events, both favourable and

unfavourable, that provide evidence of, or further elucidate, conditions that existed at balance date

• Financial effect of such events needs to be brought to account (amounts in the financial statements might need to be adjusted)



EXAMPLES OF ADJUSTINGEVENTS• Subsequent collection of a material

account receivable that has been treated as uncollectable at balance date

• A commercial assessment or legal determination, subsequent to balance date, that establishes definitively a claim that was in existence, but of uncertain amount, at balance date



TYPE 2 OR DISCLOSING EVENTS

• Do not relate to a condition that existed at balance date

• Include both favourable and unfavourable events that create new conditions, as distinct from any condition that might have existed at balance date

• If material, consider disclosure in the notes to the accounts



EXAMPLES OF TYPE 2 EVENTS• A fire or flood loss after balance

date not fully covered by insurance

• Raising of additional share or loan capital after balance date

• Mergers and acquisitions after balance date



EVENTS BETWEEN BALANCE DATE AND DATE OF AUDIT REPORTThe auditor has a responsibility to apply audit procedures sufficient to enable auditor to determine whether all material Type 1 and Type 2 events have been appropriately adjusted for or disclosed in the financial report.



EVENTS SUBSEQUENT TO DATE OF AUDIT REPORT

• Auditor has no responsibility to seek audit evidence to identify such events.

• Where auditor becomes aware of events that have a material effect on financial report and report has not yet been issued (sent to shareholders), auditor should discuss the matter with management and seek to have an amended financial report issued.



EVENTS SUBSEQUENT TO ISSUE OF FINANCIAL REPORT• If material events come or are brought to

auditor’s attention after financial report has been sent to shareholders, auditor should discuss matter with management.

• Where decision made to issue new financial report, auditor should perform procedures necessary to form an opinion on revised financial report.

• Auditor should take steps to prevent reliance on superseded financial report and audit report.



TYPES OF REPRESENTATIONLETTERS

Two types are commonly sought

towards completion of audit:• Solicitor's• Management



SOLICITOR’S REPRESENTATION LETTER

Auditor should obtain letter from solicitors consultedby the client during year to obtain evidence onexistence, completeness, valuation and presentationof legal issues identified during audit.

• All enquiries of legal representatives of clients, and their responses to these enquiries (representations) will be documented in this letter.

• Example representation letter contained at Exhibit 12.2 (pp. 554-555)



MANAGEMENT REPRESENTATIONLETTER — DEFINED

A written representation letter, prepared by auditor and signed by management, which formalises management responses to inquiries made by auditor during audit and clarifies management’s responsibilities.



RELIABILITY OF MANAGEMENT REPRESENTATION LETTER• Limited in its reliability as audit evidence,

and is usually used to corroborate other evidence (should not replace other evidence gathered by auditor)

• Might be only evidence available to support management’s intentions of future actions

• Example contained at Exhibit 12.3 (pp. 558-559)



REVIEW OF WORKING PAPERSAND FINANCIAL REPORT

• Undertaken at end of the engagement as a final check to ensure that all significant matters and problems have been identified, considered and satisfactorily resolved.

• Must consider size and nature of errors, as might affect risk assessment and audit testing.

• Immaterial errors identified during audit may be considered material when aggregated, and thus require adjustment.



REVIEW OF OTHER INFORMATION CONTAINED IN THE ANNUAL REPORT• Other information in the annual report is

not part of the financial report and is not covered by the audit report, e.g. directors’ report.

• Auditor should review other information to identify: Material inconsistencies with the

financial report Misstatements of fact



APPROPRIATENESS OF GOINGCONCERN BASIS

• As well as assessing risk of going concern problems at planning stage, AUS 708 (ISA 570) requires auditor to assess again at final review stage in order to confirm appropriateness of going concern principle as a basis for preparing financial report.

• If not clear that going concern basis is appropriate, additional audit procedures might be necessary.



ADDITIONAL AUDIT PROCEDURES FOR ASSESSING GOING CONCERN AT COMPLETION STAGE

Additional procedures include:• Review after-balance-date events• Analyse latest interim financial

report• Read minutes of meetings• Review terms of loan agreements• Information from entity’s solicitors• Effect of unfilled customer orders



COMFORT LETTERS• Auditor needs to confirm arrangements

made with third parties to provide additional finance to support the audited entity, and the capacity of the third party to provide promised support.

• Often a parent entity will support subsidiary in financial difficulty: Letter of support, where parent agrees to

provide financial assistance to subsidiary for fixed period

Letter of subordination, where parent agrees not to demand repayment of financial debts owed by subsidiary

Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett.

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