Completing the Audit and Post Audit Responsibilities

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Completing the Auditand Post Audit
Responsibilities
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The Sequence of Audit

• Accepting the audit engagement/appointment
• Understanding the industry and the business
• Tests of controls and substantive tests for the
  following transactions cycles
• The revenue cycles
• The expenditure cyclest
• The Production Cycles
• Auditing the HRM/Payroll Cycles
• Auditing the Investing and Financing Cycles
• Auditing the Investments and Cash Balances
• Completing the audits and reporting the audit

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Completeing the Audit

• Consist of three main things
• Completing the field work
• Evaluating the findings
• Communicating with the client

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Completing the Field Works

1. Making subsequent event review
2. Reading minutes of meetings
3. Obtaining evidence concerning litigation, claims,
   and assessments
4. Obtaining client representation letter
5. Performing analytical procedures

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Evaluating the Findings

1. Making final assessment of materiality and audit
   risk
2. Evaluating going concern
3. Making technical review of financial statements
4. Formulating opinion and drafting audit report on
   the financial statements
5. Formulating opinion and drafting audit report on
   internal controls over financial reporting.
6. Making final review (s) of working papers.

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Communicating with the Client

1. Communicating internal control matters
2. Communicating matters pertaining to conduct of
   audit
3. Preparing management letter

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Postaudit Responsibilities

1. Subsequent events between report date and
   issuance of report.
2. Discovery of facts existing at report date.
3. Discovery of omitted procedures.

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Completing the Fieldwork

• Subsequent Events Review
• Subsequent events are events that occur after
  the balance sheet dates but prior to the issuance
  of the financial statements and the auditors
  report.

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Completing the Fieldwork
Illustration of Subsequent Events
Report issuance date March 15, X2
Balance sheet Date Dec. 31, X1
End of field work (report date) March 1, X2
Subsequent events
Subsequent events period (the responsibility of
auditor only to the events in this period)
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Completing the Fieldwork
Types of Subsequent Events

• Type 1 require adjustment of the financial
  statements, i.e. settlement of recorded year-end
  estimated liabilities at different amount than
  recorded.
• Type 2 require disclosure of the financial
  statements, i.e. issuance of long-term bonds or
  casualty losses resulting from fire or natural
  disaster.

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Completing the Fieldwork

• Auditing Procedures
• Performing year-end substantive tests such as
  cut-off tests and the search for unrecorded
  liabilities.
• Read the latest available interim financial
  statements and compare them with the statements
  being reported on.
• Inquire of management having responsibility for
  financial and accounting matters about

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Completing the Fieldwork

1. Substantial contingent liabilities or commitments
   existing at the balance sheet date or date of
   inquiry.
2. Significant changes in capital stock, long-term
   debt, or working capital to the date of inquiry.
3. The current status of items previously accounted
   for on the basis of tentative, preliminary, or
   inconclusive data.

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Completing the Fieldwork

• Unusual adjustments since the balance sheet date.
• Read minutes of meetings of directors,
  stockholders, and other appropriates committees.
• Inquire clients legal counsel concerning
  litigation, claims, and assessments.

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Completing the Fieldwork

• Obtain letter of representation from about
  subsequent events that would, in its opinion,
  require adjustment or disclosure.
• Make additional inquiries or perform additional
  procedures considered necessaries in the
  circumstances.

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Completing the Fieldwork

• The Effects of Subsequent Events
• The effect of the subsequent events to auditors
  opinion or conclusion depend on the level of
  materiality of the events.
• The failure to record or properly disclose the
  subsequent events in financial statements will
  result in a departure from the auditors standard
  report.

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Completing the Fieldwork

• Reading Minutes of Meeting
• The minutes of meeting of stockholders, the board
  of directors and its subcommittees may contain
  matters that have audit significance, i.e.
  issuance of bonds, treasury stock, payment of
  cash dividend, discontinuance of a product line
  etc. The reading should be documented in the
  working papers.

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Completing the Fieldwork

• Obtaining Evidence Concerning Litigation, Claims,
  and Assessments (LCA)
• This procedures aimed to ensure the possible
  existence of loss contingency (gain contingency
  normally not recorded due to conservatism
  principle). Contingency is an existing condition,
  situation, or set of circumstances involving
  uncertainty as to possible gain or loss.

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Completing the Fieldwork

• Considering the Evidence of LCA
• The existence of a condition, situation, or set
  of circumstances indicating an uncertainty as to
  the possible loss to an entity arising form LCA.
• The period in which the underlying cause for
  legal action occurred.
• The degree of probability of an unfavorable
  outcome.
• The amount of range of potential loss.

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Completing the Fieldwork

• Letter of Audit Inquiry
• An auditor normally does not possess sufficient
  legal skills to make an informed judgment about
  all LCAs, therefore a letter of audit inquiry
  to the clients lawyer(s) will be the primary
  means of corroborating information. The refusal
  of the lawyer to respond the letter will be as a
  limitation of audit scope.

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Completing the Fieldwork

• Obtaining Client Representation Letter
• Representation letter is part of evidential
  matter.
• It is used to confirm oral representation.
• It may complement of other auditing procedures,
  however in some cases, it may be the primary
  source of audit evidence, i.e. for the decision
  of discontinuing certain product line.

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Completing the Fieldwork

• Content of Representation Letter
• Managements responsibility for the financial
  statements.
• Completeness of information and evidence
  furnished to the auditor.
• Issues regarding revenue recognition, accounting
  estimates, and disclosures.
• Subsequent events.

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Performing Analytical Procedures

• The procedures involve the use of ratios and
  other comparative techniques as an overall (or
  final) review of the financial statements.
• The procedures should be
• Applied to critical audit areas identified during
  the audit.
• Based on financial data after all audit
  adjustments and reclassification have been
  recognized.
• Compare the ratio with the expected ratio or with
  other comparable ratios.

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Evaluating the Findings

• Final Assessment of Materiality and Audit Risk
• Assessment components
• Uncorrected misstatements specifically identified
  through substantive tests of detail of
  transactions and balances (referred to as known
  misstatement)
• Projected uncorrected misstatements estimated
  through audit sampling techniques.
• Estimated misstatements detected through
  analytical procedures and quantified by other
  auditing procedures.

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Evaluating the Findings

• Final Assessment of Materiality and Audit Risk
• The total of the above potential misstatement for
  an account is called likely misstatement.
• The sum of the likely misstatements in all
  accounts is called aggregate likely misstatement.
• The above estimated misstatement will be used as
  a basis to assess the materiality and audit risk.

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Evaluating the Findings

• Evaluating Going Concern
• Evaluation not exceed one year beyond the date of
  the financial statements. Information that would
  raise the substantial doubt about the going
  concern assumption relates to the entitys
  inability to continue to meet its obligations
  without substantial disposition of assets.

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Evaluating the Findings

• Evaluating Going Concern
• The steps need to be done
• Obtain information about managements plans to
  mitigate the effect of such conditions or events.
• Assess the likelihood that such plans can be
  effectively implemented.

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Evaluating the Findings

• Evaluating Going Concern
• When finally auditor concludes that there is a
  substantial doubt about a going concern, the
  auditors should
• Consider the adequacy of disclosure about the
  doubt of the going concern for a reasonable
  period of time.
• Include an explanatory paragraph in the audit
  report to reflect his or her conclusion.

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Thank You