CHAPTER 12
COMPLETION AND
REVIEW
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
1
THE NATURE OF
COMPLETION AND REVIEW
PROCEDURES
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
2
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.
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
3
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
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
4
ANALYTICAL PROCEDURES
AFTER BALANCE DATE
Auditor also required to apply analytical
procedures 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
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
5
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.
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
6
TYPES OF EVENTS SUBSEQUENT
TO BALANCE DATE
Two types of events may materially
affect financial reports. These are:
• Type 1 or adjusting events
• Type 2 or disclosing events
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
7
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)
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
8
EXAMPLES OF ADJUSTING
EVENTS
• 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
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
9
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
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
10
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
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
11
EVENTS BETWEEN BALANCE
DATE AND DATE OF AUDIT
REPORT
The 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.
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
12
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.
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
13
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.
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
14
TYPES OF REPRESENTATION
LETTERS
Two types are commonly sought
towards completion of audit:
• Solicitor's
• Management
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
15
SOLICITOR’S REPRESENTATION
LETTER
Auditor should obtain letter from solicitors consulted
by the client during year to obtain evidence on
existence, completeness, valuation and presentation
of 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)
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
16
MANAGEMENT REPRESENTATION
LETTER — 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.
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
17
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)
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
18
REVIEW OF WORKING PAPERS
AND 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.
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
19
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
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
20
APPROPRIATENESS OF GOING
CONCERN 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.
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
21
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
Copyright  2003 McGraw-Hill Australia Pty Ltd
PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett
Slides prepared by Roger Simnett
22
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
23