WHAT YOU REALLY NEED TO KNOW
CHAPTER 15: COMPLETING THE AUDIT
Overview
This chapter is all about tying up loose ends, and bringing all of the “heavy lifting” that
has been done throughout the audit with a view to formulating an audit opinion.
It is worthwhile to note that the procedures performed in completing the audit have
several distinct characteristics. For instance, they do not pertain to specific transactions
cycles or accounts; they are performed after the balance sheet date; they involve many
subjective judgments by the auditor, and are usually performed by audit managers or
other senior members of the audit team.
Generally speaking, the auditor’s responsibilities in competing the audit involve
completing the field work, evaluating the findings, and communicating with the client.
I. Completing the Field Work
In particular, competing the field work involves performing the following procedures to
obtain additional audit evidence:
a)
b)
c)
d)
e)
making a subsequent events review
reading minutes of meetings
obtaining evidence concerning litigation, claims and assessments
obtaining a management representation letter
performing analytic procedures.
Subsequent Events
Subsequent events are events and transactions that occur after the balance sheet date but
prior to the issuance of the financial statements and the auditors report. In effect, the
subsequent events period extends from the balance sheet date to the end of the field work.
During this period, the auditor is required by GAAS to discover the occurrence of any
subsequent event that has a material effect on the financial statements. However, the
auditor has no responsibility to discover subsequent events that occur between the end of
field work and the issuance of the audit report.
Minutes
Completing the Audit
The reading of minutes of meetings of stockholders, the board of directors and its
subcommittees may reveal information about matters that have audit significance. These
should be read as soon as they become available.
Litigation, Claims and Assessments
In competing an audit in accordance with GAAS, the auditor must determine whether
litigation, claims and assessments are reported in conformity with accounting standards.
Management represents the primary source of such information, whereas a letter of audit
inquiry to the client’s outside legal counsel is the auditor’s primary means of
corroborating this information.
Management Representation Letter
The auditor must also obtain written representations from management as to the matters
that are either individually or collectively material to the financial statements. Such a
letter complements other auditing procedures and may reveal matters not otherwise
discovered by the auditor. It should be noted that the refusal by management to provide
such a letter in effect limits the scope of the audit, and could result in the auditor not
issuing a standard audit report.
Performing Analytical Procedures
Performing analytical procedures at the end of the field work is a required part of an
overall review. It assesses the conclusions reached during the audit and evaluates the
overall financial statement preparation. The procedures are applied to critical audit areas
identified during the audit and is based on financial statement data after all adjustments
and reclassifications have been recognized. evaluating the findings
II. Evaluating the Findings
This step has two key objective: 1) determining the opinion to be expressed and 2)
determining whether GAAS has been met in the audit. More specifically, it involves
adjusting entries and disclosure notes, assessment of audit evidence and findings to form
the auditor’s opinion, and review of working papers.
III. Communicating with the Client
Next, the auditor needs to communicate with management and those charged with
governance.
Smieliauskas/Bewley, 5e
What You Really Need to Know
© The McGraw-Hill Companies, Inc., 2010
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Completing the Audit
The auditor and management, should, in advance, review the information to be covered
with the audit committee. On some matters, such as company operations, management
should report and the auditor then comment. On other matters, such as audit findings, the
auditor should report and management then comment. Both should be present in the
meetings with the audit committee to discuss these reports, which may be written or oral.
The most important issues arising put of the financial statements which should be
communicated to the audit committee include the following:
1. Auditor responsibility under GAAS
2. Planning of the current audit
3. Material weaknesses in internal controls
4. Illegal acts
5. Fraud
6. Significant accounting principles and policies selected by management
7. Management judgments and accounting estimates
8. Misstatements, adjusted and uncorrected
9. Other information in annual reports
10. Consultation with other accountants by management
11. Disagreements with management
12. Significant findings of the audit
13. Use of experts
14. Summary of the audit approach
15. Audit and non audit services that the auditor is providing to the auditee
16. Difficulties encountered in performing the audit
17. Effects of new developments in accounting standards
Smieliauskas/Bewley, 5e
What You Really Need to Know
© The McGraw-Hill Companies, Inc., 2010
15-3