9.401 Auditing
Chapter 21
Completing the Audit
Audit Completion Activities
Reviewing for contingent liabilities
 Reviewing for subsequent events
 Accumulating final evidence
 Evaluating results
 Working Paper Review
 Writing the audit Report (see chapt 2)
 Read annual report
 Audit Correspondence

Review for contingent liabilities

Goal:
 Identify all contingent liabilities
 Determine likelihoods and amts involved
 Ensure treatment & disclosure is
appropriate
Techniques for contingent liabilities
and commitments
1) Consider evidence already gathered
• Confirmations, warranties etc.
2) Enquiry of management
3) Review income tax assessments
4) Review minutes of meetings
5) Analyze legal expenses-review invoices
6) Confirm client lawyers (next slide)
7) Read contracts etc.
Lawyer’s letters
Sent to all lawyers used by client
 Sent on client letterhead, signed by client,
with instructions to return confirmation to
auditor
 Contains:
 List, description & evaluation of all known
claims
 Request to advise if info is reasonable
 Request to advise if list is incomplete
 Lawyers are encouraged to respond but may
not or may use slightly different terminology

Review for subsequent Events


Auditors are responsible for reviewing
events up to date of audit report
(=“substantial completion of fieldwork”
Goals:
1) Identify information having direct
effect on f/s and requiring adjustment
(=indicates condition existing at year
end)
2) Identify important events requiring
disclosure
Techniques for subsequent events
1)
2)
3)
4)
5)
6)
7)
8)
Subsequent receipts
Subsequent payments
Settlement prices of subsequent transactions
Enquiry of management
Review minutes of meetings
Confirm client lawyers
Review internal statements for subsequent pd.
Review books of account for significant or
unusual transactions
9) Letter of representation
Date of audit report
Date = substantial completion of fieldwork,
including subsequent event review
 If a subsequent event arises after that date
and before issue of report, auditor can:
 Extend fieldwork (subsequent event
review for all events) to new date or
 Limit review to new event only and
double-date report

Subsequent discovery of facts
Auditor not actively engaged to look for
info after release of audit report, but some
may come to their attention.
 If relates to condition that existed before
audit report issue and material:
 Auditor must audit subsequent event
 Request client re-issue and auditor reissues report
 If client refuses, consult legal advice

Accumulating Final Evidence
Final Analytical Procedures
 Evaluate Going Concern Assumption

Client Representation Letter

Goal:
1)
Impress upon mgmt that f/s are their
reponsibility
2)
Document responses of mgmt
Client Representations

On the client’s letterhead, addressed to the auditor, signed by
responsible officers and dated as of the auditor’s reports. Contains,
among other things:
Acknowledgement of primary responsibility for fair
presentation of financial statements
in conformity with GAAP
These representations are
 Availability of all financial
not substitutes for
records and related data
corroborating evidence
obtainable by the auditor.
 Completeness of the minutes
of meeting of stockholders,
directors, and important committees
 Info about related parties
 Irregularities involving management or employees
 Plans or intentions affecting b/s items
 see HB 7100

Evaluating Results
Cumulative known errors, most likely and
possible errors, including those on opening
balances on:
 Total assets
 Total liabilities
 Current assets/liabilities
 Net income
 Qualitative aspects
 Overall fair presentation of f/s, including
disclosure

Working Paper Review

Goals:
1) Evaluate staff
2) Ensure audit meets firm standards and
GAAS
3) Counteract biases
• Primacy, recency
• Internal control descriptions prepared
by client (L. Kopp)
Working Paper Review: to
consider
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Planning decisions were adequate
All work complete and properly
documented
Conclusions appropriate
Analytical review results
Other Information and
Supplementary Information

Other Information Section 7500.13 -
Auditor’s have and obligation to read (study) the
information and determine whether it is
inconsistent with the audited financial statements.
 However the auditor is not required to review
press releases, analyst’s interviews or other forms
of irregular financial new releases specifically
engaged by the client to do so.
13 The auditor should read the other information in
the annual report and consider whether any of this
information is inconsistent with the financial
statements on which he has reported. [JAN. 1986]


Other Information and
Supplementary Information

Other Information Section 7500.13 -
Auditor’s have and obligation to read (study) the
information and determine whether it is
inconsistent with the audited financial statements.
 However the auditor is not required to review
press releases, analyst’s interviews or other forms
of irregular financial new releases specifically
engaged by the client to do so.
13 The auditor should read the other information in
the annual report and consider whether any of this
information is inconsistent with the financial
statements on which he has reported. [JAN. 1986]


Read annual report
Auditors have and obligation to read (study)
the information and determine whether it is
inconsistent with the audited financial
statements. Any inconsistencies must be
corrected.
 NOT required to review press releases,
analyst’s interviews or other forms of
irregular financial new releases specifically
engaged by the client to do so.

Audit Communications

Necessary communication with mgmt (and
audit committee):
 Misstatements (other than trivial ones)
 Illegal or possibly illegal acts
 Internal control “reportable conditions”
(=significant deficiencies in design or
operation)
Communications with audit
committee
Auditor vs mgmt responsibility
 Significant planning decisions
 Significant acctg policies
 Areas of audit sensitivity, mgmt estimates
 Disagreements with mgmt, major issues
discussed
 Difficulties encountered

Management letters
Optional
 Areas of improvement in internal control,
efficiency and effectiveness in operations
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