Chapter 11
Completing the Audit
Chapter 2
Professional Standards
PCAOB RELEASE NO. 104-2005-119
On this audit, the Firm used the issuer's internal auditors to
assist in auditing cash at an interim date. The Firm,
however, failed to perform, or failed to have the
internal auditors perform, audit procedures on the
activity in the cash accounts between the interim
date and year end.
Chapter 11 – completing the audit
PCAOB RELEASE NO. 104-2005-119
the Firm audited certain accounts receivable balances
at an interim date, but did not audit the issuer's
analysis of the roll-forward of these balances to the year
end.
Chapter 11 – completing the audit
PCAOB RELEASE NO. 104-2005-119
the Firm tested the operating effectiveness of the
controls over certain processes as of interim testing
dates, but the work papers do not evidence any
procedures to roll forward these tests to the
balance sheet date, and the Firm therefore lacked a
reasonable basis for extending its conclusions to the
balance sheet date.
Chapter 11 – completing the audit
PCAOB RELEASE NO. 104-2005-119
• ….. the Firm used analytical procedures as
alternative procedures. The Firm, however, did not
perform certain required steps, such as developing
expectations and defining a significant difference
threshold, when performing the analytical procedures.
Chapter 11 – completing the audit
PCAOB RELEASE NO. 104-2005-119
…, the Firm failed to obtain sufficient evidence, or failed
to include sufficient evidence in its work papers, that
the unallocated component of the allowance represented a
supportable estimate of probable losses inherent in the
issuer's loan portfolio. The Firm's documented testing
specific to this aspect of the banks' ALL was limited to
certain high level analytical procedures that were not
substantive tests ….
Chapter 11 – completing the audit
PCAOB RELEASE NO. 104-2005-119
…the Firm was aware of indications of deficiencies in
the operating effectiveness of the issuer's controls
over the allowance for loan losses. Particularly in light of
the highly judgmental nature of the area, the Firm's
knowledge of such indications rendered its
assessment of the control risk with respect to the
allowance for loan losses as "minimum"
inappropriate. (Issuers D, E, F, and G)
Chapter 11 – completing the audit
PCAOB RELEASE NO. 104-2005-119
.. the Firm apparently did not reconsider its assessment of
risk and materiality or revisit its audit scope in light of the
known and likely errors ... and did not reconsider its fraud
risk assessment related to an issuer that is unwilling to
correct known errors.
Chapter 11 – completing the audit
PCAOB RELEASE NO. 104-2005-119
The work papers did not document the Firm's threshold for
posting errors to the Score Sheet of Unadjusted Audit
Difference, and several uncorrected errors noted in the
work papers were not posted to the Score Sheet of
Unadjusted Audit Difference, were not evaluated for
materiality in the aggregate,
Chapter 11 – completing the audit
PCAOB RELEASE NO. 104-2005-119
During the issuer's first quarter of fiscal 2005, it reached a
settlement with a customer that it included in net
sales and did not disclose. As a result of including the
entire settlement amount in net sales, the issuer's net
sales increased from the first fiscal quarter of 2004 to the
first fiscal quarter of 2005. If the entire settlement had
been omitted from net sales, net sales would have
decreased. The Firm failed to consider the
appropriateness of including the settlement in net
sales and not disclosing that fact.11/
Chapter 11 – completing the audit