Completing the Audit
and Post Audit Responsibilities
The Sequence of Audit
1. Accepting the audit engagement/appointment
2. Understanding the industry and the business
3. Tests of controls and substantive tests for the
following transactions cycles:
a. The revenue cycles
b. The expenditure cyclest
c. The Production Cycles
d. Auditing the HRM/Payroll Cycles
e. Auditing the Investing and Financing Cycles
f. Auditing the Investments and Cash
Balances
4. Completing the audits and reporting the audit
Completeing the Audit
Consist of three main things:
1. Completing the field work
2. Evaluating the findings
3. Communicating with the
client
Completing the Field Works
1.
2.
3.
4.
5.
Making subsequent event review
Reading minutes of meetings
Obtaining evidence concerning
litigation, claims, and assessments
Obtaining client representation
letter
Performing analytical procedures
Evaluating the Findings
1.
2.
3.
4.
5.
6.
Making final assessment of materiality
and audit risk
Evaluating going concern
Making technical review of financial
statements
Formulating opinion and drafting audit
report on the financial statements
Formulating opinion and drafting audit
report on internal controls over financial
reporting.
Making final review (s) of working
papers.
Communicating with the Client
1. Communicating internal control
matters
2. Communicating matters
pertaining to conduct of audit
3. Preparing management letter
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.
Completing the Fieldwork
1. 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
auditor’s report.
Completing the Fieldwork
Illustration of Subsequent Events
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)
Report issuance
date
March 15, X2
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.
Completing the Fieldwork
Auditing Procedures
1. Performing year-end substantive tests
such as cut-off tests and the search for
unrecorded liabilities.
2. Read the latest available interim
financial statements and compare them
with the statements being reported on.
3. Inquire of management having
responsibility for financial and
accounting matters about:
Completing the Fieldwork
a. Substantial contingent liabilities or
commitments existing at the balance
sheet date or date of inquiry.
b. Significant changes in capital stock,
long-term debt, or working capital to the
date of inquiry.
c. The current status of items previously
accounted for on the basis of tentative,
preliminary, or inconclusive data.
Completing the Fieldwork
d. Unusual adjustments since the
balance sheet date.
e. Read minutes of meetings of
directors, stockholders, and other
appropriates committees.
f. Inquire client’s legal counsel
concerning litigation, claims, and
assessments.
Completing the Fieldwork
g. Obtain letter of representation from
about subsequent events that would, in
its opinion, require adjustment or
disclosure.
h. Make additional inquiries or perform
additional procedures considered
necessaries in the circumstances.
Completing the Fieldwork
The Effects of Subsequent Events
The effect of the subsequent events to
auditor’s 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 auditor’s
standard report.
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.
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.
Completing the Fieldwork
Considering the Evidence of LCA
1. The existence of a condition, situation, or
set of circumstances indicating an
uncertainty as to the possible loss to an
entity arising form LCA.
2. The period in which the underlying cause
for legal action occurred.
3. The degree of probability of an unfavorable
outcome.
4. The amount of range of potential loss.
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 client’s 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.
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.
Completing the Fieldwork
Content of Representation Letter
1. Management’s responsibility for the
financial statements.
2. Completeness of information and evidence
furnished to the auditor.
3. Issues regarding revenue recognition,
accounting estimates, and disclosures.
4. Subsequent events.
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.
Evaluating the Findings
Final Assessment of Materiality and Audit Risk
Assessment components:
1. Uncorrected misstatements specifically identified
through substantive tests of detail of transactions
and balances (referred to as known
misstatement)
2. Projected uncorrected misstatements estimated
through audit sampling techniques.
3. Estimated misstatements detected through
analytical procedures and quantified by other
auditing procedures.
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.
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
entity’s inability to continue to meet its
obligations without substantial
disposition of assets.
Evaluating the Findings
Evaluating Going Concern
The steps need to be done:
1. Obtain information about
management’s plans to mitigate the
effect of such conditions or events.
2. Assess the likelihood that such plans
can be effectively implemented.
Evaluating the Findings
Evaluating Going Concern
When finally auditor concludes that there is a
substantial doubt about a going concern, the
auditors should:
1. Consider the adequacy of disclosure about the
doubt of the going concern for a reasonable
period of time.
2. Include an explanatory paragraph in the audit
report to reflect his or her conclusion.
Thank You