Auditing Lecture Notes Chapter 24 Completing the Audit 14 e Opening Story Staff acct.

. wrote tick marks that he did the work and made the work papers look pretty, but the work was not really done (at least not properly) Work may not have been done at all. 4th - Last Phase of the Audit - 7 steps Reminder 4 phases of the audit were: Phase I Plan & Design an Audit Approach Phase II Perform Tests of Controls & Substantive Tests of Transactions Phase III Perform Analytical Procedures & Tests of Details of Balances Phase IV Complete the Audit and Issue an Audit Report Step 1 Perform additional tests for Presentation & Disclosure Step 2 Review for Contingent Liabilities and Commitments To be a contingent liability, 3 conditions must exist: 1. there is a potential future payment to an outside party or the impairment of some other asset that would result from an existing condition 2. there is an uncertainty about the $amount of the future payment or impairment 3. the outcome will be resolved by some future event not concluded!!! The likelihood of occurrence of the event, determines the treatment in the financial statements. See Table 2 Differences in contingencies vs. commitments ex. To purchase goods, to lease facilities, to sell merchandise at a fixed price, profit sharing are all commitments they commit the firm to a set of fixed conditions in future, regardless of any occurrences in the future Unasserted Claim potential legal claims against a client where the condition for a claim exists but no claim has been filed. Step 3 Review for Subsequent Events Required up to the date of the Audit Report last day of field work 2 types of subsequent events condition did not exist at the balance sheet date Both require consideration by mgmt. & auditor 1. Have a direct effect on the financial statements and require adjustment declaration of bankruptcy but conditions were caused before 12/31 Settlement of lawsuit at different $ amount than was recorded but events of lawsuit occurred before 12/31 Disposal of equipment below book value (loss) but devaluation of equip. occurred before 12/31 Sale of investments below cost (loss) but loss was existing before 12/31 Have no direct effect on financial statements but disclosure is advisable in footnote form Condition did not exist at Balance Sheet date! decline in market value of securities occurred after 12/31 issuance of bonds after 12/31 uninsured fire loss after 12/31 decline in value of inventory due to government action barring future sales after 12/31

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Dual dating of financial statements occurs when a significant event occurs after audit report date (end of field work) but before report is issued/printed Step 4 Final Evidence Accumulation 1. Final Analytical Procedures Required Usually done by the partner 2. Evaluate Going Concern Assumption for at least 1 year beyond balance sheet date ex) loss of major client 3.Client representation letter required!!! See pg.

4. Other information in annual reports ex. Earnings per share should be the same in the annual report as was reported in the financial statements. Step 5 Evaluate Results Sufficiency / Adequacy of evidence ex. Was the audit program sufficient knowing what you know now at the end of the engagement? See ex. Of a Completing the Engagement Checklist on pg. Evidence supports auditors opinion Ex. review the Summary of Audit Adjustments to see if there should be an overall effect Prepare financial statement disclosures Make sure all required disclosures have been made because there are so many possible disclosures, the auditor usually uses a financial statement disclosure checklist to ensure that the basic disclosures have been made. Working paper review by partner To evaluate the performance of inexperienced staff Ensure the audit meets the CPA firms standard performance To counteract bias in judgement which could occur with the engagement team who deals daily with and develops relationship with client Independent Partner Review required for SEC clients Step 7 Communicate with the Audit Committee(or similar group) & Mgmt The auditor must Communicate fraud and illegal acts Communicate reportable conditions Other required communications see pg. Management Letter is optional and is not a reportable conditions letter it informs client of possible improvements - more efficient operations Subsequent discovery of facts after financial statements have been issued can require recall or reissuance of financial statements does not arise from events occurring after audit report date; condition must already exist at the audit report date, ex. omission of a material footnote