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Completing a Quality Audit

17 important questions on Completing a Quality Audit

Which three misstatements do you have?

- Known misstatements
- Projected misstatements
- Judgmental misstatements

Summary of unadjusted audit differences

Most audit firms use a schedule, often referred to as summary of unadjusted audit differences (SUAD), to accumulate the known and projected misstatements and the carryover effects of prior-year uncorrected misstatements. Near the end of the audit, the auditor will the possible adjustments in the aggregate to determine whether the combined effect is material.

When auditors detect an intentional misstatement, they:

1) reconsider the level of audit risk for the client
2) consider revising the nature timing and extent of audit procedures
3) evaluate whether to resign from the audit engagement.

Iron curtain method

The iron curtain method focuses on assuring that the year-end balance sheet is correct and does not consider the impact of prior-year uncorrected misstatement reversing in later years.

What should the auditor's response be to the client's claim that its estimate is as good as the auditor's estimate?

The auditor should have gathered sufficient appropriate evidence that incorporates relevant information about the correctness of the account balance and should be able to defend the accuracy of that estimate.

What are the categories of contingencies?

1. Probable
2. Reasonable
3. Remote

What is an important primary source of evidence concertina loss contingencies?

Client management.

Letter of audit inquiry

The primary source of corroborative evidence concerning litigation, claims, and assessments is the client's legal counsel. Theu auditor should ask the client to send a letter of audit inquiry to its legal counsel asking the counsel to confirm information about asserted claims and those claims that are probable of assertion.

What should auditors do with disclosures?

If the auditor determines that disclosures are not reasonable adequate, the auditor must identify that in fact in the auditor's report. When assessing the adequacy of disclosures, the auditor should have reasonable assurance that the disclosed events have occurred, that all events are included, that it's understandable and that the information is accurate and with the appropriate amounts.

Which activities should the auditor complete?

- Read the disclosures and the associated footnotes
- Obtain evidence about the disclosure (e.g. disclosure checklist)
- Consider alternative or enhanced disclosures

Noncompliance with laws and regulations

Management must be sure that its operations and financial reporting are conducted in accordance with laws and regulations. Noncompliance involves "acts of omission or commission by the entity, either intentional or unintentional, which are contrary to the prevailing laws or regulations".

Auditing standards recognize that there are inherent limitations in an auditor's ability to detect material misstatements relating to the client's compliance with laws and regulations. These limitations are:

- Laws often relate to operational issues that do not necessarily relate to the FS.
- Management may act to conceal noncompliance, may override controls, or may intentionally misrepresent facts to the auditor.
- The legal implications of noncompliance are ultimately a matter for legal authorities to resolve, and are not a matter the auditor can resolve.

Why can auditors be reluctant to issue a going-concern audit opinion?

It can be a self-fulfilling prophecy that the company will go bankrupt. Additionally, it can be very difficult to know beforehand whether a financially distressed client will actually cease operation or will somehow pull itself away from that outcome.

Potential indicators of going-concern problems:

- Negative trends
- Internal matters
- External matters
- Other miscellaneous matters
- Significant changes in the competitive market and the competitiveness of the client's procedures

What are procedures related to subsequent events?

- Read the minutes of the meetings of the board of directors, stockholders and other authoritative groups.
- Read interim FS and compare them the the audited FS
- Inquiry of management

Type I Subsequent Events

Type I Subsequent Events provide evidence about conditions that existed at the balance sheet date. The FS number should be adjusted to reflect these events. Footnote disclosure may also be necessary to provide additional information.

What should an auditor do when it becomes aware of an event that occurs after the audit report date, but fore the report release date (period b), and the event is disclosed in the footnotes?

1. Use the date of this event as the date of the audit report (more responsibility)
2. Dual-date the report, using the dates of the original audit report and the date of the event, to disclose the work done only on that event after the original audit report date. (less responsibility)

The question on the page originate from the summary of the following study material:

Auditing: A Risk Based-Approach | 9781337619455 | Karla M Johnstone, et al

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Completing a Quality Audit

17 important questions on Completing a Quality Audit

Which three misstatements do you have?

Summary of unadjusted audit differences

When auditors detect an intentional misstatement, they:

Iron curtain method

What should the auditor's response be to the client's claim that its estimate is as good as the auditor's estimate?

What are the categories of contingencies?

What is an important primary source of evidence concertina loss contingencies?

Letter of audit inquiry

What should auditors do with disclosures?

Which activities should the auditor complete?

Noncompliance with laws and regulations

Auditing standards recognize that there are inherent limitations in an auditor's ability to detect material misstatements relating to the client's compliance with laws and regulations. These limitations are:

Why can auditors be reluctant to issue a going-concern audit opinion?

Potential indicators of going-concern problems:

What are procedures related to subsequent events?

Type I Subsequent Events

What should an auditor do when it becomes aware of an event that occurs after the audit report date, but fore the report release date (period b), and the event is disclosed in the footnotes?

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