Audit completion
10 important questions on Audit completion
Last phase is complete the audit and issue the audit report. What are the final steps?
- Perform additional tests
- Review for contingent liabilities
- Review for subsequent events
- Accumulate final evidence
- Evaluate results
- Issue audit report
- Communication of audit results
What is the first step of completing an audit and explain
- Roll-forward procedures: examine material account transactions that occur between interim tests and year-end (e.g. you have to do some additional work to see what happens during december)
- Examination of reasonableness management's accounting estimates
- Examination of footnotes & disclosures: reliance on earlier on phases audit process, disclosure checklist, minutes, attorney letters, etc.
What is the second step of completing an audit and explain.
- Probable and reasonably estimated? -> then there should be an accrual. This means it should be processed in the financial statements.
- Probable and not estimable? -> Then it's a footnote disclosure
- Reasonably possible? -> Then it's a footnote disclosure
- Remote? -> Then no financial statement or disclosure unless significant adverse effect
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What is the fourth step of audit completion and explain
- Perform Final Analytical Procedures (Do I understand these numbers?
- Evaluate the going-concern opinion
- Obtain a management representation letter
- Consider information accompanying the basic financial statements
- Read other information in the financial report
What is Management Representation Letter?
The primary purposes are to:
- Confirm and document oral statements.
- Reduce auditor-client misunderstanding
- Remind management of responsibilities
The letter should be signed by the client CFO and CEO and date with the field work completion date.
If the client refuses to give the auditor a representation letter, how can the auditor give an opinion about the fairness of the financials? Then the auditor should qualify or deny the opinion.
What is fifth step of audit completion and explain
- Completing the audit checklist - sufficient evidence?
- Unadjusted misstatement audit schedule
- Known misstatements & projected errors
- Financial statement disclosure checklist (to assure that the financials have been prepared to disclosure and presentation in according with the accounting standards)
What is the sixth step of audit completion and explain.
The auditor shall form an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework and to give a true and fair view.
What is the seventh step of audit completion and explain.
- Communicate fraud and illegal acts (you already do this immediately)
- Communicatie internal control deficiencies
- Other communication with audit committee
- Management Letter
What are the types of audit opinions?
- Unmodified (unqualified): 'statements are presented fairly, in all material respects' or 'give a true and fair view'
- Reservation of opinion (modified opinion):
- Qualified opinion: 'Except for one or more exceptions, statements present fairly'. Two possible reasons:
- Scope limitations
- Departures from GAAP
- Adverse opinion: 'Statements do not present fairly.' Reasons: Pervasive violation of accounting standards
- Denial/Disclaimer: 'No opinion.' Two possible reasons:
- Scope limitations: when pervasive, or imposed by management
- Conflict of interest
What is a going concern opinion?
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