Completing the Audit
What is the general focus of the procedures performed during the "Completing the Audit" phase?
Procedures to search for loss contingencies, evaluate subsequent events, and complete engagement wrap-up procedures
Besides remaining alert throughout the audit, what type of audit procedures can help reveal potential risks for loss contingencies?
Risk assessment and risk response procedures
What is the definition of a subsequent event?
The sources do not explicitly define "subsequent event" but describe them as events that occur after the date of the financial statements
Who is primarily responsible for evaluating and assessing an entity's status as a going concern?
Management is responsible
With whom do auditors have required communications near the end of the audit?
Management and those charged with governance
Name two specific engagement wrap-up procedures performed at the conclusion of the audit mentioned in the sources
Completing reviews of workpapers, engagement quality review, and completion of documentation
Give two examples of specific procedures mentioned in the sources that can reveal the potential risk for loss contingencies
Confirming with financial institutions (including debt guarantees), inspecting minutes of board meetings, inspecting contracts, leases, and correspondence
Name the two types of subsequent events that auditors must evaluate.
Type I and Type II
What is the auditor's role related to management's going concern evaluation?
The auditor is required to gather evidence regarding management's evaluation and the appropriateness of their conclusions
How must the required communications with those charged with governance be documented?
The communication must be documented in the working papers, whether it is oral or written
Analytical procedures are required during which two phases of the audit, according to the sources?
Risk assessment and the conclusion phases
What is a key document used to gather information about litigation, claims, and assessments by inquiring of the client's legal counsel?
A letter of inquiry to legal counsel
Define Type I and type II subsequent events
Type I subsequent events – Events that provides evidence of conditions that existed at the date of the F/S.
Type II subsequent events – Events that provides evidence of conditions arose after the date of the F/S.
If there is substantial doubt about the entity's ability to continue as a going concern, what two places could you read about it
audit report, notes to disclosure
Name two of the specific matters that must be communicated with those charged with governance near the end of the audit, as listed in the sources
Appropriateness of significant accounting policies, other significant findings or issues, and uncorrected misstatements
What is the primary purpose of performing analytical procedures during the conclusion phase of the audit?
To evaluate the overall financial statement presentation, assess the conclusions reached, and assist in forming an opinion on whether the financial statements as a whole are free from material misstatement
In a letter of inquiry to legal counsel regarding pending litigation, what four specific types of information should the auditor request about each matter?
he nature of each matter, the progress to date, how the company is responding or intends to respond, and an evaluation of the likelihood of an unfavorable outcome and estimated potential loss
Give two specific audit procedures mentioned in the sources that auditors are required to perform to identify potential subsequent events
Obtaining an understanding of how management identifies subsequent events, inquiring of management (and governance) about subsequent events, reading minutes of meetings, reading subsequent interim financial statements and forecasts, scanning accounting records for post-year-end transactions, and inquiring of legal counsel
Does the addition of a Going Concern paragraph to the audit report automatically change the auditor's opinion?
No, it does not change the opinion unless the client refuses to properly disclose the item
What action should auditors take when they accumulate individually immaterial uncorrected misstatements?
They should discuss them collectively with those charged with governance
Besides evaluating the appropriateness, consistency, and completeness of the financial statements and disclosures, what qualitative consideration should auditors make when performing final analytical procedures regarding potential unusual or unexpected items?
Whether these analytics have uncovered additional unusual or unexpected items and if further testing should be performed
The sources mention the auditor inquiring of the client's legal counsel regarding unasserted possible claims or assessments. What professional responsibility does legal counsel acknowledge in the sample letter regarding such matters that may call for financial statement disclosure?
Counsel acknowledges the professional responsibility to advise the client and consult with them concerning the question of disclosure and applicable FASB ASC requirements
If substantial doubt about an entity's ability to continue as a going concern remains, what are the potential effects on the financial statements and the audit report that the auditor should consider?
The potential effects on the financial statements relate to the adequacy of footnote disclosure, and on the audit report, it may require additional language or opinion modification
Analytical procedures during risk assessment
review of subsequent events
review of compliance with terms of debt and loan agreements
reading of minutes of meetings with stockholders, BOD, and important committees of the board
Inquiry of client's legal counsel
Confirmation with related parties and third parties of the details of arrangements to provide or maintain financial support
For material uncorrected misstatements discovered during the audit, what specific request should auditors make to management or those charged with governance?
Auditors should request that they be corrected