ACCG340 Study Guide - Final Guide: Audit Evidence, Audit Risk, Financial Statement
19 Jun 2018
School
Department
Course
Professor
WK 11
Completing the audit: Representation letters, Reviewing audit results, Auditor’s
communications
1. Representation letters - ASA580 ; ASA502 -
at the end of audit
a. management’s representation
i. Confirms management’s responsibility for presenting the financial statements and
provides responses to auditor’s enquiries during audit
ii. Supports other audit evidence relevant to the financial report or specific
assertions in the report, but does not relieve auditor of responsibility of gathering
adequate evidence about items included in letter. Representation letters are not
a substitute for other audit procedures
b. solicitor’s representation
i. Assist in obtaining sufficient appropriate audit evidence of:
ii. whether all material legal matters have been identified
iii. the probability of any material revenue or expense arising from those matters and
the estimated amount
2. Reviewing audit results: Analytical procedures
a. The auditor is required to apply analytical procedures in the overall review
at the
end
of the audit to:
i. corroborate conclusions formed during the audit on individual elements of financial
information
ii. assist in overall review of reasonableness of financial report and ensure that the
financial report is consistent with auditor’s knowledge of the entity
iii. gain assurance that the company will remain a going concern for the relevant period
b. Analytical procedures at this stage should be based on data after all audit adjustments
have been made.
3. Reviewing audit results: Final review and forming an opinion
a. Before completion, the auditor is required to:
i. ensure that the audit process has complied with auditing standards
ii. ensure all significant matters identified, considered and satisfactorily resolved
iii. determine the type of audit opinion to be expressed
b. This involves:
i. making the final assessment of materiality and audit risk (including misstatements
and proposed adjustments)
ii. undertaking technical review of the financial statements
iii. undertaking final review of the working papers
iv. formulating an opinion and drafting the audit report
4. Auditor’s communications
a. Communication with management and those charged with governance
i. Matters concerning significant deficiency in internal control should be
communicated in writing to those charged with governance (ASA 265.9)
ii. Uncorrected misstatements and the effects they may have on the auditor’s report
must also be communicated (ASA 450.12)
b. Communication with shareholders
i. Primary means of communication with shareholders is auditor’s report
ii. Another major method of communicating with shareholders is at the AGM (now required
under Recommendation 4.3 of ASX CGC Principles for listed entities)
c. Management letter
i. Written communication between auditor and management normally issued at the
conclusion of audit engagement.
ii. Letter summarises auditor’s recommendations resulting from assessment of entity’s
business risk and inherent risk, and recommended improvements in internal control.
iii. Critical discussions between auditor and management concern the form and content
of the financial report.
iv. If the accounting policies proposed by management differ materially from those the
auditor believes are appropriate, an alternative presentation must be agreed on.
d. Communication with audit committee
i. Effective audit committees may inquire of auditor extent to which executive
management has been aggressive in choice of accounting policies, and extent to which
auditor is independent of management.
ii. At conclusion of audit, audit committee should ask auditor about any significant
disagreements with management and whether they have been satisfactorily resolved.
Subsequent events
1. After balance date / subsequent events defined (IAS 10/AASB 10) as:
a. A circumstance that has arisen; or
b. Information that has become available
between the reporting date, and the date when the financial report is authorised for issue
(date when Directors’ declaration signed).
2. ASA 560.5(d) extends auditor’s responsibility in relation to the subsequent events up to
the
date of the auditor’s report
.
3. Types of after balance date events
a.
Adjusting events
i. Events that provide evidence of a condition which
existed
at balance date.
ii. Impact must be reflected i.e.
adjusted
in the financial statements (FS)
b.
Non-adjusting events
i. Events that provide evidence of
new conditions
(is it predictable for subject to
change à get the date)that arose after balance date.
ii. Financial effect is not related to year under audit
iii.
If
auditor considers event is
material
to FS users, it should be
disclosed
in a
subsequent event note to the
FS
& in the
Directors’ Report
.
Adjusting events
Non-adjusting events
Existed
condition at balance date
new conditions
arose after balance
date
adjusted
in the financial
statements
1. ImmaterialàNo action is taken
2. Materialà
disclosed
in a
subsequent event note to the
FS
& in the
Directors’ Report
4. Guidance on auditor’s responsibilities for after subsequent events under ASA 560
1. Immaterial
a. Required by laws? -- material
b. Others à No action
(No action being taken, when: Immaterial/ material but now condition raised
after the date of AR signed)
2. Material:
Period 1
Period 2
Period 3
All events happened
should be adjust/disclose
If known event happened
during period 1 – should be
adjust/disclose
If known event happened during period
1 – should be adjust/disclose
Existed
before
the
balance
date à
adjust FR
Existed after
the balance
date à
disclose
in a
subsequent
event note to
the
FS
& in the
Directors’
Report
Existed
before
the
balance
date à
adjust FR
Existed after
the balance
date à
disclose
in a
subsequent
event note to
the
FS
& in the
Directors’
Report
Existed before
the balance date
à adjust FR
& if company
revised FS,
auditor should
include Emphasis
of Matter OR Other
Matter paragraph
Existed after the
balance date à
disclose
in a
subsequent event
note to the
FS
& in
the
Directors’
Report
&
if company
revised FS, auditor
should include
Emphasis of Matter
OR Other Matter
5. Auditor’s responsibility for subsequent events
a.
three stages
(refer figure in above slide)
i.
Prior to date of the audit report
(ASA 560.6)
1. Auditor is required to perform audit procedures to obtain sufficient appropriate
audit evidence that all events occurring between balance date and the date of
the auditor’s report that require adjustment or disclosure in the financial
Document Summary
Completing the audit: representation letters, reviewing audit results, auditor"s: representation letters - asa580 ; asa502 - at the end of audit communications, management"s representation. Confirms management"s responsibility for presenting the financial statements and provides responses to auditor"s enquiries during audit. Supports other audit evidence relevant to the financial report or specific assertions in the report, but does not relieve auditor of responsibility of gathering adequate evidence about items included in letter. Representation letters are not a substitute for other audit procedures: solicitor"s representation. Matters concerning significant deficiency in internal control should be communicated in writing to those charged with governance (asa 265. 9) Uncorrected misstatements and the effects they may have on the auditor"s report must also be communicated (asa 450. 12: communication with shareholders. Primary means of communication with shareholders is auditor"s report. Another major method of communicating with shareholders is at the agm (now required under recommendation 4. 3 of asx cgc principles for listed entities: management letter.
