ACC 521 Study Guide - Final Guide: Internal Control, Vajrayana, The Sequence
Course CodeACC 521
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Chapter 15: Completing the Audit
Recap: The Sequence of Audit Events
-Interim audit work (before year end):
oAuditor evaluates internal control.
oAuditor may begin work on testing controls.
oAuditor can apply substantive procedures as at an interim date.
-Year-end work (weeks or months after the actual year-end date):
oComplete the work on testing controls.
oComplete work on audit of balances.
oPerform audit completion procedures.
What work is done at Completion stage of the audit?
- Audit of some accounts that is best left till the end of the audit, including revenues & expenses.
- Audit of any year-end balances that were not covered in auditing the accounting processes.
- Procedures particular to year end such as:
opresentation and disclosures,
oobtaining written management representations
- Final wrap-up of the audit fieldwork and file preparation.
Revenue and Expense Assertions
1. Revenue and expense accounts represent all the valid transactions recorded correctly in the proper
account, amount, and period.
2. Revenues, expenses, cost of goods sold, and extraordinary, unusual or infrequent transactions are
adequately classified and disclosed.
Audit of Revenue and Expense
- Many of the significant revenue and expense numbers were audited in whole or in part with other
related account groups.
oWorking papers should show cross-reference indexing to the revenue and expense accounts in
the trial balance.
oUnaudited accounts will be evident.
Revenue Accounts Audited in Other Processe Expense Accounts Audited in Other
- Some minor expense accounts like
office supplies or utilities will not be
covered until the end of the audit.
oAuditors usually apply analytical procedures to these accounts.
oAll miscellaneous accounts and clearing accounts with debit balances are analyzed.
oAccounts with income tax implications are also analyzed carefully.
Overall Analytical Procedures
- Analytical procedures can be used at all points of the audit.
comparison to prior years, and
comparison to budgets.
oExplanations for analytical findings are subject to audit.
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- All “miscellaneous”, “other,” or “clearing” accounts with credit balances should be analyzed.
oIdentify each important transaction, and determine whether amounts are properly classified.
oMiscellaneous accounts may contain accounting errors or incorrect classifications.
- Audit evidence and reporting problems can arise where management has created complicated
transactions to manufacture earnings artificially.
oOften, transactions are run through a series of subsidiaries, affiliates and related parties.
oBundled sales, particularly in the field of technology, also give rise to reporting concerns.
oWatch for large transactions with no obvious business purpose.
Communication with Auditee’s Lawyer to Detect Contingencies
- Auditors are required to make certain inquiries designed to elicit specific information.
oIn a letter, the auditee asks the company’s lawyers to provide auditor with information regarding
contingencies, litigation, claims, and assessments.
oIn addition, other audit procedures would be designed to determine materially contingent
Events Subsequent to the Balance Sheet Date
- Material events that occur after balance sheet date, but before audit report date, may affect the
- Two possibilities:
1. Event requires adjustment of financial statement dollar amounts
2. Event requires disclosure only, not adjustment
Type 1: Adjustment of Dollar Amounts Required
- Subsequent event provides new information regarding a financial condition that exists at the balance
oAdjustment is required because the new information affects the financial statements, ,e.g.,
A loss on uncollectible trade accounts receivable as a result of bankruptcy of a major
The settlement of litigation for an amount different than estimated.
Type 2: No Adjustment, but Disclosure Required
- Events that occur after the balance sheet date, but do not require adjustment of accounts at balance
sheet date because the cause and manifestation arise after balance sheet date.
oHowever, the event may require disclosure to keep financial statements from being misleading
at the report date.
oExamples: issue large number of common shares (dilutive) after year end, or decide to
discontinue a significant business segment
Dual-Dating in the Audit Report for Subsequent Event
- Audit report has both the normal date (at time TCWG approve the audited f/s) plus an additional later
date for the Type 2 subsequent event when it occurred after the audit report date.
oMay occur when subsequent information is discovered after audit report date, but before report
It means auditor’s procedures to later date only relate to subsequent event, not the rest
of the f/s
Not required if auditor is willing to extend subsequent procedures to audit rest of f/s
through to the later date.
Audit Program for the Subsequent Period
- Some subsequent period audit procedures are part of a regular audit program.
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