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Canada (158,372)
MGAD10H3 (23)
Kevin Ha (16)
Chapter 12

MGTD60 - Chapter 12

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University of Toronto Scarborough
Financial Accounting
Kevin Ha

MGTD60H3 – Chapter 12 – Completing and Reporting on the Audit Audit Process in Focus - The completion phase of the audit, the number of procedures are: o Auditor evaluates the audit evidence obtained o Auditor reviews the documentation to ensure they are sufficient in quality and quantity o Auditor reassesses the going concern assumption o Auditor considers the existence of contingent liabilities and subsequent events o Auditor performs any addition wrap-up procedures o Auditor assesses any misstatements (referred to as Audit References) o Auditor performs analytical procedures on the adjusted F/S to assess fair presentation - The final step in the audit process is to evaluate the conclusions drawn from the audit evidence obtained and to prepare an appropriately worded audit report - A management representation letter is obtained from the client and appropriate communication with those charged with governance is prepared 12-1 – Engagement Wrap-Up - Auditor finalizes any open items before issuing the audit report o Determining if any remaining procedures are to be completed o Remaining audit procedures are assigned to team members with dude dates for completion of the open items - Includes determining if audit team has properly completed and executed the audit procedures that were planned and all relevant matters have been appropriately considered - The following areas are covered during the wrap-up: o Review the audit file to ensure that the planned audit procedures were executed properly and completely  File is reviewed in detail by manager and high risk areas are reviewed by partner  During the review process, the reviewer makes a list of “review comments” identifying issues not yet resolved, issues requiring further clarification, and audit procedures not yet completed MGTD60H3 – Chapter 12 – Completing and Reporting on the Audit  Review must be initialled and dated as evidence that review has been performed o Determine that all necessary matters have been appropriately considered  All significant issues should be documented and conclusions reached  For open items that are no longer relevant to the audit, the auditor must document in the audit working papers this fact and the reason why they are no longer relevant o Clear all outstanding review notes and “to-do” items and perform any audit procedures not yet completed o Remove all unnecessary documentation, drafts, and cleared review notes from the engagement files  Only retain records relevant to the audit (audit working papers and other documents that form the basis of the audit opinion such as memoranda, correspondence, communications, and electronic records)  Documents that are created, sent or received in connection with the audit  Documents which contain conclusions, opinions, analyses, or financial data  Superseded working papers and F/S, notes that reflect incomplete or preliminary thinking, and duplicates must be removed o For multi-location engagements, check to ensure all documents requested form other audit teams have been obtained and reviewed o Consider the amount used for materiality  Auditor must consider the amount used for materiality is still an appropriate base for their conclusion on the fair presentation of F/S  Auditor must consider whether, during the course of the audit, they have identified any factors about the client or its environment that would cause them to choose a different (lower) amount for materiality  It is important to revisit materiality when evaluating misstatements which takes into consideration qualitative and quantitative factors  When the materiality at the end of the audit is lower than the materiality at the beginning, auditor considers whether the procedures used throughout the audit were sufficient and if more procedures must be performed MGTD60H3 – Chapter 12 – Completing and Reporting on the Audit  Auditors must reassess the appropriateness of the materiality set throughout the audit to make sure that sufficient audit procedures are being performed o Reconsider the assessments of internal control at the entity level and the risk of fraud  Consider throughout the audit whether additional factors or risks are present and whether they need to revise their conclusion of control risk at the entity level and whether controls are supporting of the prevention and correction of material misstatements whether due to fraud or error  Auditor reconsiders the assessment of internal control at the entity level when they become aware of significant changes  Their conclusions about the effectiveness of internal control at the entity level may be affected by control exceptions that they identify when executing their tests of controls  When results of audit tests identify misstatements in the F/S, auditors consider whether such misstatements may be indicative of fraud  Fraud identified may result in audit team withdrawing from the engagement  Withdrawal from engagement needs extensive consultation from both internal (audit firm) and externally with legal counsel  Whether or not the decision is taken to withdraw from engagement depends on:  Whether the evidence suggests that management has been involved in perpetrating the fraud  The diligence and cooperation of management in investigating the circumstances of the fraud and taking appropriate action  At the conclusion of the audit, auditor must reconsider their assessment of internal control and fraud risk by considering whether accumulated results of their audit procedures affect the assessments they made when planning the audit  This evaluation considers qualitative matters based on the engagement team and audit team executive’s professional judgement o Revisit the planning documentation to ensure that all significant issues identified during the planning phase have been addressed MGTD60H3 – Chapter 12 – Completing and Reporting on the Audit o Perform analytical procedure on the adjusted F/S  AP used at the end of he audit o evaluate whether the final F/S are consistent with the knowledge of the business obtained during the audit  Analytics are used to corroborate conclusions formed on the F/S elements and the F/S overall o Perform a review for contingent liabilities and commitments to ensure that they are properly accounted for and disclosed  Specific procedures are performed in this area o Perform subsequent events procedures  Auditor performs what is referred to as Subsequent Events Procedures  The objective is to identify those events occurring between year-end and the date of the audit report that may require adjustment to or disclosure in the F/S  Normally performed through to and including the date of the audit report 12-1-1 – Sufficient Appropriate Audit Evidence - Review: Objective of an audit is to obtain sufficient appropriate evidence to reduce the risk of material misstatement in the F/S to an acceptably low level - What constitutes sufficient appropriate evidence is ultimately a matter of professional judgement - Factors to consider in evaluating the sufficiency and appropriateness of audit evidence include: o Materiality of misstatements o Management responses o Previous experience o Results of audit procedures performed o Quality of information obtained o Persuasiveness of the audit evidence o Whether the evidence obtained supports or contradicts the results of the risk assessment procedures 12-1-2 – Evaluating Audit Evidence - Goal in evaluating audit evidence is to decide, after considering all the relevant data obtained, whether: MGTD60H3 – Chapter 12 – Completing and Reporting on the Audit o The assessments of the risk of material misstatement at the assertion level are appropriate o Sufficient evidence has been obtained to reduce the risk of material misstatement to an acceptably low level - Audit is an ongoing, cumulative, and iterative process of gathering and evaluating evidence - This requires an attitude of professional scepticism to be applied by each member of the audit team, ongoing discussions among the members, and timely modifications being made to planned procedures to reflect any changes to the original risk assessments - When misstatements or deviations from controls are found in planned procedures, consideration should be given to: o Reason of misstatement or deviation o Impact on risk assessments and other planned procedures o Need to modify or perform further audit procedures - A change in materiality could be a result of: o New information o Change in auditor’s understanding of the entity and its operations o New circumstances 12-2 – Going Concern - Under the going concern assumption, an entity is viewed as continuing in business for the foreseeable future with neither the intention nor the need for liquidation, ceasing trading, or seeking protection from creditors pursuant to laws or regulations - Some financial reporting frameworks contain an explicit requirement for management to make an assessment of the entity’s ability to continue as a going concern. For example, refer to page 468. - Under other financial reporting frameworks, no explicit requirement for management to make a specific assessment about the going concern of the business - Management has a responsibility to assess its going concern regardless of the financial reporting frameworks - Following factors when assessing going concern: o The further into the future an event is likely to take place, the greater the uncertainty surrounding that event. Thus, specify period in when to assess going concern. For example, 12 months from the date of F/S. MGTD60H3 – Chapter 12 – Completing and Reporting on the Audit o Any judgement about the future is based on information available at the time at which the judgement is made o Size and complexity of the entity, nature and condition of its business, and the degree to which it is affected by external factors all affect judgement regarding outcome of events and conditions - Auditor should consider the appropriateness of management’s use of the going concern assumption in the p
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