Audit book by m asif chapter 18 final matters

Auditing – Study Notes Chapter 23 Final Matters CHAPTER TWENTY THREE FINAL MATTERS LO # LEARNING OBJCTIVE PART A: WRITTEN REPRESENTATION LO DEFINITION OF WRITTEN REPRESENTATION LO WRITTEN REPRESENTATION ABOUT MANAGEMENT’S RESPONSIBILITIES LO WRITTEN REPRESENTATIONS ABOUT SPECIFIC ASSERTIONS LO WRITTEN REPRESENATION AS AUDIT EV IDENCE PART B: SUBSEQUENT EV ENTS EVENTS OCCURRING BETWEEN DATE OF FINANCIAL LO STATEMENTS AND DATE OF AUDITOR’S REPORT FACTS DISCOV ERED AFTER AUDITOR’S REPORT (REV ISION IN LO AUDITOR’S REPORT) PART C: ADDITIONAL CONCEPTS LO MANAGEMENT LETTER AND ITS CONTENTS LO AUDIT CORRESPONDENCE ICAP'S SYLLABUS REFERENCE ICAP'S STUDY TEXT REFERENCE* SECTION (CHAPTER 15) SECTION (CHAPTER 15) SECTION (CHAPTER 15) SECTION (CHAPTER 15) SECTION (CHAPTER 15) SECTION (CHAPTER 15) SECTION 4.3 (CHAPTER 5) N/A Auditing – Study Notes Chapter 23 Final Matters PART A – WRITTEN REPRESENTATION LO 1: DEFINITION OF WRITTEN REPRESENTATION: Written representation A written statement by management provided to the auditor to confirm certain matters or to support other audit evidence Form and Date of written representations: Written representations shall be:  in the form of a letter  addressed to auditor  dated as near as possible, but not after, the date of auditor’s report LO 2: WRITTEN REPRESENTATION ABOUT MANAGEMENT’S RESPONSIBILITIES : Representation required about management’s responsibilities About Financial Statements Management has fulfilled its responsibility for the preparation of financial statements in accordance with the AFRF, as agreed in the terms of the audit engagement About Information Provided a) Management has provided the auditor with all relevant information and access, as agreed in the terms of the audit engagement, and b) All transactions have been recorded in financial statements LO 3: WRITTEN REPRESENTATIONS ABOUT SPECIFIC ASSERTIONS : Following is a list of other representations which are either: required by different ISAs or requested by auditor to support other audit evidence Representation required by different ISAs About Financial Statements About Information Provided Significant assumptions and accounting We have disclosed to you the results of our estimates are reasonable (ISA 540) assessment of the risk that the financial statements may be materially misstated as a Related party relationships and result of fraud (ISA 240) transactions have been appropriately accounted for and disclosed in accordance We have disclosed to you all information in with the requirements of AFRF (ISA 550) relation to fraud or suspected fraud that we are aware of and that affects the entity All events subsequent to the date of involving management, employees or others financial statements for which AFRF (ISA 240) requires adjustment or disclosure, have been adjusted or disclosed (ISA 560) We have disclosed to you the identity of the entity’s related parties and all the relatedparty relationships and transactions of which we are aware (ISA 550) Auditing – Study Notes Additional Representations requested by auditor Chapter 23 Final Matters The effects of uncorrected misstatements are immaterial, both individually and in We have disclosed to you all known the aggregate, to the financial statements instances of non-compliance or suspected as a whole (ISA 450) non-compliance with laws and regulations affecting financial statements (ISA 250) e.g about Plans or intentions that may e.g about deficiencies in internal control affect carrying amount or classification of assets and liabilities LO 4: WRITTEN REPRESENATION AS AUDIT EVIDENCE : Like Inquiry, written representation is an audit evidence However, written representations, alone, not provide sufficient appropriate audit evidence about matters to which they deal It is only a supporting evidence and does not affect nature, timing and extent of other evidence to be obtained If written representation is not provided: If management refuses to provide written representation to auditor, the auditor shall inquire reason for refusal Auditor shall:  Re-evaluate the integrity of management  Reconsider the impact on other representations and audit evidence  Take appropriate actions, including considering effect on audit report If written representation is contradicted by other evidence: Auditor should consider:  whether additional audit procedures are needed to resolve contradiction  whether there is need to revise risk of material misstatement, including risk of fraud  if auditor has concerns about integrity of management, document those concerns and consider withdrawing from the audit PART B – SUBSEQUENT EVENTS LO 5: EVENTS OCCURRING BETWEEN DATE OF FINANCIAL STATEMENTS AND DATE OF AUDITOR’S REPORT : Auditor’s Responsibility: Auditor’s responsibility is to perform audit procedures to obtain sufficient appropriate audit evidence that all events subsequent to the date of the financial statements have been identified by management and have been adjusted or disclosed, as appropriate For this purpose, auditor performs:  Active Review of subsequent events (i.e auditor actively searches for significant subsequent events This review is performed till date of auditor’s report) Auditing – Study Notes  Chapter 23 Final Matters Passive Review of subsequent events (i.e auditor does not search subsequent events actively; rather he relies on information from management This review is performed after the date of auditor’s report but before financial statements are issued) Auditor’s Procedures to fulfill responsibility: Normal audit verification work: Auditor may find information about subsequent events during his normal audit verification e.g  In the audit of receivables, cash receipts from customers after the balance sheet date in the audit of receivables or bankruptcy of a debtor after balance sheet date  In the audit of liabilities, review of subsequent payments to identify unrecorded liabilities  In the audit of inventory, sale of inventory below cost after balance sheet date Procedures aimed specifically at identifying subsequent events: To meet his responsibility, auditor shall perform following procedures: 1) Inquiring of management and TCWG as to whether any subsequent events have occurred which might affect the financial statements (auditor may make specific inquiries relating to events adjusting or non-adjusting events) 2) Obtaining an understanding of procedures established by management to identify subsequent events 3) Reading minutes of subsequent meetings of the entity’s owners, management and TCWG and inquiring about matters discussed at any such meetings for which minutes are not yet available 4) Reading the entity’s subsequent interim financial statements, if any 5) Requesting management to provide written representation that “all events subsequent to the date of the financial statements requiring adjustment or disclosure have been adjusted or disclosed” Auditing – Study Notes Chapter 23 Final Matters LO 6: FACTS DISCOVERED AFTER AUDITOR’S REPORT (REV ISION IN AUDITOR’S REPORT): If after the date of auditor’s report, auditor becomes aware a misstatement in financial statements (e.g an error/fraud in financial statements), auditor shall:  Discuss with management to determine whether financial statements need amendment  If amendment is required, auditor shall inquire whether management agrees to amend financial statements or not When financial statements have not been issued When financial statements have been issued If management agrees to amend financial If management does not agree to statements amend financial statements Management’s Responsibilities: If auditor’s report has not been –Management shall amend financial statements before provided to entity, auditor shall issuance modify the opinion If auditor’s report has been Auditor’s Responsibilities: provided to entity, auditor shall Auditor shall: notify management and TCWG –Carry out necessary audit procedures on the not to issue the financial amendment statements to third parties –Provide a new audit report on the amended financial before the necessary statements amendments Management’s Responsibilities: Auditor shall take appropriate –Management take necessary steps to ensure that users action to ensure that users are not rely on previously issued financial statements informed not to rely on financial –Management shall amend financial statements to re- statements issue them These financial statements shall include an additional note to explain the reason for the amendment Auditor’s Responsibilities: Auditor shall: – Review the steps taken by management to ensure that users not rely on previously issued financial statements –Carry out necessary audit procedures on the amendment –Provide a new audit report (on amended financial statements) that shall include an Emphasis of Matter Paragraph or Other Matter Paragraph, referring to the  note in financial statements that explains reason for the amendment in financial statements, or  earlier report provided by the auditor Auditing – Study Notes Chapter 23 Final Matters PART C – ADDITIONAL CONCEPTS LO 7: MANAGEMENT LETTER AND ITS CONTENTS: Management Letter is a document prepared by auditor which states internal control weaknesses discovered during the audit To provide value-added service to audit client, auditor also communicate to management recommendations to overcome weakness Management Letter is normally issued at the conclusion of the audit engagement and contains following elements:  Internal Control Weakness  Risk faced by entity because of weakness  Suggestions by auditor to remove control weaknesses  Management’s Response LO 8: AUDIT CORRESPONDENCE: Type of Letter By To Professional Clearance Letter Auditor Predecessor Auditor Confirmation Letter Auditor Engagement Letter Timing Before Acceptance of audit client At start of the engagement Auditor Management Representation Letter Management Auditor Audit Report Auditor Management Letter/ Letter of weakness Members (or TCWG) Near the end of the audit Auditor Management After the Audit Report External Parties During Audit At the end of the audit Brief Description To discuss whether there is any professional reason because of which engagement should not be accepted Engagement Letter confirms acceptance and appointment of auditor To obtain information about entity from outside parties It reminds management about their responsibility for preparation of financial statements and for completeness of information provided to auditor The audit report expresses opinion on financial statements It includes: –identified weaknesses in internal control, –risks because of weakness in internal control, and –recommendations to improve internal control  ... or disclosed” Auditing – Study Notes Chapter 23 Final Matters LO 6: FACTS DISCOVERED AFTER AUDITOR’S REPORT (REV ISION IN AUDITOR’S REPORT): If after the date of auditor’s report, auditor becomes... provided by the auditor Auditing – Study Notes Chapter 23 Final Matters PART C – ADDITIONAL CONCEPTS LO 7: MANAGEMENT LETTER AND ITS CONTENTS: Management Letter is a document prepared by auditor... relationships and transactions of which we are aware (ISA 550) Auditing – Study Notes Additional Representations requested by auditor Chapter 23 Final Matters The effects of uncorrected misstatements are