COMPLETING THE AUDIT

After the fieldwork is almost complete, a series of procedures are generally carried out to complete the
audit. These procedures include

1) Identifying subsequent events that may affect the financial statements under audit
2) Identifying contingencies such as litigation, claims and assessment
3) Obtaining written management representation
4) Performing wrap-up procedures

SUBSEQUENT EVENTS
- Events or transactions that occur subsequent to the balance sheet date that may affect the FSs
and the auditor’s report

NOTE:
The auditor is only concerned with those events that occur subsequent to
the balance sheet date but before the date of the auditor’s report.

Subsequent events may be classified as:

Definition Examples
REQUIRING ADJUSTMENT Provide further evidence of  Settlement of litigation
conditions that existed at the in excess of the
balance sheet date recorded liability
 Loss on uncollectible
receivables as a result
of customer’s
deteriorating financial
condition
REQUIRING DISCLOSURE Indicative of conditions that  Issuance of stocks or
arose subsequent to the bonds after the balance
balance sheet date sheet date
 Loss on inventory due
to fire that occurred in
the subsequent period
 Loss on uncollectible
receivable due to major
casualty suffered by the
customer after the
balance sheet date
PROCEDURES TO IDENTIFY SUBSEQUENT EVENTS
PSA 560: The auditor shall perform audit procedures designed to obtain sufficient appropriate audit
evidence that all events occurring between the date of the financial statements and the date of the
auditor’s report that require adjustment of, or disclosure in, the financial statements have been
identified.

These procedures include:

 Inquiring of management about any subsequent events
 Reviewing procedures management has established to identify subsequent events
 Reading the minutes of the meetings of the entity’s owners, management, and those charged
with governance
 Reading the latest available interim financial statements as well as management reports such as
budgets and forecasts.
 Inquiring of the entity's lawyers concerning litigation, claims, and assessments

NOTE:
Auditor should consider whether subsequent events which materially
affect the FSs are properly accounted for and disclosed in the FSs.

SUBSEQUENT EVENTS OCCURRING AFTER THE REPORT DATE BUT BEFORE THE FINANCIAL
STATEMENTS ARE ISSUED
- Auditor does not have any responsibility to perform procedures during this period.
- It is the responsibility of the management to inform the auditor of events that may affect the
FSs.

 If the auditor becomes Auditor should take the necessary actions to ascertain whether
aware of the event such event has been properly accounted for and disclosed in
during this period the notes to FSs
 Failure on the part of the Will cause the auditor to issue either QUALIFIED OR ADVERSE
client to make OPINION
appropriate
amendments to the FSs, QUALIFIED – except for
where the auditor
ADVERSE – do not present fairly, in all material
believes they need to be
amended respect
 Auditor’s report has Auditor would notify those persons ultimately responsible for
been released to the the overall direction of an entity not to issue the FSs
entity
 If FSs are subsequently Auditor needs to take action to prevent reliance on the
released auditor’s report
EFFECT OF SUBSEQUENT EVENTS ON THE DATE OF THE REPORT
- Generally, report should be dated as of the completion of the essential audit procedures
 The date of report is important because it shows the date when the auditor's
responsibility for subsequent events ends

NOTE:
auditor is not responsible to perform audit procedures to identify
subsequent event after the date of the auditor's report

Material subsequent event Financial statements should be adjusted and the auditor's
requiring adjustment to the report should bear the original date of the report that is, the
financial statements occurs after date of the completion of essential audit procedures
the date of the auditor's report
but before the issuance of the This is because the condition already existed as of the balance
financial statements sheet date and did not actually occur in the subsequent period.

If a subsequent event requiring The auditor should consider the adequacy of disclosure and
disclosure occurs during this should date the report either:
period  AS OF THE DATE OF THE SUBSEQUENT EVENT
 DUAL DATE THE REPORT

DATE THE REPORT AS OF THE DATE OF THE SUBSEQUENT EVENT

- his responsibility for the subsequent events is extended up to subsequent event date
 the auditor will also have to extend his subsequent event review procedures to identify
other subsequent events which may have transpired from the original audit report date
up to the new audit report date

DUAL DATE THE REPORT

- the auditor's responsibility for subsequent events occurring after the original date of the audit
report is limited only to the specific event referred to in the note.

LITIGATION, CLAIMS, AND ASSESSMENT

It is the management's responsibility to adopt policies and procedures that will identify, evaluate, and
account for litigation, claims and assessment as a basis for the preparation of financial statements in
conformity with applicable financial reporting framework (Management is the primary source of
information about these events)

- PSA 501: The auditor shall design and perform audit procedures in order to identify litigation
and claims involving the entity which may give rise to a risk of material misstatement
 - Letter sent to lawyers, which should be prepared by the management and sent by the auditor,
should request the lawyer to communicate directly to the auditor to assist the auditor in
obtaining sufficient appropriate audit evidence about material litigations and claims.
- If the management refuses to give the auditor permission to communicate with the entity's
lawyer or the lawyer refuses to reply
 considered a scope limitation that would require the auditor to issue either QUALIFIED
OR DISCLAIMER OF OPINION
- If the lawyer is unable to estimate the likelihood of an unfavorable outcome including the
amount of or range of potential loss on one or more items
 auditor should consider adding an emphasis of a matter paragraph to an unmodified
report to draw the attention of the readers of financial statements to this uncertainty

WRITTEN MANAGEMENT REPRESENTATION

PSA 580: requires an auditor to obtain sufficient audit evidence that the entity's management
 Has acknowledged that it has fulfilled its responsibility for the preparation and presentation of
fair financial statements; and
 Has approved the FSs

SUCH EVIDENCE IS ACQUIRED BY OBTAINING A WRITTEN REPRESENTATION FROM MANAGEMENT

- Written representations are normally requested from the entity's chief executive officer and
chief financial officer, or other equivalent persons in entities there not use such titles.

WRITTEN REPRESENTATIONS AS AUDIT EVIDENCE

If management modifies or does not provide requested written representations, it may alert the auditor
about other issues affecting the financial statements.

- a request for written, rather than oral, representations may prompt management to consider
the matter more rigorously, thereby enhancing the quality of evidence

NOTE:
Management written representations complement the audit evidence the auditor accumulates, but
they do not substitute for the performance of audit procedures designed to obtain necessary
evidence for the expression of an opinion
FORM AND CONTENT OF WRITTEN REPRESENTATIONS
Written representations shall be in a form of a representation letter from management. It shall include:

 A representation that management has fulfilled its responsibility for the preparation and
presentation of the financial statements
 Financial statements are prepared and presented in accordance with the applicable financial
reporting framework
 Management has provided the auditor with all relevant information agreed in the terms of the
engagement, and that all transactions have been recorded and reflected in the financial
statements
 Describes management's responsibilities as described in the terms of the engagement;
 Other representations required by other PSAs

BASIC ELEMENTS OF A WRITTEN MANAGEMENT REPRESENTATION

 It should be addressed to the auditor
 Date shall be as near as practicable to, but not after, the date of the auditor’s report
 Should be signed by the appropriate level of management who has the primary responsibility
for the financial statements
 Ordinarily, written representation is signed chief executive officer and the chief finance
or their equivalent because they are usually the responsible for the preparation and fair
presentation of the financial statement

MANAGEMENT’S REFUSAL TO PROVIDE WRITTEN REPRESENTATION

If management modifies the requested with representations

- it may alert the auditor to the possibility that one or more significant issues may exist

When management does not provide written representations or the auditor concludes that there is
sufficient doubt about the integrity of management

- the auditor should consider these as scope limitation that would warrant a DISCLAIMER OF
OPINION

WRAP-UP PROCEDURES
- procedures done at the end of the audit that generally cannot be performed before the other
audit work is complete.

These include:

 Final analytical procedures

 Evaluation of the entity's ability to continue as a going concern
 Evaluating audit findings and obtaining client's approval for the proposed adjusting entries
FINAL ANALYTICAL PROCEDURES
Analytical Procedures

- Required to be performed in the planning and overall review stages of the audit

PSA 520 : Auditor should apply analytical procedures at or near the end of the audit when forming an
overall conclusion as to whether the financial statements as a whole are consistent with the auditor's
knowledge of business

Analytical procedures applied in the completion phase of the audit should focus on

 Identifying unusual fluctuations that were not previously identified

 Assessing the validity of the conclusions reached and evaluating the overall financial
statement presentation

EVALUATION OF THE ENTITY'S ABILITY TO CONTINUE AS A GOING CONCERN

An entity's continuance as a going concern is assumed in the preparation of financial statements in the
absence of information to the contrary.

Management’s responsibility

IAS 1 contains an explicit requirement for management to make a specific assessment of the entity's
ability to continue as a going concern

- At least, but not limited to, twelve months from the balance sheet date

Auditor’s responsibility

- to consider the appropriateness of management use of the going concern assumption in the
preparation of the financial statements.

Examples of conditions or events that may cast significant doubt about the going concern assumption
include:

 Non-compliance with the terms of loan agreements or other statutory requirements

 Pending major legal or regulatory proceedings
 Changes in legislation or government policy expected to adversely affect the entity
 Net liability or net current liability
 Substantial operating losses
 Inability to pay creditors on due dates
 Loss of major market, franchise, license or principal supplier.

NOTE:
When evaluating the entity's going concern assumption, the auditor should remember that the
conditions and events that may indicate significant doubt about entity's continued existence can be
mitigated by other factors. (disposal of assets; rescheduling of loan repayments: or obtaining
additional capital)
EFFECT ON THE AUDITOR’S REPORT
After the auditor has carried out the necessary audit procedures, obtained the required information, and
considered the effects of the management plans, he should determine whether the questions raised
regarding going concern have been satisfactorily resolved.

Reasonable assurance that the Auditor should express an UNMODIFIED AUDIT REPORT
entity is a going concern
UNMODIFIED – present fairly, in all material respect
Uncertainty about the entity’s Auditor’s report will depend on whether this uncertainty
ability to continue as a going adequately disclosed
concern
If the going concern Auditor should issue an unmodified opinion with emphasis of a
uncertainty is adequately matter paragraph
disclosed
Auditor believes that the going Auditor should express EITHER QUALIFIED OPINION OR
concern uncertainty is not ADVERSE OPINION
adequately disclosed

EVALUATING AUDIT FINDINGS AND PREPARING A LIST OF POTENTIAL ADJUSTING ENTRIES

 If mgmt. accepts all adjusting entries proposed by the auditor, an UNMODIFIED OPINION is
issued.
 If mgmt. refuses to correct the FS, a QUALIFIED OR AN ADVERSE OPINION will be issued

POST AUDIT RESPONSIBILITIES – Events after the FSs have been issued
The auditor does not have any responsibility to perform additional procedures after the financial
statements are issued

- However, when the auditor becomes aware that the audit report issued in connection with the
financial statements may be inappropriate, he must take steps to prevent future reliance on
such report.

SUBSEQUENT DISCOVERY OF FACTS

The auditor has no obligation to make any inquiry regarding previously issued financial statements unless
he becomes aware of a material fact,

 which existed at the date of the auditor's report; and

 which, if known at that date, may have caused the auditor to modify the report

When the auditor becomes aware of this type of information, he should:

1. Discuss the matter with the appropriate level of management and consider whether the financial
statements need revision (auditor should issue a new audit report that includes an emphasis of
a matter paragraph to highlight the reason for the revision)
 2. Advise management to take the necessary steps to ensure that the users of the previously issued
financial statements are informed of the situation

SUBSEQUENT DISCOVERY OF OMITTED PROCEDURES

Auditors are not required to review the working papers once an audit report is issued.

- However, firm's internal inspection program or quality control review may disclose the omission
of auditing procedures considered necessary at the time of the audit.

In this situation the auditor should follow these guidelines:

1. Assess the importance of the Omit procedures to the auditor's ability to support his opinion

Evaluating may involve:

 Reviewing the working papers

 Discussing the circumstances with the engagement personnel
 Reevaluating the scope of the audit

2. Undertake to apply the omitted procedures or the corresponding alternative procedures.

 If omission impairs the current ability to support his opinion, apply the procedures.
 If, after applying the omitted procedures, it makes the report inappropriate, discuss this
matter with mgmt. to take steps to prevent reliance in the report.