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chapter 24

chapter 24. Completing the Audit. Ryan M. describe what is meant by Interim Testing. date on balance sheet. date report issued. end of field work report date. 12/31/13. interim. A. B. C. D. 3. date on balance sheet. date report issued. end of field work report date. 12/31/13.

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chapter 24

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  1. chapter 24 Completing the Audit

  2. Ryan M describe what is meant by Interim Testing.

  3. date on balance sheet date report issued end of field work report date 12/31/13 interim A B C D 3

  4. date on balance sheet date report issued end of field work report date 12/31/13 interim A B C D 4

  5. Contingent Liabilities / Attorney’s Letter Subsequent Events Management Representations analytical procedures Final assessment of audit risk - opinion communications to audit comm or mgmt • SAS 114 Communication with Those Charged with Governance • SAS 112 Communicating Internal Control Related Matters Identified in an Audit subsequent discovery of facts

  6. unrecorded liabilities examining subsequent payments to suppliers and other creditors to ensure that they were correctly recorded. almost $5 million of purchases applicable to Dec. 31 audit period that had not been included as liabilities.

  7. Contingent Liabilities / Losses • A potential future payment to an outside party from an existing condition • Uncertainty about the amount • Outcome will be resolved by future events

  8. Contingent Liabilities / Losses • Lawsuits are an example of a contingency • Income tax disputes • Product warranties • Guarantees of the debts of others

  9. Lauren what does SFAS No. 5 (ASC 450) teach us about contingent losses or contingent liabilities

  10. SFAS 5 (ASC 450) contingencies probable estimable record loss probable not estimable disclose reasonably possible estimable or “ reasonably possible not estimable “ remote ignore ignore

  11. SFAS 5 (ASC 450) contingencies

  12. Contingencies – lawsuits audit procedures • Inquire of management • Review minutes of BoD meetings • Analyze legal expense • Obtain a letter from each major attorney

  13. Kaleigh • Management is our primary source of information about • Litigation, Claims and Assessments • what is our most important source of evidence to corroborate managements’ representations regarding LCA ?

  14. Inquiry of Client’s Attorney A list including • Pending litigation • Asserted or unasserted claims Information about each item on list • Likelihood of an unfavorable outcome • Amount or range of potential loss A statement that the list is complete Page 348

  15. Justin “Inquiry of a Client’s Attorney” this is an auditing procedure Who sends this letter to the attorney ? To whom does their attorney respond ?

  16. Sandra “Inquiry of a Client’s Attorney” what kind of problem do we have if their attorney refuses to respond ? what kind of report will we issue ?

  17. Greg Do we modify the first paragraph? Do we modify the Management’s Responsibility paragraph? Do we modify the Auditor’s Responsibility paragraph? Do we modify the Opinion paragraph? Is there a Basis for Opinion paragraph? Before or after?

  18. date report issued end of field work report date 12/31/13 interim A B C D 18

  19. AU Section 560 Subsequent Events Sources: SAS No. 1, section 560; SAS No. 12. Issue date, unless otherwise indicated: November, 1972. .01 An independent auditor's report ordinarily is issued in connection with historical financial statements that purport to present financial position at a stated date and results of operations and cash flows for a period ended on that date. However, events or transactions sometimes occur subsequent to the balance-sheet date, butprior to the issuance of the financial statements and auditor's report, that have a material effect on the financial statements and therefore require adjustment or disclosure in the statements. These occurrences hereinafter are referred to as "subsequent events." .02 Two types of subsequent events require consideration by management and evaluation by the independent auditor.

  20. Sabrina describe the two types of subsequent events how do we decide whether to make an adjusting entry to include the effects of the subsequent event in the financial statement balances or just disclose the event in the footnotes

  21. subsequent events • Type I - adjusting journal entry • events which provide info about conditions that existed @ 12/31/13 • can be used to make better estimates or confirm estimates that were made • Type II - disclose • Conditions that came into being subsequent to 12/31/13

  22. Type I - adjusting journal entry • Declaration of bankruptcy by a customer with a large account receivable • Settlement of litigation for an amount greater than recorded • Sale of investments for less than recorded amount

  23. Type II - disclosure • Issue bonds or equity securities • Merger or acquisition • Loss due to fire or natural disaster

  24. subsequent events – auditing procedures inquire of management read internal financial statements read minutes of Bd of Directors’ meetings obtain a letter of representation page 355

  25. AU Section 333 Client Representations Source: SAS No. 85. See section 9333 for interpretations of this section. Effective for periods ending on or after September 30, 1977, unless otherwise indicated. .01 This section establishes a requirement that the independent auditor obtain written representations from management as a part of an audit performed in accordance with generally accepted auditing standards and provides guidance concerning the representations to be obtained. Reliance on Management Representations

  26. Letter of representation Management is responsible for the financial statements Management believes the f/s conform to GAAP All financial records have been made available All minutes have been made available Information concerning fraud or illegal acts Information concerning related party transactions Unasserted claims that are probable have been disclosed Subsequent events Page 355

  27. Qian Who prepares and signs the letter of client representations?

  28. Blair we must obtain certain representations from management in writing what kind of problem do we have if the client refuses? what kind of report will we issue ?

  29. Elizabeth Do we modify the first paragraph? Do we modify the Management’s Responsibility paragraph? Do we modify the Auditor’s Responsibility paragraph? Do we modify the Opinion paragraph? Is there a Basis for Opinion paragraph? Before or after?

  30. Jill what is a “waived” or “passed” adjustment? on page 360 “unadjusted misstatement audit schedule” “summary of possible misstatements”

  31. Materiality page 122

  32. Ryan K at what three stages of the audit MAY we perform Analytical Procedures ? at what stages of the audit are we required to perform Analytical Procedures?

  33. req’d planning phase substantive tests req’d at conclusion as an overall review

  34. AU Section 329 Analytical Procedures (Supersedes section 318) Source: SAS No. 56. Effective for audits of financial statements for periods beginning on or after January 1, 1989, unless otherwise indicated. .01 This section provides guidance on the use of analytical procedures and requires the use of analytical procedures in the planning and overall review stages of all audits. .02 Analytical procedures are an important part of the audit process and consist of evaluations of financial information made by a study of plausible relationships among both financial and non financial data. Analytical procedures range from simple comparisons to the

  35. end of field work report date date report issued 12/31/13 interim A B C D 38

  36. Contingent Liabilities / Attorney’s Letter Subsequent Events Management Representations analytical procedures Final assessment of audit risk - opinion communications to audit comm or mgmt • SAS 114 Communication with Those Charged with Governance • SAS 112 Communicating Internal Control Related Matters Identified in an Audit subsequent discovery of facts

  37. Cam what is the definition of audit risk?

  38. Materiality page 122

  39. material .05 0 known misstatement from samples projected uncorrected misstatements

  40. final review of workpapers • all accounting and auditing questions have been resolved • support the auditor’s opinion • provide evidence the audit complied with GAAS • means of coordinating and supervising the audit

  41. Katie B who is an “independent reviewer?”

  42. dual dating events that occur between the end of field work (the report date) and the date the report is issued extend field work or dual date page 353

  43. dual dating p. 353 Hewlett-Packard has an October 31 year end Ernst & Young completed field work on November 13th On Dec. 6, 2001, Hewlett-Packard made a $1 billion dollar debt offering, which it disclosed in Note 19 in its financial statements. This is how Ernst & Young dated its auditor’s report November 13, 2001, except for Note 19, as to which the date is December 6, 2001.

  44. end of field work report date date report issued 12/31/13 interim A B C D 48

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