Kế toán, kiểm toán - Chapter seventeen: Completing the audit engagement

Completing the Audit Engagement Chapter SeventeenContingencyA contingency is a liability that is uncertain because the possible outflow of resources from the entity will ultimately be resolved when some future event occurs or fails to occur.Probable: The future event is more likely than not to occur. Neither probable nor remote: The chance of the future event is less likely than not to occur but the chance is more than slight. Remote: The chance of the future event occurring is slight.Examples Pending or threatened litigation Actual or possible claims and  assessments Income tax disputes Product warranties or defect; Guarantees of obligations to  others Agreements to repurchase  receivables that have been sold Audit Procedures for Identifying ContingenciesRead minutes of meetings of those charged with governance, e.g. the board of directors.Review contracts, loan agreements, leases and correspondence from government bodies.Confirm or otherwise document guarantees and letters of credit.Inspect other documents for possible guarantees.Review tax returns, tax liability and tax authorities’ reports.Audit Procedures for Identifying ContingenciesInquiry and discussion with management about its policies and procedures for identifying, evaluating and accounting for contingencies.Examine documents in the entity’s records such as correspondence and invoices from lawyers for pending or threatened lawsuits.Obtain a legal letter that describes and evaluates any litigation, claims or assessments.Obtain written representation from management that all litigation, asserted and unasserted claims, and assessments have been disclosed in accordance with the applicable financial reporting framework.Specific Audit Procedures Conducted Near Completion of AuditLegal LettersA letter of audit inquiry (a legal letter) sent to the client’s lawyers is the primary means of obtaining or corroborating information about litigation, claims and assessments. Example of Legal LetterCommitments Long-term commitments are usually identified through inquiry of client personnel during the audit of the revenue and purchasing processes. In most cases, such commitments are disclosed in a note to the financial statements.Long-term contracts to purchase raw materials or sell their products at a fixed price.To obtain a favourable pricing arrangement.To secure the availability of raw materials. Review for Subsequent EventsBalance Sheet DateType I EventConditions existed at the balance sheet date and affect estimates that are part of financial statementsType II EventConditions did not exist at the balance sheet date and do not affect the accuracy of the financial statementsRequire adjustment of the financial statements.Require financial statement disclosure.Auditor’s Responsibilities Regarding Subsequent EventsSubsequent Events after the Date of the Audit ReportThe auditor is not responsible for making any inquiries or conducting any audit procedures after the date of the audit report. However, facts may come to the auditor’s attention after the date of the audit report that might have affected the audit report had the auditor known about them. Auditing standards (ISA 560) provide guidance to auditors in this exceptional circumstance.Audit Procedures to Look for Subsequent EventsInquire of ManagementRead Interim Financial StatementsExamine the Books of Original EntryExamples of audit proceduresRead Minutes of MeetingsInquire of Legal CounselFinal Evidence Evaluation ProcessesPerform final analytical procedures.Evaluate entity’s ability to continue as a going concern.Obtain a representation letter.Review working papers.Evaluate final of audit results.Evaluation of financial statement presentation and disclosure.Obtain a quality control review of the engagement.Going-Concern ConsiderationsGoing-Concern ConsiderationsRepresentation LetterRepresentation Letter (continued)Proposed Adjusting EntriesOther Final Evidence Evaluation ProcessesArchiving and Retention ISQC1 requires audit documentation to be retained ordinarily for minimum five years from the date of the auditor’s report.Evaluating Financial Statement Presentation and Disclosure The auditor reviews the financial statements to ensure compliance with the applicable financial reporting framework, proper presentation of accounts, and inclusion of all necessary disclosures. Engagement Quality Control Review An engagement quality control reviewer objectively evaluates the significant judgements that the engagement team made and the conclusions it reached in formulating the auditor’s report.Communication with those Charged with Governance and ManagementEnd of Chapter 17