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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 24 - 1

C!"leting the Audit

Cha"ter 24

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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 24 -24 - 22

#earning $b%ecti&e 1

'esign and "er(r! audit tests

related t "resentatin and

disclsure audit b%ecti&es)

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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 24 -24 - **

Presentatin and 'isclsure

Audit $b%ecti&es +"age .

Occurrence and rights and obligations:

'isclsed e&ents and transactins ha&e

ccurred and "ertain t the entity)

Completeness:

All disclsures that shuld ha&e been

included in the (inancial state!ents

ha&e been included)

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Presentatin and 'isclsure

Audit $b%ecti&es +"age .

Accuracy and valuation:

inancial and ther in(r!atin are

disclsed (airly and at a""r"riate a!unts)

Classification and understandability:

inancial in(r!atin is a""r"riately

"resented and described and disclsures

are clearly e"ressed)

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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 24 -24 -


Cnduct a re&ie (r cntingent

liabilities and c!!it!ents)

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Cntingent #iabilities

A cntingent liability is a "tential (uture

bligatin t an utside "arty (r an

unnn a!unt resulting (r! acti&itiesthat ha&e already taen "lace)

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#ielihd ( $ccurrence and

inancial 5tate!ent 6reat!ent

7easnably"ssible

tnte disclsureis necessary

Prbable+liely t ccur.

Ad%ust (inancial state!entsor nte disclsure

7e!te+slight chance. disclsureis necessary

#ielihd ( $ccurrence ( E&ent

inancial 5tate!ent6reat!ent

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Auditr9s Cncerns

Pending litigatin (r "atent in(ringe!ent,

"rduct liability, r ther actins :nc!e ta dis"utes Prduct arranties tes recei&able discunted ;uarantees ( bligatins ( thers

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Audit Prcedures (r inding

Cntingencies

:n=uire ( !anage!ent abut the "ssibility

( unrecrded cntingencies)

7e&ie current and "re&ius years9 internal

re&enue re"rts (r inc!e ta settle!ents)

7e&ie the !inutes ( directrs9 andstchlders9 !eetings (r indicatins (

lasuits r ther cntingencies)

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Audit Prcedures (r inding

Cntingencies

Analy>e legal e"enses and re&ie in&ices

and state!ents (r! legal cunsel)

$btain a letter (r! each !a%r attrney ( the

client as t the status ( "ending litigatin)

7e&ie audit dcu!entatin (r any in(r!atinthat !ay indicate a "tential cntingency)

Ea!ine letters ( credit in (rce)

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#earning $b%ecti&e *

$btain and e&aluate letters (r!

the client9s attrneys)

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:n=uiry ( Client9s Attrneys

A list including? +1. "ending threatened litigatin

and +2. asserted r unasserted clai!s r

assess!ents ith hich the attrneyhas had in&l&e!ent)

A re=uest that the attrney (urnish in(r!atin

r c!!ent abut the "rgress ( each ite! listed)

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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 24 -24 - 1*1*

:n=uiry ( Client9s Attrneys

A re=uest ( the la (ir! t identi(y any unlisted

"ending r threatened legal actins r a

state!ent that the client9s list is c!"lete)

A state!ent in(r!ing the attrney ( the attrney9s

res"nsibility t in(r! !anage!ent ( legal !atters

re=uiring disclsure in the (inancial state!entsand t res"nd directly t the auditr)

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5arbanes-$ley Act

Cngress included "r&isins in this act directing

the 5EC t issue rules re=uiring attrneys ser&ing

"ublic c!"anies t re"rt !aterial &ilatinsby the c!"any ( (ederal securities las)

6he A!erican Bar Assciatin a!ended its

attrney-client cn(identiality rules t "er!itattrneys t breach cn(identiality i( a client

is c!!itting a cri!e r (raud)

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Cnduct a "st-balance-sheet

re&ie (r subse=uent e&ents)

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Perid C&ered by

5ubse=uent E&ents 7e&ie

Client’s endingbalance sheet

date

12-31-07

Date clientissues financial

statements

3-26-08

Auditreportdate

3-11-08

eriod to !hich re"ie! for subse#uent e"ents applies

eriod for processingthe financialstatements

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6y"es ( 5ubse=uent E&ents

6hse that ha&e a direct e((ect

n the (inancial state!ents

and re=uire ad%ust!ent

6hse that ha&e d nt ha&e a direct

e((ect n the (inancial state!ents

but (r hich disclsure is re=uired

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7e=uiring Ad%ust!ent

'eclaratin ( banru"tcy by a cust!er

ith an accunts recei&able balance 5ettle!ent ( a litigatin at an a!unt

di((erent (r! the a!unt recrded

n the bs 'is"sal ( e=ui"!ent nt being used in

"eratins at a "rice bel the currentb &alue 5ale ( in&est!ents at a "rice bel

recrded cst

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Ad&isability ( 'isclsure

'ecline in the !aret &alue ( securities

held (r te!"rary in&est!ent r resale :ssuance ( bnds r e=uity securities 'ecline in the !aret &alue ( in&entry

as a cnse=uence ( g&ern!ent actin

barring (urther sale ( a "rduct

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Audit 6ests

1) Prcedures nr!ally integrated asa "art ( the &eri(icatin ( year-end

accunt balances)

2) Prcedures "er(r!ed s"eci(ically (r the "ur"se ( disc&ering e&ents r

transactins that !ust be recgni>ed

as subse=uent e&ents)

6 categries ( audit "rcedures

(r the subse=uent e&ents re&ie?

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:n=uire ( !anage!ent Crres"nd ith attrneys 7e&ie internal state!ents "re"ared

subse=uent t the balance sheet date 7e&ie recrds "re"ared subse=uent

t the balance sheet date Ea!ine !inutes issued subse=uent

t the balance sheet date $btain a letter ( re"resentatin

Audit 6ests

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'ual 'ating

6he (irst date is the date (r the c!"letin

( (ield r ece"t (r a s"eci(ic ece"tin

6he secnd date, hich is alays later,

deals ith the ece"tin

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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 24 -24 - 2*2*

#earning $b%ecti&e

'esign and "er(r! the (inal ste"s

in the e&idence-accu!ulatin

seg!ent ( the audit)

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1) Per(r! (inal analytical "rcedures)

2) E&aluate the ging-cncern assu!"tin)

*) $btain a !anage!ent re"resentatin letter)

4) Cnsider in(r!atin acc!"anying the

basic (inancial state!ents)

) 7ead ther in(r!atin in the annual re"rt)

inal E&idence Accu!ulatin

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@anage!ent 7e"resentatin

#etter

1) 6 i!"ress u"n !anage!ent its res"nsibility

(r the assertins in the (inancial state!ents)

2) 6 re!ind !anage!ent ( "tential !isstate!ents

r !issins in the (inancial state!ents)

*) 6 dcu!ent the res"nses (r! !anage!ent t in=uiries abut &arius as"ects ( the audit)

Pur"ses ( the letter?

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1) inancial state!ents

2) C!"leteness ( in(r!atin

*) 7ecgnitin, !easure!ent, and disclsure4) 5ubse=uent e&ents

5A5 8 ur Categries

( 5"eci(ic @atters

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:n(r!atin Acc!"anying

Basic inancial 5tate!ents

$alance sheet

%ncome statement

&tatement of cash flo!s

'ootnotes

Detailed comparati"estatements

&tatistical data

&chedule of insurance co"erage

$asicfinancial

statements

&tandardauditor’s

report

%nformationaccompan(ingbasic financial

statements

&eparate paragraph )un#ualified* #ualified*

or disclaimer

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:ntegrate the audit e&idence

gathered and e&aluate the

&erall audit results)

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E&aluate 7esults

5u((icient a""r"riate e&idence

E&idence su""rts auditr9s "inin

inancial state!ent disclsures

Audit dcu!entatin re&ie

:nde"endent re&ie

5u!!ary ( e&idence e&aluatin

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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 24 -24 - *0*0

E&aluating 7esults and

7eaching Cnclusins

Actual audit e&idence

+by cycle, accunt,

and b%ecti&e.

Audit "rcedures

5a!"le si>e

:te!s t select6i!ing

E&aluate results

+by accunt and cycle.

Esti!ated !isstate!ent

+by accunt.

Achie&ed audit ris +by accunt and cycle.

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E&aluating 7esults and

7eaching Cnclusins

:ssueaudit

re"rt

E&aluate &erall

(inancial state!ents

Esti!ated !isstate!ent

+&erall state!ents.

Achie&ed audit ris+&erall state!ents.

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6he audit re"rt is the nly thing that !st

users see in the audit "rcess, and the

cnse=uences ( issuing an ina""r"riate

re"rt can be se&ere)

:ssue the Audit 7e"rt

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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 24 -24 - ****

#earning $b%ecti&e

C!!unicate e((ecti&ely ith the

audit c!!ittee and !anage!ent)

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C!!unicate (raud and illegal acts

C!!unicate internal cntrl de(iciencies

$ther c!!unicatin ith audit c!!ittee @anage!ent letters

C!!unicate ith the Audit

C!!ittee and @anage!ent

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©2008 Prentice Hall Business Publishing,©2008 Prentice Hall Business Publishing, Auditing 12/e, Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 24 -24 - **


:denti(y the auditr9s

res"nsibilities hen (acts

a((ecting the audit re"rt are

disc&ered a(ter its issuance)

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7e&ie (r 5ubse=uent E&ents

and 'isc&ery ( acts

Date client

issues financial

statements

3-26-08

Client’s ending

balance sheet

date

12-31-07

eriod to !hich

re"ie! for

subse#uent

e"ents applies

eriod for

processing

the financial

statements

Audit

report

date

3-11-08

eriod in !hich

subse#uent

disco"er( of

facts is made

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©2008 Prentice Hall Business Publishing©2008 Prentice Hall Business Publishing Auditing 12/eAuditing 12/e Arens/Beasley/ElderArens/Beasley/Elder 24 *

End ( Cha"ter 24

Documents

Rr Chapter 24