Overview

This chapter is about tying up loose ends, and bringing together all the work that has been performed
during the audit with a view to formulating an audit opinion. It is worthwhile to note that the
procedures performed in completing the audit have several distinct characteristics. For instance, they
do not pertain to specific transactions cycles or accounts; they are performed after the balance sheet
date; they involve many subjective judgments by the auditor, and are usually performed by audit
managers or other senior members of the audit team. Generally speaking, the auditor's responsibilities
in completing the audit involve completing the field work, evaluating the findings, and communicating
with the client
LO1 Describe the balance sheet account groups that the major revenue and expense
accounts are associated with, as well as the substantive analytical procedures applied to
audit revenues and expenses.

As the field work nears its end, the major revenue and expense accounts will have been
audited in connection with related balance sheet accounts. Now, auditors need to consider
other revenue and expense accounts.

Analytical procedures can be used as substantive procedures to compare the revenue accounts
and minor expense accounts with prior-year data and with multiple-year trends, to look for
unusual fluctuations. Management explanations can be verified by further audit procedures.

All miscellaneous or other expense accounts and clearing accounts with debit balances should
be analyzed by listing each important item on a working paper and vouching it to supporting
documents.

Advertising, travel and entertainment expense, and contribution accounts are analyzed in
detail as they are particularly sensitive to management policy violations and income tax
consequences.

LO2 Outline the overall analytical procedures to be performed at the final stage of the audit,
including analysis of the income statement, cash flow statement, financial statement
presentation, and disclosures.

Analytical procedures are used: 1) for risk assessment at the planning stage, 2) as a
substantive test procedure during the audit, 3) during the overall evaluation of the financial
statements at the end of the audit.

Performing analytical procedures at the end of the field work is a required part of an overall
review. It assesses the conclusions reached during the audit and evaluates the overall financial
statement preparation.

Analytical procedures are also used when verifying the cash flow statement and the statement
of changes in retained earnings and shareholders' equity.

LO3 Explain the purpose of lawyers' letters and how they are used at the completion stage
of an audit to identify any contingencies and claims.

In completing an audit in accordance with GAAS, the auditor must determine whether
litigation, claims and assessments are reported in conformity with accounting standards.
Management represents the primary source of such information, whereas a letter of audit
inquiry to the client's outside legal counsel is the auditor's primary means of corroborating this
information.

The lawyer's letter is an enquiry from management to the lawyer with the lawyer's response
going directly to the auditor. The objective is to provide audit evidence about any potentially
material litigation or claims against the auditee and to determine if management's estimates
of the possible costs are reasonable.

Other audit procedures used to identify contingencies and claims include:

o

Management enquiry and discussion

Management description and evaluation of litigation and claims

Examination of documents in the auditee's possession

Management assurance of full disclosure

Reading contracts, loan agreements, and minutes of meetings

Obtain information regarding guarantees from bank confirmations

LO4 Given a set of facts and circumstances, classify a subsequent event by type and proper
treatment in the financial statements, and outline the implications of the timing of
discovery of the event for the auditor's report.

Subsequent events are events or transactions that occur after the balance sheet date but
prior to the issuance of the financial statements and the auditors report.

The auditor is required by GAAS to discover the occurrence of any subsequent event that has
a material effect on the financial statements.

There are two types of subsequent events Type I and Type II.

Type I events are subsequent events that provide new information regarding financial
conditions that existed at the date of the balance sheet and affect the numbers on it. These
events require adjustment of the dollar amounts in the financial statements along with any
related disclosure.

Type II events are subsequent events involving conditions arising after the balance sheet
date and require only disclosure. Occasionally an event is so significant the best disclosure is
pro forma financial data (presentation of the financial statements as if the event had occurred
on the date of the balance sheet).

Stock dividends or stock splits (Type II subsequent event) require retroactive recognition.

LO5 Explain why written management representations are obtained and what items are
generally included in the representation letter, including identification of related parties.

The auditor must also obtain written representations from management as to matters that are
either individually or collectively material to the financial statements. Such written
representation (called a management representation letter) complements other auditing
procedures and may reveal matters not otherwise discovered by the auditor.

The management representation letter is addressed to the auditor, signed by the responsible
officers of the auditee, and dated as of the date of the auditor's report.

A primary purpose of the letter is to impress upon management its responsibility for the
financial statements.

It should be noted that refusal by management to provide such a letter in effect limits the
scope of the audit, and could result in the auditor not issuing a standard audit report.

A primary purpose of the letter is to impress upon management its responsibility for the
financial statements.

It should be noted that refusal by management to provide such a letter in effect limits the
scope of the audit, and could result in the auditor not issuing a standard audit report.

Auditors have a responsibility to obtain reasonable assurance related parties have been
identified and that there is appropriate disclosure in the financial statements.

LO6 Outline the procedures used to complete the documentation of the audit engagement.

To wrap up the audit field work, the on-site audit supervisor makes a final review of the audit
documentation working papers.

The final review ensures all accounts on the trial balance have a working paper reference
index (the sign that audit work has been finished on that account) and that all procedures in
the audit program are "signed off" with a date and initials.

The audit manager and engagement partner's review focuses more on the overall scope of the
audit. To-do lists citing omissions or deficiencies that must be cleared before the final work is
completed are prepared during these reviews.

For listed public entities, an engagement-quality review of the working papers and financial
statements, including notes, is performed by a partner not responsible for the client
relationship. This second-partner review ensures the quality of audit work and reporting is
in keeping with the quality standards of the audit firm. This quality review must be complete
before the audit report is issued.

Usually working paper files are completed within sixty days of the audit report. Files are
retained for at least five years.

When field work is complete, the final audit time reports for billing purposes and audit staff
performance evaluation reports are prepared by the audit supervisor.