 Final Analytical Procedures

According to PSA 520, the 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 the business.

 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

The going concern assumption is a fundamental principle in the presentation of the financial
statements. 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. This assessment should take into account all
available information for the foreseeable future, which should be atleast, but is not limited to,
twelve months from the balance sheet date.

Auditor’s responsibility

The auditor’s responsibility is to consider the appropriateness of management use of the going
concern assumption in the preparation of the financial statements. For this purpose

1. The auditor should consider whether there are events or conditions which may cast
significant doubt on the entity’s ability to continue as a going concern.
2. In addition, the auditor should evaluate management’s assessment of the entity’s ability
to continue as a going concern.

Example 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 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.

When evaluating the entity’s going conern assumption, the auditor should remember that the
conditions and events that may indicate significant doubt about the entity’s continued
existence can be mitigated by other factors.

For example, the effect of an entity’s not being able to make its normal debt repayments may
be mitigated by management’s plans to maintain adequate cash flows by alternative means
such as

 Disposal of assets
 Rescheduling of loan repayments; or
 Obtaining additional capital

Effect on the auditor’s report

If there is a reasonable assurance that the entity is a going concern, the auditor should express
an unmodified audit report.

If there is an uncertainty about the entity’s ability to continue as going concern, the auditor’s
report will depend on whether this uncertainty is adequately disclosed. If the going concern
uncertainty is adequately disclosed, the auditor should issue an unmodified opinion with
emphasis of a matter paragraph. If the auditor believes that the going concern uncertainty is
not adequately disclosed, the auditor should express either qualified opinion or adverse
opinion.

If the going concern assumption is not appropriate, the financial statements should be
prepared using other appropriate basis. Otherwise, the auditor should issue an adverse
opinion.

 Evaluating audit findings and preparing a list of potential adjusting entries.

The auditor should decide whether to accept the financial statements as fairly stated or to
request management to revise the statements. Material misstatements discovered during the
audit must be corrected by recommending appropriate adjusting entries.

If management accepts all the adjusting entries proposed by the auditor, an unmodified report
is issued on the financial statements. On the other hand, if management refuses to correct the
financial statements for these material misstatements, the auditor should issue a qualified of an
adverse opinion.
  POST AUDIT RESPONSIBILITIES- events after the financial statements have been
issued.

Ordinarily, 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 appropriate, 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

This is critical because users may be resolving on misleading financial statements. 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.
2. Advise management to the necessary steps to ensure that the users of previously
issuded financial statements are informed of the situation.

If the management makes the appropriate revisions and disclosures to the users of the financial
statements, the auditor should issue new audit report that includes an emphasis of a matter
paragraph to highlight the reason for the revision of the previously issued financial statements.

In the event that management refuses to revise the financial statements or to inform the users
about the newly discovered information, the auditor should notify those persons ultimately
responsible for the direction of the entity about the management’s refusal and about his intent
to prevent users from relying on the audit report.

 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 omitted procedures to the auditor’s ability to support his
opinion.
Results of other audit procedures that were applied may compensate for or make
omitted procedures less important. Evaluating such results may involve:
  Reviewing the working papers
 Discussing the circumstances with the engagement personnel
 Reevaluating the of the audit

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

procedures.

If the auditor determines that the omission of the procedures impairs his current ability
to support his opinion, and the auditor believes that there are persons currently relying,
or likely to rely in the report, the auditor promptly apply the omitted procedures or the
corresponding alternative procedures.

If, after applying the omitted procedures, the auditor determines that the financial
statements are materially misstated and that the auditor’s report is inappropriate, the
auditor should discuss the matter with the management and take steps to prevent
future reliance on the report.