17.

Completing the Audit

References:
• • PSA 520 (Redrafted), Analytical Procedures
• • PSA 560 (Redrafted), Subsequent Events
• • PSA 570 (Revised), Going Concern
• • PSA 580 (Revised and Redrafted), Written Representations

LECTURE NOTES
Introduction
In this phase of the audit, the auditor evaluates the results of the audit procedures performed to formulate the
appropriate opinion to be issued by the auditor. In addition, this part of the audit also provides an opportunity to
the auditor to cover other areas that were not specifically considered during the substantive procedures phase
of the audit like those related to presentation and disclosures. Although procedures related to presentation and
disclosures are often integrated already to substantive procedures involving classes of transaction and
balances, the auditor still needs to evaluate whether additional evidence is needed to specific disclosure
requirements related to those transactions or account balances. Moreover, the focus of the substantive phase
of the audit are the items that are recognized or presented in the face of the financial statements such as those
in the statement of financial position and statement of comprehensive income, however, there are items not
presented in the face of the financial statements, but disclosures are required like for some contingencies and
commitment. Hence, the auditor considers those areas in the wrap-up phase of the audit.
The role of those more senior members of the audit team is very important at this part of the audit. Their
knowledge and experience will play a very big part in coming up with the decision as to the type of opinion the
auditor will ultimately issue at the end of the audit based on the results of the audit procedures gathered by the
audit team throughout the audit period.
The procedures usually performed during the completion phase or wrap-up phase of the audit includes:
1. Performing review for litigation, claims, other contingencies and commitments
2. Performing review for subsequent events (events after the end of reporting period), including the
consideration of subsequent discovery of facts and omitted procedures
3. Considering appropriateness of going concern assumptions
4. Performing concluding (overall or final) analytical procedures
5. Obtaining management representation letter
6. Other audit procedures.

Litigation, Claims, Other Contingencies and Commitments

Management is responsible for identifying, evaluating, and ensuring proper accounting, including disclosures,
for litigation, claims, other contingencies and commitments involving the entity.
Examples of litigation, claims, other contingencies and commitments of concern to auditor are:
• Pending litigation for patent infringement, etc.
• Product warranties and notes receivable discounted
• Guarantees of obligations of others
• Unused balances of outstanding letters of credit

The auditor obtains evidence relating to

• The existence of conditions indicating an uncertainty
• The period in which the cause of uncertainty occurred
• The probability of an unfavorable outcome
• The amount or range of potential loss

Subsequent Events (including subsequent discovery of facts and omitted procedures)

These are:
• events occurring between the date of the financial statements and the date of the auditor’s report, and
• facts that become known to the auditor after the date of the auditor’s report.

The date of the financial statements pertains to the date of the end of the latest period covered by the financial
statements. On the other hand, the date of the auditor’s report is the date the auditor dates the report on the
financial statements, which:
• cannot be dated earlier than the date on which the auditor has obtained sufficient appropriate audit evidence
(completion of fieldwork/audit) on which to base the opinion on the financial statements, and
• cannot be earlier than the date of approval of the financial statements.

Date of approval of the financial statements is the date on which all the statements that comprise the financial
statements have been prepared and those with the recognized authority have asserted that they have taken
responsibility for those financial statements. Another important date to take note is the date the financial
statements are issued, which is the date that the auditor’s report and audited financial statements are made
available to third parties.
Types of Subsequent Events
The two types of subsequent events are:
1. Type 1 – Adjusting events are those that provide evidence of conditions that existed at the date of the
financial statements.

2. Type 2 – Non-adjusting events are those that provide evidence of conditions that arose after the date of the
financial statements.

Facts that become Known to the Auditor after the Date of the Auditor’s Report
The auditor has no obligation to perform any audit procedures regarding the financial statements after the date
of the auditor’s report, except, when, after the date of the auditor’s report a fact becomes known to the auditor
that, had it been known to the auditor at the date of the auditor’s report, may have caused the auditor to amend
the auditor’s report.
The auditor’s actions on that fact depends on whether it was discovered or became known:
• before the date the financial statements are issued; or
• after the financial statements have been issued.

Facts After Auditor’s Report Date but Before the financial statements Date
The auditor shall perform the following:
• Discuss the matter with management and TCWG.
• Determine whether the financial statements need amendment &, if so,
• Inquire how management intends to address the matter in the financial statements.

If management amends the financial statements, the auditor shall:

• Carry out necessary audit procedures
• Provide a new auditor’s report with Emphasis of Matter paragraph or Other Matter paragraph.

When management does not amend the financial statements where the auditor believes they need to be
amended, then:
1. If the auditor’s report has not yet been provided to the entity, the auditor shall modify the opinion; or
2. If the auditor’s report has already been provided to the entity, the auditor shall notify management and,
TCWG, not to issue the financial statements to third parties before the amendments. If the financial statements
are nevertheless subsequently issued without the amendments, the auditor shall take appropriate action to seek
to prevent reliance on the auditor’s report and consider seeking legal advice.

Facts: After the Financial Statements have been Issued

The auditor’s actions and procedures are essentially the same as when the facts have been discovered after
the auditor’s report but before the issuance of financial statements. In addition, the auditor shall review the
steps taken by management to ensure that anyone in receipt of the previously issued financial statements with
the auditor’s report is informed of the situation.
If management does not or fails to take the necessary steps, the auditor shall notify management and TCWG
that the auditor will seek to prevent future reliance on the auditor’s report. If management or TWCG do not take
these necessary steps, the auditor shall take appropriate action to seek to prevent reliance on the auditor’s
report.

Dating of Auditor’s Report

The amended auditor’s report may be dated either of the following techniques:
1. Single-dated – use the date of the subsequent event as the date of the new auditor’s report.

2. Dual-dated – Use the dates of the original auditor’s report and the date of the event, to disclose the work
done only on that event after the original audit report date. For example, “(Date of auditor’s report), except as to
Note Y, which is as of (date of completion of audit procedures restricted to amendment described in Note Y).”
Discovery of Omitted Audit Procedures
Auditor may determine that a substantive procedure considered necessary was not performed during the audit
• Other procedures may have compensated for omission
• Omitted procedure may impair ability to support opinion

Omitted procedure should then be applied

• Alternative procedures may be substituted
• If auditor becomes aware of previously unknown facts, rules for subsequent discovery of facts are applied

Going Concern Considerations

The going concern assumption is a fundamental principle in the preparation of financial statements. The
auditor’s going concern considerations normally include the following areas:
• Accounting framework
• Auditing management’s assessment of going concern
• Events or conditions that may cast significant doubts about the entity’s ability to continue as a going concern
• Determining the implications for the auditor’s report

Accounting framework
PAS 1, Presentation of Financial Statements, requires an assessment by management about an entity’s ability
to continue as a going concern for at least twelve months and disclose any material uncertainties that may cast
significant doubt upon an entity’s ability to continue as a going concern.
Auditing Management’s Assessment of Going Concern
The auditor shall evaluate management’s assessment of going concern assumption by considering:
• The process that management followed to make its assessment
• The assumptions on which the assessment is based
• Management’s plans for future actions
• Whether management’s plans are feasible in the circumstances.
Events or Conditions that may Cast Significant
Doubts About the Entity’s Ability to Continue as a
Going Concern
Financial
• Net liability or net current liability position.
• Fixed-term borrowings approaching maturity without
realistic prospects of renewal or repayment; or
excessive reliance on short-term borrowings to
finance long-term assets.
• Indications of withdrawal of financial support by
debtors and other creditors.
• Negative operating cash flows indicated by historical
or prospective financial statements.
• Adverse key financial ratios.
• Substantial operating losses or significant
deterioration in the value of assets used to generate
cash flows.
• Arrears or discontinuance of dividends.
• Inability to pay creditors on due dates.
• Inability to comply with the terms of loan
agreements.
• Change from credit to cash-on-delivery transactions
with suppliers.
• Inability to obtain financing for essential new product
development or other essential investments.
Operating
• Loss of key management without replacement.
• Loss of a major market, franchise, license, or
principal supplier.
• Labor difficulties or shortages of important supplies.
Other
• Non-compliance with capital or other statutory
requirements.
• Pending legal or regulatory proceedings against the
entity that may, if successful, result in claims that are
unlikely to be satisfied.
• Changes in legislation or government policy
expected to adversely affect the entity.
Written Representations
A written statement by management provided to the
auditor to confirm certain matters or to support other
audit evidence. Written representations in this context
do not include financial statements, the assertions
therein, or supporting books and records.
The two common types written representations are:
1. General – regarding the premises, relating to
management’s responsibilities, on which an audit is
conducted. The auditor shall obtain this type from
management that it believes that it has fulfilled the
fundamental responsibilities that constitute the
premise on which an audit is conducted.
2. Specific/Other – regarding specific assertions in
the FSs. The auditor shall obtain this type to support
other audit evidence relevant to the financial
statements or specific assertions in the financial
statements, such as: when required by other PSAs or
when the auditor believes are necessary to support
other audit evidence regarding specific aspects of FSs
or to support other audit evidence regarding specific
assertions.
Written Representations as Audit Evidence
Considered part of audit evidence. However, written
representations alone do not provide sufficient
appropriate audit evidence, and does not affect the
nature or extent of other audit evidence that the
auditor should obtain.
Source of Written Representations
The auditor shall request written representations from
management with appropriate responsibilities for the
FSs and knowledge of the matters concerned.
Normally from: chief executive officer, chief financial
officer, other equivalent persons; or TCWG.
Dates and Periods Covered by Written
Representation
The date of the written representations shall be as
near as practicable to, but not after, the date of the
auditor’s report on the financial statements. The
written representations shall be for all financial
statements and period(s) referred to in the auditor’s
report.
Doubt as to the Reliability of Written
Representations
If the auditor has concerns about the competence,
integrity, ethical values or diligence of management,
or about its commitment to or enforcement of these,
the auditor shall determine the effect that such
concerns may have on the reliability of
representations (oral or written) and audit evidence in
general.
Requested Written Representations Not Provided
The auditor shall:
• Discuss the matter with management;
• Reevaluate the integrity of management and
evaluate the effect that this may have on the reliability
of representations (oral or written) and audit evidence
in general; and
• Take appropriate actions, including determining the
possible effect on the opinion in the auditor’s report.
Written Representations not Provided or Doubtful:
Auditor’s Opinion
General Written Representations
The auditor shall disclaim an opinion on the financial
statements if:
1. The auditor concludes that there is sufficient doubt
about the integrity of management such that the
written representations are not reliable; or
2. Management does not provide the written
representations.
Specific Written Representations
The auditor shall provide the following audit opinion:
• Qualify an opinion if material; or
• Disclaim an opinion if material and pervasive.
Form of Written Representations
The form of written representations shall be in a
representation letter addressed to the auditor.
Example of written representation:
(Entity Letterhead)
(To Auditor)
(Date)

This representation letter is provided in connection with your audit of the financial statements of ABC
Company for the year ended December 31, 2020 for the purpose of expressing an opinion as to
whether the financial statements are presented fairly, in all material respects, in accordance with
Philippine Financial Reporting Standards.
We confirm that, (to the best of our knowledge and belief, having made such inquiries as we
considered necessary for the purpose of appropriately informing ourselves):
Financial Statements
• We have fulfilled our responsibilities for the preparation and presentation of the financial statements
as set out in the terms of the audit engagement dated [insert date] and, in particular, the financial
statements are fairly presented in accordance with Philippine Financial Reporting Standards.
• Significant assumptions used by us in making accounting estimates, including those measured at
fair value, are reasonable.
• Related party relationships and transactions have been appropriately accounted for and disclosed in
accordance with the requirements of Philippine Financial Reporting Standards.
• All events subsequent to the date of the financial statements and for which Philippine Financial
Reporting Standards require adjustment or disclosure have been adjusted or disclosed.
• The effects of uncorrected misstatements are immaterial, both individually and in the aggregate, to
the financial statements as a whole. A list of the uncorrected misstatements is attached to the
representation letter.
• [Any other matters that the auditor may consider appropriate.

Information Provided
• We have provided you with: o All information, such as records and documentation, and other
matters that are relevant to the preparation and presentation of the financial statements;
o Additional information that you have requested from us; and
o Unrestricted access to those within the entity.

• All transactions have been recorded in the accounting records and are reflected in the financial
statements.
• We have disclosed to you the results of our assessment of the risk that the financial statements may
be materially misstated as a result of fraud.
• We have disclosed to you all information in relation to fraud or suspected fraud that we are aware of
and that affects the entity and involves: o Management;
o Employees who have significant roles in internal control; or
o Others where the fraud could have a material effect on the financial statements.

• We have disclosed to you all information in relation to allegations of fraud, or suspected fraud,
affecting the entity’s financial statements communicated by employees, former employees, analysts,
regulators or others.
• We have disclosed to you all known instances of non-compliance or suspected non-compliance with
laws and regulations whose effects should be considered when preparing financial statements.
• We have disclosed to you the identity of the entity’s related parties and all the related party
relationships and transactions of which we are aware.
• [Any other matters that the auditor may consider necessary.]

________________
Management
(Overall responsibility e.g. Chairman, President, or CEO)
________________
Management
(Responsible for financial matters e.g. Treasurer, VP for Finance, or CFO)