SESSION 12

COMPLETING AND
REPORTING ON THE
AUDIT

LEARNING OBJECTIVES
After this session you should be able to:
1. Discuss the procedures performed part of the
engagement wrap-up including gathering and
evaluating audit evidence
2. Discuss the considerations when assessing the going
concern assumption used in the preparation of the
financial report
3. Assess the effect of subsequent events on the
financial report
4. Evaluate misstatements and explain the difference
between quantitative and qualitative considerations

LEARNING OBJECTIVES
contd.
5.Evaluate conclusions obtained during the
performance of the audit and explain how
these
conclusions link to the overall opinion formed
on
the financial report
6.Discuss the components of an audit report
7.Differentiate the types of modifications to an
audit
report

ENGAGEMENT WRAP-UP

Auditor finalises any open items before

issuing audit report
Any remaining audit procedures are assigned,
due date set for completion
Audit partner determines if procedures
executed as planned and all relevant matters
have been considered appropriately

ENGAGEMENT WRAP-UP
contd.
MAJOR AREAS COVERED DURING
WRAP-UP
Consider materiality level used in audit is it still
appropriate given factors or conditions found during
audit?
E.g. significant change in anticipated operating results,
numerous unexpected misstatements

Reconsider assessments of internal control at

entity level and risk of fraud given results of control
tests, misstatements discovered during audit
Problems may be too pervasive to continue with audit

ENGAGEMENT WRAP-UP
contd.
MAJOR AREAS COVERED DURING
WRAP-UP contd.
Revisit planning documentation to determine if
all matters in plan have been addressed
Perform subsequent events procedures
Identify events occurring between year-end and date of
audit report that might require adjustment or disclosure

GOING CONCERN
GOING CONCERN ASSUMPTION UNDERPINS
ACCOUNTING ON THE BASIS THAT THE ENTITY
WILL BE ABLE TO REALISE ITS ASSETS AND
DISCHARGE ITS LIABILITIES IN THE NORMAL
COURSE OF BUSINESS

Management must assess going concern;

A. On basis of 12 months from balance date
B. Judgements affected by size and complexity of
entity, nature and condition of its business, degree
to which business affected by external factors

GOING CONCERN contd.

Auditors considers reasonableness of
managements assessment of going concern
and whether disclosures are required in financial
report (ASA 570.6)
Consider reasonableness of managements
procedures to identify going concern issues and
mitigating circumstances
If going concern is not appropriate, management
should prepare financial report on liquidation basis

JUDGING MANAGEMENTS GOING

CONCERN ASSUMPTIONS

SUBSEQUENT EVENTS
FINANCIAL REPORT IS BASED ON
EVENTS UP TO, AND CONDITIONS
EXISTING AT, YEAR-END
A. Three other key dates:
Date financial report approved by management
Date of auditors report
Date financial report publicly released

B. Subsequent events:
Events that occur between year-end and the date
of auditors report, and facts discovered after
date of auditors report

SUBSEQUENT EVENTS
contd.
TYPE 1 SUBSEQUENT EVENTS
Events that provide additional evidence with
respect to conditions that existed at yearend

TYPE 2 SUBSEQUENT EVENTS

Events that provide evidence with respect to
conditions that developed subsequent to
year-end
See ASA 560 for guidance on auditing these events

SUBSEQUENT EVENTS
contd.
TYPE 1 SUBSEQUENT EVENTS
Can affect estimates in financial report, or indicate
that going concern assumption is not appropriate
Accounting treatment: adjust financial report for
the effect of these events, where material
Examples:
Bankruptcy of customer after year-end which would be
considered when evaluating provision for doubtful debts
Amount received for insurance claim in negotiation at
year-end
Deterioration in operating results after year-end that
means going concern not appropriate

TYPE 1 SUBSEQUENT
EVENTS contd.
If the auditor becomes aware of Type 1 event
after the date of the auditors report BUT before
the financial report is issued, the auditor:
1. Considers whether the financial report needs
changing
2. Discusses the matter with the client
3. Takes action appropriate in the circumstance

TYPE 2 SUBSEQUENT
EVENTS
TYPE 2 SUBSEQUENT EVENTS
Do not result in changes to amounts in the
financial report
Might be so significant to require disclosure
Do not require accounts to be adjusted

Examples:
Uninsured loss of assets due to fire, flood,
subsequent to year-end
Purchase of a business, issuance of shares or debt
subsequent to year-end

SUBSEQUENT EVENTS
contd.
AUDITORS RESPONSIBILITIES FOR
BOTH TYPES
Prior to signing audit report, auditor completes procedures
to identify any events post year-end that might require
adjustment or disclosure in accounts
After signing audit report, if auditor becomes aware of a
fact that may materially affect financial report:
Consider if financial report needs changing
Discuss matter with client
Take action appropriate in circumstances

If client will not adjust financial report where auditor believes it

should be changed, consider issuing qualified or adverse
opinion
If financial report issued, auditor might withdraw audit report,

SUBSEQUENT EVENTS
contd.
AUDIT PROCEDURES:
Auditor is concerned only with significant events
occurring subsequent to balance sheet date that
might require adjustment, disclosure in accounts
Nature of procedures depends on:

Auditors knowledge of client circumstances,

Management procedures to identify events
Volatility and strength of clients business
Auditors understanding and evaluation of sources of information for
significant accounts
Presence of known problems increasing client exposure to significant
changes in financial position

SUBSEQUENT EVENTS
AUDIT PROCEDURES
contd.
AUDIT PROCEDURES:

Gain understanding of, and make evaluation of,

management processes to deal with subsequent
events
Read board meeting minutes
Analyse latest interim results, budgets, accounting
decisions, loan repayments and compliance
Extend analytical procedures to audit report date
Enquiries of legal counsel, board members,
management
Obtain written representations ASA 580

MISSTATEMENTS
MISSTATEMENTS are differences
between a reported financial report item
and the correct reporting as required by
standards
Differences could relate to items amount,
classification, presentation or disclosure
Misstatements can be unintentional (error) or
due to fraud
Auditor evaluates whether misstatements
need to be corrected

MISSTATEMENTS contd.
1. Current year misstatements
Auditor prepares schedule of uncorrected differences
in order to assess overall effect on financial report and
on individual items or balances

2. Prior year misstatements

May be immaterial in previous year, could be material
this year (ASA 450)
Consider potential turn around
. e.g. understating payables last year due to cut-off error turnsaround this year

MISSTATEMENTS contd.
Consider both quantitative and
qualitative aspects of misstatements
Qualitative examples:
Affects compliance with regulatory requirements or debt
covenants
Affects clients compliance with contractual
requirements of operating and other agreements
Changes reported profit into loss
Changes key ratios monitored by analysts

WHO NEGOTIATES AUDIT

ADJUSTMENTS

EVALUATING
CONCLUSIONS, FORMING
OPINION
TO FORM AN OPINION:

1. Evaluate audit evidence obtained

2. Evaluate effects of unrecorded
misstatements and qualitative aspects of
entitys accounting
3. Evaluate whether financial report properly
prepared and presented according to
standards
4. Evaluate fair presentation of financial report

COMPONENTS OF AUDIT
REPORT
FORMAT FOR AUDIT REPORT ON
FINANCIAL REPORT GOVERNED BY
ASA 700.20-42
1. Title
2. Addressee
3. Introductory paragraph, identifying entity and its
report, summary of statements audited and their
date, and refers to summary of accounting policies
4. Managements responsibility for the financial report
Establishing and maintaining internal controls
Fair presentation of financial report free from material
misstatement
Accounting policies and estimates

COMPONENTS OF AUDIT
REPORT contd.
FORMAT OF AUDIT REPORT
5. Auditors responsibility for the financial report

Express opinion based on audit

Compliance with auditing standards
Describe audit
Audit evidence is sufficient and appropriate

6. Auditors opinion on whether the financial report

gives a true and fair view, in accordance with
financial reporting framework
7. Other matters, e.g. independence statement
8. Other reporting responsibilities, e.g. remuneration
report

COMPONENTS OF AUDIT
REPORT contd.
FORMAT OF AUDIT REPORT:
9. Auditors signature, either firm name, or personal
name depending on legislative requirements
10.Date of report
11.Auditors address

MODIFICATIONS TO AUDIT
REPORT
Auditor may need to modify audit
opinion to express a qualified,
adverse or disclaimer of opinion
ASA 705

Or add an emphasis of matter or

other matter paragraph
ASA 706

MODIFICATIONS TO AUDIT
REPORT contd.
CONDITIONS LEADING TO MODIFIED AUDIT
REPORT:
1. Significant uncertainty exists that should be brought
to the readers attention
2. Material misstatements in error or judgement that
have been identified during the audit but not
corrected in the financial statements
3. A limitation of scope of the engagement exists, or
4. There is a disagreement with those charged with
governance regarding the application of accounting
policies or the adequacy of financial report
disclosure

MODIFICATIONS TO AUDIT
REPORT contd.
EMPHASIS OF MATTER
Does not affect auditors opinion
Applies when resolution of a matter is
dependent on future actions or events not
under direct control of the entity, but that may
affect the financial report, and the matter is
appropriately disclosed in the financial
report
E.g. going concern uncertainty

Could also apply if information in text of

annual report is materially inconsistent with

MODIFICATIONS TO AUDIT
REPORT contd.
LIMITATION OF SCOPE
Could result from auditors inability to perform
procedures or an imposition by the entity
Auditor may have timing problems
Entitys records could be damaged or not
complete
Access could be restricted to locations, key
personnel
If problem is material, issue qualified opinion
If problem is pervasive, issue disclaimer of opinion

MODIFICATIONS TO AUDIT
REPORT contd.
DISAGREEMENT WITH THOSE
CHARGED WITH GOVERNANCE,
REGARDING:
Accounting policies
Adequacy of disclosures in financial report
If material, issue qualified opinion
If pervasive, issue adverse opinion

MODIFICATIONS TO AUDIT
REPORT contd.
Material misstatements of error or
judgemental nature identified during the
audit that have not been corrected in
the financial statements

MODIFICATIONS TO AUDIT
REPORT contd.

OTHER MATTERS
CORPORATIONS ACT 2001 BREACHES
Auditor required to report contraventions to AISC
within 28 days of an event (s311 Corp Act)
Reporting must be in a timely manner and auditor
should not wait until the end of the engagement
to report the matter
Examples of suspected contraventions include:

Insolvent trading
Breaches of accounting standards
Fraud by officers or employees of the client
Continual late lodgement or non-lodgement of annual
statements and financial reports

COMMUNICATION WITH
MANAGEMENT AND THOSE
CHARGED WITH GOVERNANCE

COMMUNICATION WITH
MANAGEMENT AND THOSE CHARGED
WITH GOVERNANCE (ASA 260)
Communicate matters of governance interest
that come to auditors attention in audit (covered
by several auditing standards)
Fraud (ASA 240)
Non compliance with laws and regulations (ASA 250)

END