WRAP-UP PHASE l Search for unrecorded liabilities & significant subsequent events l Summarize & conclude l Partner, manager & senior review
SEARCH FOR UNRECORDED LIABILITIES & SIGNIFICANT SUBSEQUENT EVENTS l What period are we talking about... ? -- From year-end / December From year-end / December To last day of field work -- To last day of field work
SEARCH FOR UNRECORDED LIABILITIES & SIGNIFICANT SUBSEQUENT EVENTS l What are we looking for... ? -- Two kinds of unrecorded -- Two kinds of unrecorded liabilities liabilities -- Two kinds of significant -- Two kinds of significant subsequent events subsequent events
TWO KINDS OF UNRECORDED LIABILITIES l Known liabilities l Contingent liabilities -- Remote -- Remote -- Reasonably possible -- Reasonably possible -- Probable -- Probable
CONTINGENT LIABILITY Record, disclose &/or ignore depending upon probability
FASB 5 LEVELS OF PROBABILITY l REMOTE - Don’t disclose or record l REASONABLY POSSIBLE - Disclose l PROBABLE & MEASURABLE - - Record and disclose - Record and disclose - If range of loss possible, record lower end of range and disclose possible additional loss - If range of loss possible, record lower end of range and disclose possible additional loss
TWO KINDS OF SIGNIFICANT SUBSEQUENT EVENTS l Events confirming a condition existing at year-end l Events discretely related to subsequent period
FIRST KIND OF SIGNIFICANT SUBSEQUENT EVENT Event that confirms an already existing situation at year-end
CONFIRMS AN EXISTING SITUATION l Lawsuit settled after year-end l Customer files for bankruptcy after year-end l Record adjustment on y/e financial statements
SECOND KIND OF SIGNIFICANT SUBSEQUENT EVENT Event that relates discretely to the following year
RELATES DISCRETELY TO FOLLOWING YEAR l Factory burns down on Jan 18 l Airliner crashes at O’Hare on Feb 20 killing 328 people l Failure to disclose in notes to F/Ss makes F/Ss misleading
SEARCH FOR UNRECORDED LIABILITIES & SIGNIFICANT SUBSEQUENT EVENTS l Search for unrecorded payables l Review interim financial statements l Review significant books of account l Obtain legal letters
SEARCH FOR UNRECORDED LIABILITIES & SIGNIFICANT SUBSEQUENT EVENTS l Review minutes & obtain minute representation letter l Make inquiries of management l Obtain management representation letter
SEARCH FOR UNRECORDED PAYABLES l Relates to audit of A/P l Search through end of audit l Examine subsequent C/Ds l Propose PJE for unrecorded
REVIEW LATEST INTERIM FINANCIAL STATEMENTS l Internal monthly F/Ss prepared for January or February l Look for large, unusual variations from audited F/Ss l Investigate until explanation found
REVIEW SIGNIFICANT BOOKS OF ACCOUNT l General ledger l General journal l Cash receipts journal l Sales journal l Purchases journal
REVIEW SIGNIFICANT BOOKS OF ACCOUNT l Review through end of audit l Review for large, unusual activity l Investigate unusual items to resolution
OBTAIN LEGAL LETTERS l Standard request on page 715 l Addresses asserted & unasserted claims l FASB 5 standards l Confirm understanding l Dated close to last day l Difficulties with attorneys
REVIEW MINUTES l Obtain minutes thru last day l Agenda & resolutions for recent meetings l Obtaim minute representation letter from Corporate Secretary
MAKE INQUIRIES OF MANAGEMENT l On last day of fieldwork l Use checklist l Discuss with CEO & CFO
OBTAIN MANAGEMENT REPRESENTATION LETTER l Prepare draft for management l Dated last day of fieldwork l Signed by CEO & CFO l Formalize oral & implied reps(720) l Qualified opinion if management won’t sign
MANAGEMENT REP LETTER l Management primarily responsible l Financial statements present fairly l Specific financial statement matters l Issues addressed during audit l Opinions of management l Plans/intentions of management l All records available/none withheld
SUMMARIZE & CONCLUDE l Proposed journal entry schedule l Final engagement memo
REVIEW PROCESS l Senior review l Manager review l Partner review
REVIEW PROCESS - All procedures complete - All procedures complete - Sufficient evidence - Sufficient evidence - GAAP & GAAS correct - GAAP & GAAS correct
ISSUE REPORT PHASE The Sixth Phase of the Audit Process
ISSUE REPORT PHASE RIGHT... EXACTLY RIGHT... EXACTLY RIGHT... ON THE FIRST TRY! ! ! ON THE FIRST TRY! ! !
PROCESSING THE REPORT l Senior drafts report l Review by client & audit team l Processing changes l Comparing (calling) & footing l Referencing by another senior l Second partner review l Signing by partner
ISSUE REPORT l Unqualified report l Qualified report - Scope limitation - Scope limitation - GAAP deviation - GAAP deviation