Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 1 CHAPTER 12 COMPLETION AND REVIEW

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 2 THE NATURE OF COMPLETION AND REVIEW PROCEDURES

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 3 DATE OF AUDIT REPORT Important because it establishes date of auditor’s responsibility for knowledge of events that should be reflected in financial report. Audit report should be dated when it is actually signed, and no earlier than date of directors’ declaration. Ensures financial report was completed and formally accepted by officers of company prior to auditor expressing an opinion.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 4 AUDIT PROCEDURES AFTER BALANCE DATE Many audit procedures performed after balance date as normal tests of balances, e.g.:  Cut-off tests  Collectability of accounts receivable determined by subsequent payment  Out-of-period liability search

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 5 ANALYTICAL PROCEDURES AFTER BALANCE DATE Auditor also required to apply analytical procedures at or near completion of audit to: Assist in overall review of reasonableness of financial report Ensure financial report is consistent with auditor’s knowledge of entity Corroborate conclusions formed during audit

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 6 SUBSEQUENT EVENTS REVIEW AASB 1002 (IAS 10) indicates that financial report should reflect the effects of certain events occurring up to time of completion, which is defined as date of approval of financial report by owners or controlling management. Auditor’s responsibility to consider subsequent events extended up to date on which auditor signs audit report.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 7 TYPES OF EVENTS SUBSEQUENT TO BALANCE DATE Two types of events may materially affect financial reports. These are: Type 1 or adjusting events Type 2 or disclosing events

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 8 TYPE 1 OR ADJUSTING EVENTS Events, both favourable and unfavourable, that provide evidence of, or further elucidate, conditions that existed at balance date Financial effect of such events needs to be brought to account (amounts in the financial statements might need to be adjusted)

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 9 EXAMPLES OF ADJUSTING EVENTS Subsequent collection of a material account receivable that has been treated as uncollectable at balance date A commercial assessment or legal determination, subsequent to balance date, that establishes definitively a claim that was in existence, but of uncertain amount, at balance date

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 10 TYPE 2 OR DISCLOSING EVENTS Do not relate to a condition that existed at balance date Include both favourable and unfavourable events that create new conditions, as distinct from any condition that might have existed at balance date If material, consider disclosure in the notes to the accounts

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 11 EXAMPLES OF TYPE 2 EVENTS A fire or flood loss after balance date not fully covered by insurance Raising of additional share or loan capital after balance date Mergers and acquisitions after balance date

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 12 EVENTS BETWEEN BALANCE DATE AND DATE OF AUDIT REPORT The auditor has a responsibility to apply audit procedures sufficient to enable auditor to determine whether all material Type 1 and Type 2 events have been appropriately adjusted for or disclosed in the financial report.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 13 EVENTS SUBSEQUENT TO DATE OF AUDIT REPORT Auditor has no responsibility to seek audit evidence to identify such events. Where auditor becomes aware of events that have a material effect on financial report and report has not yet been issued (sent to shareholders), auditor should discuss the matter with management and seek to have an amended financial report issued.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 14 EVENTS SUBSEQUENT TO ISSUE OF FINANCIAL REPORT If material events come or are brought to auditor’s attention after financial report has been sent to shareholders, auditor should discuss matter with management. Where decision made to issue new financial report, auditor should perform procedures necessary to form an opinion on revised financial report. Auditor should take steps to prevent reliance on superseded financial report and audit report.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 15 TYPES OF REPRESENTATION LETTERS Two types are commonly sought towards completion of audit: Solicitor's Management

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 16 SOLICITOR’S REPRESENTATION LETTER Auditor should obtain letter from solicitors consulted by the client during year to obtain evidence on existence, completeness, valuation and presentation of legal issues identified during audit. All enquiries of legal representatives of clients, and their responses to these enquiries (representations) will be documented in this letter. Example representation letter contained at Exhibit 12.2 (pp )

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 17 MANAGEMENT REPRESENTATION LETTER — DEFINED A written representation letter, prepared by auditor and signed by management, which formalises management responses to inquiries made by auditor during audit and clarifies management’s responsibilities.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 18 RELIABILITY OF MANAGEMENT REPRESENTATION LETTER Limited in its reliability as audit evidence, and is usually used to corroborate other evidence (should not replace other evidence gathered by auditor) Might be only evidence available to support management’s intentions of future actions Example contained at Exhibit 12.3 (pp )

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 19 REVIEW OF WORKING PAPERS AND FINANCIAL REPORT Undertaken at end of the engagement as a final check to ensure that all significant matters and problems have been identified, considered and satisfactorily resolved. Must consider size and nature of errors, as might affect risk assessment and audit testing. Immaterial errors identified during audit may be considered material when aggregated, and thus require adjustment.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 20 REVIEW OF OTHER INFORMATION CONTAINED IN THE ANNUAL REPORT Other information in the annual report is not part of the financial report and is not covered by the audit report, e.g. directors’ report. Auditor should review other information to identify:  Material inconsistencies with the financial report  Misstatements of fact

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 21 APPROPRIATENESS OF GOING CONCERN BASIS As well as assessing risk of going concern problems at planning stage, AUS 708 (ISA 570) requires auditor to assess again at final review stage in order to confirm appropriateness of going concern principle as a basis for preparing financial report. If not clear that going concern basis is appropriate, additional audit procedures might be necessary.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 22 ADDITIONAL AUDIT PROCEDURES FOR ASSESSING GOING CONCERN AT COMPLETION STAGE Additional procedures include: Review after-balance-date events Analyse latest interim financial report Read minutes of meetings Review terms of loan agreements Information from entity’s solicitors Effect of unfilled customer orders

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 23 COMFORT LETTERS Auditor needs to confirm arrangements made with third parties to provide additional finance to support the audited entity, and the capacity of the third party to provide promised support. Often a parent entity will support subsidiary in financial difficulty:  Letter of support, where parent agrees to provide financial assistance to subsidiary for fixed period  Letter of subordination, where parent agrees not to demand repayment of financial debts owed by subsidiary