Chapter 24 Completing the Audit
We always cover completing the audit near the end of the course. The following are the topics we cover:
? Chapter opening vignette ? Overview
? Perform additional tests for presentation and disclosure-related audit
objectives
? Review for contingent liabilities and commitments ? Review for subsequent events ? Final evidence accumulation ? Evaluate results
? Audit documentation review
? Communicate with the audit committee and management ? Additional problems
Chapter Opening Vignette – “Good Review Requires More Than Looking at Audit Files”
A significant portion of the overall audit process consists of work being reviewed by supervisory personnel. Although this is both prudent and required by auditing standards, it is important to realize that review is inherently limited in terms of its effectiveness. This underscores the importance of staff doing a good job in the first place. If staff work sloppily thinking that their mistakes will get caught by reviewers, or if supervisors are lax in their delegation procedures thinking that they can compensate through review, audit risk is significantly increased. This vignette illustrates these concepts.
Two other concepts covered in the vignette are the importance of the reviewer having a complete understanding of the client’s business and the use of independent analytical procedures as a part of the review. The combination of these two things enabled the manager to uncover the staff deficiencies.
Overview
We find this a good time to return to Figure 13-9 (page 426) for a review of what the auditor has done to this point, and where completing the audit fits in. Naturally, special emphasis is put on phase IV. (See Figure 13-9)
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Perform Additional Tests for Presentation and Disclosure-Related Audit Objectives (page 778) Throughout the various chapters focusing on the transaction cycles and related account balances, we have highlighted specific audit procedures performed to satisfy unique presentation and disclosure-related audit objectives, in addition to audit procedures performed to satisfy transaction-related audit objectives and balance-related audit objectives. However, we emphasize the importance of evaluating the need to perform additional audit procedures during Phase IV of the audit to satisfy the four presentation and disclosure-related audit objectives. Review question 24-1 can be used to help students focus on the four presentation and disclosure-related audit objectives first presented in Chapter 6. We emphasize that in Phase IV, the auditor evaluates the overall presentation of the financial statements and related footnotes to determine if they comply with GAAP. Auditors are particularly concerned about the completeness of required disclosures, especially those related to contingent liabilities and commitments discussed next. Review question 24-2 emphasizes the benefits of using a disclosure checklist to assess the completeness of management’s disclosures.
Review for Contingent Liabilities and Commitments (page 779)
First, we define the term contingent liability, and discuss the following three conditions that are required for a contingent liability to exist:
? There is a potential future payment to an outside party or a potential future
assets impairment.
? There is an uncertainty about the amount of payment or asset impairment. ? The outcome will be resolved by some future event.
Next, we discuss the three levels of likelihood of uncertainty (probable, reasonably possible, and remote) and the consequences of each on the financial statements and the auditor's report.
We use Problem 24-27 to discuss contingent liabilities, why they are important to the auditor, and the nature of the related audit procedures. We do the following:
? Go over part a - define a contingent liability
? Ask students why contingencies are important to auditors
? Have students identify general types of contingencies and the disclosure
and reporting requirements, if any, for each
? Go over parts b and c simultaneously - audit procedures for each of the
three situations
Next we briefly discuss SAS 12 (AU 337).
? Reason why attorneys are reluctant to provide auditors with unlimited
statements about contingencies.
1. Asserted claims 2. Unasserted claims
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?
Need for auditor to obtain evidence of the following:
1. Existence of conditions or circumstances indicating a possible loss
from litigation, claims or assessments 2. Likelihood of an unfavorable outcome 3. Amount of potential loss
? ? ?
Illustration of typical inquiry of attorney (see Figure 24-2, page 783)
Auditor's responsibility if the attorney fails to respond or responds improperly
Desired date of letter from attorney
(See Figure 24-2)
Finally, we discuss commitments, their importance to the auditor, and common audit procedures used to discover commitments. Review Question 24-5 is helpful here. Discussion Question 24-26 – part a – can also be used to help students distinguish commitments from contingent liabilities.
Review for Subsequent Events (page 784)
We do the following in this area:
? Ask students to define a review for subsequent events ? Ask why it is important to audit subsequent events
? Relate review for subsequent events to the audit report
? Distinguish between the following two types of subsequent events and give
an example of each:
1) Those that have a direct effect on the financial statements and require
adjustment
2) Those that have no direct effect on the financial statements, but for
which disclosure is advisable
? Timing of subsequent events review procedures (See Figure 24-3, page
785)
(See Figure 24-3)
? Distinguish between a review for subsequent events and a subsequent
discovery of facts after the balance sheet date (see page 798 for discussion of subsequent discovery of facts). Figure 24-9 (page 799) and T-24-1 are helpful here.
(See Figure 24-9) (See T-24-1)
? Problem 24-28 - (This problem ties everything together nicely.) ? Nature of subsequent events review procedures
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审计学学习指导 (24)
