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Completion of the audit: Steps 1 - 4 (2. Evaluation of Misstatements:…
Completion of the audit: Steps 1 - 4
1. Adequacy of Audit Evidence:
Sufficient:
Reduce risk & Justify opinion or conclusion
Appropriate:
Reliable relevant. External written strongest source
WPs:
a) Sufficient info on work & evidence b)Cross-ref with WPs-TB-AFS c) Sufficient review
Standard confirmation:
a)Attorney letter b) Man rep
2. Evaluation of Misstatements:
Materiality:
PLM = estimates FM = actualy - used for eval misstatements
Nature:
a) Factual b) Judgemental (inherent uncertainty, scope limit) c) Projected (auditor best est to entire pop from sample)
Prov & cont liabilities:
Confirm proper acc & disc
Materiality of misstatements:
a) Over/Under Schedule:
For each line item & total effect
b) Non-Mat:
Report to man, check total not mat, put on list
c) Mat:
Req change Y = UQO N = QO
Info affecting Fair Pres:
Unrecorded Liabilities:
a) Minutes b) Legal confirmation c) Man rep letter detailng actions, guaratees, insurance d) Read correspondence SARS, suppliers, bankers e) Contracts f) Acc records
Related party trans:
a) PY WP list Con-parties b)Review entity identificaton procedures c) Enq director relationships d) Major shareholders e) Minutes f) Statutory register g) Other auditors h)Tax & other returns i) Abnormal trans j) Conf letters k) Investments l) ICE m) Man info given ) Man rep letter
3. Overall review of Fin Info:
Draft AFS:
a) test castings & calcs b) Cross-reference - TB - WP
Final Analytical:
a) Reasonableness test b) Compare to PY AFS, budgets, infor ,trends etc
Fair pres:
a) Assertions complied b) Infor agree to auditor's view c) Fairly presented
Consider:
i) Acc pol ii) Fin pos iii) Fairness reporting & disc
4. Consider Solvency & Going-Concern:
Solvency:
Trading under these conditions affect GC & s45 RI
Going Concern:
Responsibilities:
Managemet: Considering GC applicable Auditor: Consider uncertainty
Foreseeable future:
Refers to next 12 months generally
Auditor's consideration of GC:
a) Consider in RAPs during planning b) Consider in post review
Factors pointing to GC issues:
Fin indicators:
a) Net Asset/ Liability pos b) Large debts due without prospect of restructuring or repayment c) Adverse key ratios d) Withdrawal fin support e) Neg CF f) Net losses g) Unpaid divs h) Not paying crediots i) Credit sales moved to COD j) No financing ability
Operating indicators:
a) Loss key man members b) Loss major market c) Loss of major supplies d) Labour difficulties
Other:
a) Pending neg legal proceedings b) Non-comp statutory reg c) Discontinue op d) Adverse law change
Procedures to assess GC:
a) Discuss with man re: i) sales of assets ii) leasing instead of buying iii) loan maturities iv) deferred exp v) new equity issue b) 3rd part info c) Man rep letter d) CF & profit projections e) Latest AFS f) Review debt paper terms g) Minutes h) Legal advisors i) Confirm existence of obligations j) Ability meet orders k) Post reporting date events l) Analytical procedures
Effect on AR:
a) Uncertainty:
i) Adq disc = UQO with GC paragraph ii) Insuff disc = a) Mat - QO explanation Prevasive - AdvO explanation
b) Multiple-uncertainty:
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