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Completing the Audit, Going Concern, facts discovered after the date of…
Completing the Audit
Contingent liability
Definition
potential future obligation to an outside party for an unknown amount arising from activities that have already taken place.
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Subsequent Events
ISA 560 –Auditor should consider the effect of subsequent event on the financial statement and on the auditor’s report and ensure that appropriate adjustment or disclosure are made in the financial statements
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Time Dimension
Period 1 (From year end, during the fieldwork BUT before signing audit report- formal subsequent-events period)
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Audit Procedures
Reviewing procedures management policies has established to ensure that subsequent event are identified
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Final Evaluation
Opening Balance
ISA 510, requires auditors to obtains sufficient appropriate audit evidence to ensure that
-The opening balance do not contain material misstatement
-The opening balances have been correctly brought forward.
-Appropriate accounting policies are consistently applied.
Audit Procedures
Ascertain the accounting policies adopted and determine whether the policies are consistently applied
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Analytical Procedures
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ISA 520 –The auditor should apply analytical procedures at or near the end of the audit when forming an overall conclusion as to whether the financial statement as a whole are consistent with the auditor’s knowledge of business
Accounting Estimates
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Allowance to reduce inventory and receivable to their estimated realizable value , Depreciation/amortisation , Accrued revenue , Deferred tax , Provision for loss from lawsuit , Provision to meet warranty claim
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Going Concern
Steps
Evaluate whether the results of audit procedures performed during the course of the audit provide any indication of events or conditions which may cause substantial doubt
If there is substantial doubt, the auditor should obtain information about the management’s plan to mitigate the going-concern problem
If the auditor concludes after evaluating management’s plans that there is substantial doubt about the ability of the entity to continue as a going concern, the auditor consider the adequacy of the disclosures with respect to such uncertainty and include an explanatory paragraph in the audit report (emphasis of matter)
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Auditor’s responsibility
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Be alert
Operating indications
Loss of major market, franchise or principle supplier
Shortage of important supplies, resulting in interruptions to production lines
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Financial indications
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Substantial operating losses due to poor sales, high cost and
reduce in margin
Inability to pay creditors as and when fall due, resulting in
legal action
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Audit Procedures
Analyse and discuss cash flow, profit forecast with management
Review events after the period end for item affecting the entity’s ability to continue as a going concern
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ISA 570 – Requires the auditor to assess the risk of going concern problems at the planning stage and again during the final review
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- facts discovered after the date of the auditor’s report
- events occurring between the date of the financial statements and the date of the auditors’ report
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