TOPIC 7 Completing the Audit.pptx

2. ~ Compliance with Accounting Std and Companies Act 2016
~ Analytical review on overall performance of financial statements
~ Going Concern status
~ Post balance sheet event, contingencies and commitments
~ Opening balance and comparatives figures
~ Audit of accounting estimates
~ Management representations
~ Related parties transactions
~ Effect of completion issues on audit report

3. Do not relate to specific transaction
cycles or accounts.
Involve many subjective judgments by
the auditor, for example whether to
disclose or not to disclose any matter in
the financial statement.
Often involve issues that are potentially
of high risk to the auditor and require
to draw attention to the user.
After the completion of the substantive test,
auditor need to undertake the overall review
of the financial statements. Result from review
procedures together with conclusion for each
substantive test and test of control, gives the
auditor a reasonable basis to form an opinion
on the financial statement.
This stage usually performed by the
audit manager or senior members
before proceed to engagement partner.
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4. The auditor should
consider whether
the information
presented and the
accounting policies
adopted are in
accordance with the
Companies Act 2016
and accounting
standards.
On top of that,
under Co. Act , it
requires a
registered company
to table its annual
financial statements
at the AGM at least
once in every
calendar year and at
interval of not more
than 15 months.
FRS 101
Presentation of
Financial statement
FRS 110
Event after the
balance sheet date
FRS 124
Related party
disclosures
FRS 137
Provisions,
contingent liabilities
& Contingent Assets

5. AI 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.
This analytical procedure are intend to re-
confirm with the conclusion made during the
audit of individual account balances.
Analytical procedures

6. Analytical procedures
For example: During substantive test,
auditor concluded that Account
Receivable is fairly stated. When
Analytical Procedure on Account
Receivable is perform and if the result
also conclude that the amount is fairly
stated, looks like the conclusion need to
be re-confirm and it can be a basis for
auditor’s opinion.
Another example: Analytical or
calculation of gross profit margin of an
Oil and Gas company and compared with
the auditor’s knowledge about the
margin in the industry.
When the analytical procedures identify significant fluctuations or
relationships that are inconsistent with other relevant information or that
deviate from predicted amount, the auditor should investigate and obtain
adequate explanations and appropriate evidence.

7. AI 570
Requires the auditor to
assess the risk of going-
concern problems at
the planning stage and
again during the final
review.
Going Concern
assumption is an
important assumption
underlying the
preparation of financial
statements.
Under going concern
assumption, an entity is
assumed to be able to continue
as a going concern for a
foreseeable future period of a
time (at least 12 months
beyond the year-end date).
Accordingly assets and liabilities
are recorded on the basis that the
entity will be able to realize its
assets and discharge its liabilities
in the normal course of the
business.

8. (i) Consider the
appropriateness of the
management’s use of the
going concern assumption in
the preparation of financial
statements.
(ii) Be alert whenever there
are any material
uncertainties about the
entity’s ability to continue as
a going concern that should
be disclosed in the financial
statement.
Auditor’s
responsibility
is to:
The following are indications
that auditor need to be alert for
the going problems:
Operating
indications
Financial
indications
Other
indicators

9. Loss of major market, franchise or principle supplier
Shortage of important supplies
Loss of management personnel
The following are indications that auditor
need to be alert for the going problems:
Operating
indications

10. Net liabilities or net current liabilities
Adverse key financial ratios
Substantial operating losses
Inability to pay creditors as and when fall due
Change from credit to cash on delivery transaction with suppliers
Inability to obtain financing
Arrears or discontinuance of dividends
Difficult in complying with the terms of loan agreements, for example unable to
service interest and principle payment
The following are indications that auditor need to be alert for the going
problems:
Financial indications

11. Pending legal proceedings against the entity
The following are indications that auditor need to be alert for the going
problems:
Other indicators

12. 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)
Steps to be taken by auditors:
Please refer to table 17-2 (pg 565) for another example of events
indicating going concern problem

13. Factors or situation where
auditor can satisfy with, for
example:-
For the indication liabilities exceed
assets: may be mitigated by
management’s plan to maintain
adequate cash by disposal of
assets, rescheduling the loan,
confirmation for financial support;
For the indication loss of principal:
may be mitigated by availability of
source of supply. So the
availability of stocks enable the
company to still in operation at
least in the next 12 months..

14. • 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, for
example the company have increase share capital of
the company;
• Review the terms of the debentures and loan
agreement whether they have been breached;
• Review minutes that relates to financial difficulties
and any action discussed to overcome the problem;
• Inquire of the entity’s lawyer regarding litigation and
claims;
• Obtain Letter for financial support.
When a
question
about going
concern arise
some of the
normal audit
procedures
should be
taken are:-

15. Audit Conclusion and Report (Professional Judgment):-
• Once appropriate evidence has been accumulated, auditor should decide
whether the question about going concern has been satisfactory resolved
and consider the appropriate report:-
Going Concern Assumption Considered By Auditors is
Totally
appropriate and
resolved
No modification of the
report
Appropriate
because of
mitigating
factor
Such plan (mitigating
factor) to be disclosed in
the notes to financial
statement
Auditor report: Unqualified report
with emphasis of matter
If no disclosure on
mitigating factor
(Considered as
disagreement with
management)
Auditor report: Qualified Opinion
(if not so material) or Adverse
opinion (if material)

17. Going Concern Assumption Considered By Auditors is
Inappropriate If the result of the
going concern is
inappropriate
If Not so material – Disqualified
If Material – Adverse
Going Concern Assumption Considered By Auditors is
Not resolved Auditor should
adequately disclose
in the financial
statement about the
uncertainty
If Not so material – Disqualified
If Material – Disclaimer

18. AI 560
• Auditor should consider the effect of subsequent event
on the financial statement and on the auditor’s report.
• Term subsequent events is used to refer to both:
• Events occurring after period end and the date of the
auditor’s report
• Facts discovered after the date of the auditor’s report
FRS 110
• Event after the balance sheet date are those events both
favorable and unfavorable that occur between the
balance sheet date and when the financial statements
are authorized for issue.

19. Management of the
entity has the
responsibility for
establishing policies
and procedures to
identify and account for
subsequent events
Auditor should review
the management’s
procedures to identify
subsequent events and
perform specific audit
procedures designed to
identify subsequent
events
When auditor becomes
aware of subsequent
events which are
material to the financial
statements, the auditor
should determine
whether they have
been properly
accounted for or
disclosed in the
financial statements

20. Reporting date
30 June
End of field work &
Audit report signed
1 August
Financial statements
deliver 15 August
Subsequent events
Subsequent period Post- audit period
1 2 3

21. Period 1
(From Year End,
during the
fieldwork BUT
before signing
Audit Report)
Period 2
(From Signing Date
to Delivery of
financial
statement)
Period 3
(After delivery the
report)

22.  Auditors have a responsibility to perform
procedure to discover and evaluate all
subsequent events that may have a material
effect on the financial statements
 Make necessary adjustment or disclose in the
financial statement
Period 1
(From Year End,
during the
fieldwork BUT
before signing
Audit Report)

23.  Auditors does not have any responsibility to
perform audit procedures. Management are
responsible to inform auditors of facts may affect
the financial statement.
 If the auditor becomes aware of a fact which
materially affect, the auditor need to consider
whether the financial statement need
amendment, should discuss with management
and should take appropriate action.
 When management amends the financial
statement, auditor should perform additional
audit procedures and dated the financial
statement with the new date.
 When management do not agreed to amend the
financial statement in situation where auditor
believe they need to be amended, auditor should
express qualified opinion or adverse opinion..
Period 2
(From Signing Date
to Delivery of
financial
statement)

24.  Auditors have no responsibility to perform audit
procedures
 If the auditor becomes aware of a fact which
materially affect, the auditor need to consider
whether the financial statement need revision,
should discuss with management and should take
appropriate action.
Period 3
(After delivery the
report)

25. Conditions that did not exist at the balance sheet date but exist
subsequent to that date. If material, need to be disclose in the notes
to the accounts.
Example: purchase or disposal of a major business or subsidiary by
the entity, issue of shares or bonds by the entity,
Please refer to exhibit 17-1 (page 555) for disclosure of non-
adjusting events..
Non-Adjusting events
Adjusting events
NON-ADJUSTING EVENTS

26. Non-Adjusting events
Adjusting events
ADJUSTING EVENTS
These events affect the financial position and the financial statement on
balance sheet date need to accounted for the events..
Example: the bankruptcy of a customer that occurs after the balance sheet date
usually confirms that a loss existed at the balance sheet date on a trade
receivable and the entity needs to adjust
Another example: the sale of inventories after the balance sheet date may give
evidence about their net realizable value at the balance sheet date.

27. Reviewing
procedures
management
policies has
established to
ensure that
subsequent
event are
identified
Reading
minutes of
meeting
Review budget,
cash flow
forecasts and
other
management
report
Inquiring
to
lawyers
Discuss with management on the followings:-
• New Capital commitment and borrowings
• Sales assets
• Issue new shares or debentures
• Any damage of the asset due to fire, flood
Discuss includes
contingent
liability and
capital
commitment

28. Is a potential future
obligation to an outside
party for an unknown
amount arising from
activities that have
already taken place.
A possible liabilities
that arise from the past
events and the
existence will be
confirmed only by the
occurrence or non-
occurrence of one or
more uncertain future
events not wholly
within the control of
the entity
DEFINITION
There
might be a
risk that
they will
not be
completely
and
properly
disclosed
ACCOUNTING TREATMENT
DIFFERENCE
For contingent liability and
provision is that a provision is
recognised as a liability in the
balance sheet whilst a
contingent liability is not
recognised as such
FRS 137
Indicates that
contingent liability is
not recognised as a
liability because its
existence will be
confirmed only by the
occurrence or non-
occurrence of future
uncertain events

29. Material
contingent
liability should
be disclosed in
the financial
statement
Example:
• Corporate guarantee given to lenders for loans to
another party
• Pending litigation or court cases and option to
purchase
Audit Procedures to identify Contingent Liability:-
• Read the minutes of meetings (BOD, Shareholders, committee of board)
and enquiries of management and lawyer
• Review contracts, loan agreements, leases and correspondence
• Review income tax liability, tax return
• Inspect other documents for possible guarantees
Please refer to exhibit 17-2 (page 557) for the disclosure of contingent liability
in the notes to the financial statement

30. Make appropriate inquiries about
litigation and claims is an important
part of completing the audit
These matters may have a material
effect on the financial statements
and thus required to be disclosed in
the financial statements
Legal confirmation letter
Request for confirmation lawyers
for identification of litigation
cases
A legal confirmation letter sent by the
mgmt to the solicitors to provide the
auditor with the following information:
• A list of claims or actions against the
company
• A list of actions brought by the
company
• A list of threatened and impending
litigation and contingent liabilities
Please refer to exhibit 17-3 (page 560) for the example legal letter

31. Often enter into long-
term contractual
commitments to
acquire capital assets
such as plant and
machinery, to purchase
raw material or to sell
their products at a
fixed price
Long term commitments
are usually identified
through inquiry of
management and other
entity personnel during
the audit of the revenue
and purchasing processes
Such commitments
are disclosed in the
notes to the
financial
statements.
DEFINITION
• Is an agreement to commit the entity to a set of fixed conditions in the
future, regardless of what happens to profits or the economy as a whole.

32. Knowledge of both contingencies and
commitments is extremely important to
users of financial statements because they
represent the condition of potentially
material amounts of resources that may be
utilized during future periods, and thus will
affect the future cash flows available to
creditors and investors (users).
Please refer to Exhibit 17-4 (page 561) for example of disclosure on
commitment in the financial statement.

33. The auditor should:
• Obtain sufficient evidence to ensure the opening balance do not contain
misstatement that materially affect the current period’s financial statement
• Ensure it is correctly brought forward from previous period
• Appropriate accounting policies are consistently applied or changes in
accounting policies have been properly accounted for and adequately
disclosed
Refers to those account balances, which
exist at the beginning of the period (closing
balance of last period).
OPENING
BALANCE

34. Comparative
Figures/Amount
AI 710 – Auditor should determine whether the comparatives
comply in all material respects with the financial reporting
framework relevant to the financial statement being audited
FRS 101 – Comparative information shall be disclosed in
respect of the previous period for all amounts
When the presentation or classification of items in the financial
statements is amended, comparative amount shall also be reclassified
unless it is impracticable.
When it is impracticable to reclassify comparative figure, entity should
disclose the reason for not reclassify and the nature of the adjustment
that would have been made if the amount had been reclassified

35. Accounting estimates means:
Allowance
to reduce
inventory
and
receivable
to their
estimated
realisable
value
Depreciation
/
amortisation
Accrued
revenue
Deferred
tax
Provision
for loss
from
lawsuit
Provision
to meet
warranty
claim
Auditor should obtain audit evidence
regarding accounting estimates.
AI 540
It is a management responsible. Sometimes simple and sometimes complex.
For example: accruing rental expenses is simple compared estimating a
provision for a slow moving inventories.

36. AUDIT PROCEDURES
Review and testing the process used by
management
• Evaluate the data and consider of
assumptions used. For example:
Estimating Account receivable.
Review ageing and consider the
accounting policies for doubtful debt.
Specific provision or specific.
• Testing the calculation.
• Compare the estimate of current
period to last period.
Review Subsequent Event
• Subsequent event may provide audit
evidence regarding the accounting
estimate made by management.
• For example: Bankrupt of a customer.
Inventory damages caused by fire…

37. Example of related party transactions:
• Purchase or sales of goods
• Purchases or sales of property and other capital assets
• Rendering and receiving services (management services)
• Leasing and rental arrangements
• Transfer under license agreements
• Financing arrangements such as loans and equity contributions in cash or in
kind
AI 550
Auditor to perform audit procedures to obtain audit evidence
regarding related parties transactions and the effect on the financial
statement.
Should be obtained the information from the client at the completion of audit
stage and to ensure appropriate disclosure in the financial statement.

38. AUDIT PROCEDURES:-
• Review last year working paper to identify related parties and their
transactions
• Review minutes, review corporate structure and discuss with management
• Confirm with the related party, the terms and amount of the transaction
• Discuss with management the purpose and nature of the transaction
• Inspect documentary evidence in the possession of the related party
• AI 550 – auditor to obtain written representation letter from mgmt
concerning:
• a) the completeness of information provided in the financial statements
• b) the adequacy of related party disclosures in the financial statements
Please refer to exhibit 17-5 (page 563) for disclosure of related
party transaction in the notes to the financial statements..

39. AI 580
Requires the
auditor to obtain
appropriate
representations
from
management,
which may be oral
or written
Management
Representation
Letter is a
letter from the
management
to confirm to
the auditor
that all
information (in
all material
respect) has
been properly
disclosed in the
financial
statement and
to be dated on
the same day
the financial
statements are
approved
Important purpose
of management
letter:
• Acknowledgement
by the
management of its
responsibility for
the financial
statements
• Representation by
management as
audit evidence
• To conform the
oral
representation
(documented the
oral
representation)
If mgmt
refuse to
sign the
letter – the
auditor
should
constitute
a scope
limitation,
issue a
qualified
report or
disclaim an
opinion
Example of
Management Letter
Exhibit 17-7
(page 569)…

40. Making an overall final review by
audit manager and partner on
financial statement and should
give a reasonable basis for audit
opinion.
Management Letter
Advise client on the weaknesses
of internal control
List of outstanding
matters
Confirmations on
directors
shareholding and
remunerations
Others outstanding
matters

41. END