Completion and Review

After the auditor has completed their substantive testing there are still many procedures that need
to be performed before they can sign the audit report.

Opening balances

ISA 510 Initial Engagements – Opening Balances requires that when auditors take on a new
client, they must ensure that:

 Opening balances do not contain material misstatements

 Prior period closing balances have been correctly brought forward or, where appropriate,
restated
 Appropriate accounting policies have been consistently applied, or changes adequately
disclosed.

Considerations:

 Were the previous financial statements audited?

 If the previous financial statements were audited, was the opinion modified?
 If the previous opinion was modified, has the matter been resolved since then?
 Completion and Review
Audit Procedures

Where the prior period was audited by another auditor or unaudited, the auditors will need
to perform additional work in order to satisfy themselves regarding the opening position. Such
work would include:
 Consulting the client's management.
 Reviewing records and accounting and control procedures in the preceding period.
 Consulting with the previous auditor and reviewing (with their permission) their working
papers and relevant representation letters.
 Substantive testing of any opening balances where the above procedures are
unsatisfactory.

Comparatives
ISA 710 Comparative Information – Corresponding Figures and Comparative Financial
Statements requires that comparative figures comply with the identified financial reporting

Presentation of Financial Statements both require that financial statements show comparatives.

Two categories of comparatives exist:

Corresponding figures where preceding period figures are included as an integral part of the
current period financial statements;

Comparative financial statements where preceding period amounts are included for comparison
with the current period

Corresponding figures

Audit procedures in respect of corresponding figures should be significantly less than for the
current period and are limited to ensuring that corresponding figures have been correctly
reported and appropriately classified. This involves evaluating whether:

 Accounting policies are consistently applied; and

 Corresponding figures agree to the prior period financial statements.
 Completion and Review
Comparative financial statements

Sufficient appropriate evidence should be gathered to ensure that comparative financial

statements meet the requirements of an applicable financial reporting framework. This involves
evaluating whether:

 accounting policies are consistently applied; and

 comparative figures agree to the prior period financial statements

Subsequent events review

Subsequent events are events occurring between the date of the financial statements and the date
of the auditor's report, and facts that become known to the auditor after the date of the auditor's
report.

IAS 10 Events after the reporting period deals with the treatment in the financial statements of
events, both favourable and unfavourable, occurring after the period-end. There are two types of
event defined by IAS 10:

 Those that provide evidence of conditions that existed at the year-end date (adjusting
events)
 Those that are indicative of conditions that arose after the year-end date (non-adjusting
event

ISA 560 Subsequent events provides guidance to auditors in this area. The objectives of the
auditor are:
 To obtain sufficient appropriate audit evidence about whether events occurring between
the date of the financial statements and the date of the auditor's report that need
adjustment or disclosure in the financial statements are properly reflected in the financial
statements.

 To respond appropriately to facts that become known to the auditor after the date of the
auditor's report which may have caused the auditor to amend the auditor's report if they
were known to the auditor at the date of the report.
 Completion and Review

Audit procedures

The nature of procedures performed in a subsequent events review depends on many variables,
such as the nature of transactions and events and the availability of data and reports.
However, the following procedures are typical:

 Enquiring of directors if they are aware of any subsequent events that require adjustment
in the financial statements.
 Enquiring into management's procedures/systems for the identification of subsequent
events.
 Inspection of minutes of members' and directors' meetings.
 Reviewing accounting records including budgets, forecasts and interim information.
 Obtaining, from management, a letter of representation that all subsequent events have
been considered in the preparation of the financial statements.
 Inspection of correspondence with legal advisors.
 Enquiring of the progress with regards to reported provisions and contingencies.
 Normal' post reporting period work performed in order to verify year-end balances:
Checking after date receipts from receivables
Inspecting the cash book for payments/receipts that were not accrued for at the year-end
Checking the sales price of inventories
 Completion and Review
Going concern

“Going concern is defined in IAS1 as the assumption that the enterprise will continue in
operational existence for the foreseeable future”.

The going concern concept – significance

Whether or not a company can be classed as a going concern affects how its financial statements
are prepared. Financial statements are prepared on the basis that the reporting entity is a going
concern.

IAS1 states that 'an entity should prepare its financial statements on a going concern basis, unless
 Management intends to liquidate the entity or to cease trading or
 The directors have no realistic alternative but to do so.'

Where the assumption is made that the company will cease trading, the financial statements are
prepared using the breakup basis under which:
 The basis of preparation and the reason why the entity is not regarded as a going concern
are disclosed
 Assets are recorded at likely sale values
 Inventory and receivables are likely to require more provisions
 Additional liabilities may arise (severance costs for staff, the costs of closing down
facilities, etc.).

Going concern responsibilities

Both directors and auditors of an entity have responsibilities regarding going concern.

Directors
 It is the directors' responsibility to assess the company's ability to continue as a going
concern when they are preparing the financial statements.
 If they are aware of any material uncertainties which may affect this assessment, then
IAS 1 requires them to disclose such uncertainties in the financial statements.
 When the directors are performing their assessment they should take into account a
number of relevant factors such as: current and expected profitability, debt repayment
sources, (and potential sources) of financing.
 Completion and Review
Auditors
 ISA 570 Going Concern states that the auditor needs to consider the appropriateness of
management's use of the goingbconcern assumption.
 The auditors need to assess the risk that the company may not be a going concern.
 The auditor will also need to obtain sufficient appropriate evidence that the company is a
going concern.
 The auditor must conclude whether there are any material uncertainties regarding going
concern.
 Where there are material uncertainties, the auditor must ensure that the directors have
made sufficient disclosure of such matters in the notes to the financial statements.

Audit procedures applied in performing going concern reviews

 Analyse and discuss cash flow, profit and other relevant forecasts with management
 Analyse and discuss the entity's latest available interim financial statements (or
management accounts)
 Review the terms of debentures and loan agreements and determine whether they have
been breached
 Read minutes of the meetings of shareholders, the board of directors and important
committees for reference to financing difficulties
 Inquire of the entity's lawyer regarding litigation and claims
 Confirm the existence, legality and enforceability of arrangements to provide or maintain
financial support with related and third parties
 Assess the financial ability of such parties to provide additional funds
 Consider the entity's position concerning unfulfilled customer orders
 Review events after the period-end for items affecting the entity's ability to continue as a
going concern
 Confirm the existence, terms and adequacy of borrowing facilities
 Obtaining and reviewing reports of regulatory actions
 Determining the adequacy of support for any planned disposals of assets
 Completion and Review
Reporting implications

Financial statements are normally prepared on the going concern basis.

 Where the going concern basis is used and is appropriate, the auditors do not need to
mention the fact in their report.

 If the auditor believes that the going concern basis used in the financial statements is
inappropriate they will modify the audit opinion.

 If the directors appropriately disclose an uncertainty with regard to going concern the
auditor (without modifying their opinion) will refer to this in the audit report in an
'emphasis of matter' paragraph.

 If the directors prepare the financial statements on another basis (i.e. not going concern)
and this is appropriate the auditor will also refer to this in an emphasis of matter
paragraph.
 If the period assessed by management is less than twelve months from the statement of
financial position date and management is unwilling to extend the assessment, the auditor
will modify the audit opinion, due to an inability to obtain sufficient appropriate audit
evidence regarding the use of the going concern assumption.
 Completion and Review
Written representation letter

A written representation is: a written statement by management provided to the auditor to

confirm certain matters or to support other audit evidence (ISA 580 Written Representations).

The purpose of obtaining this form of evidence is:

To obtain evidence that management, and those charged with governance, have fulfilled their
responsibility (as agreed and acknowledged in the terms of the audit engagement) for the
preparation of the financial statements, including:
 preparing the financial statements in accordance with an applicable financial reporting
framework;
 providing the auditor with all relevant information and access to records
 recording all transactions and reflecting them in the financial statements.
to support other audit evidence relevant to the financial statements if determined
necessary by the auditor or required by ISA's.

Written representations should only be sought to support other audit evidence.

Reliability of written representations

Written representations are client generated, and may be subject to bias. It is therefore a
potentially unreliable form of audit evidence.

 The auditor must consider the reliability of written representations in terms of:
inconsistencies with other forms of evidence
 concerns about the competence, integrity, ethical values or diligence of management

If written representations are inconsistent with other evidence, the auditor must:

 consider the reliability of representations in general

 reconsider their initial risk assessment
 consider the need to perform further audit procedures
 Completion and Review
Need for written representations

Although possibly unreliable, written representations are a necessary and important source of
evidence.

If management refuse to provide requested written representations, the auditor should:

 discuss the matter with management to understand why they are refusing
 re-evaluate the integrity of management and consider the effect that this may have on the
reliability of other representations (oral or written) and audit evidence in general
 determine the possible effect on the audit opinion.

Overall review of financial statements

The auditors must perform and document an overall review of the financial statements by
undertaking analytical procedures before they can reach an opinion.

Once most of the substantive audit procedures have been carried out, the auditors will have a
draft set of financial statements which should be supported by appropriate and sufficient audit
evidence. At the beginning of the end of the audit process, it is usual for the auditors to undertake
an overall review of the financial statements.

This review of the financial statements, in conjunction with the conclusions drawn from the other
audit evidence obtained, gives the auditors a reasonable basis for their opinion on the financial
statements. It should be carried out by a senior member of the audit team, with appropriate skills
and experience.

It is the responsibility of the engagement partner to perform a review of audit documentation

(including a discussion with the engagement team) in order to satisfy themselves that sufficient
appropriate evidence has been obtained to support any conclusions reached and, ultimately, the
audit opinion. Considerations include, for example:
 has work been performed in accordance with professional standards?
 have the significant risks identified during planning been addressed?
 are there any critical areas of judgement relating to difficult or contentious matters?
 are there any significant matters for further consideration?
 have appropriate consultations taken place or are more needed?
 have the objectives of the engagement procedures been achieved?
 Completion and Review
ISA 450 requires the auditor to document the following information:
 The amount below which misstatements would be regarded as clearly trivial
 All misstatements accumulated during the audit and whether they have been corrected
 The auditor's conclusion as to whether uncorrected misstatements are material and the
basis for that conclusion

Management should be asked to correct all misstatements identified during the audit. Auditors
should try and obtain an understanding of management's reasons for refusing to adjust any of the
misstatements. The auditor should determine whether uncorrected misstatements are material in
aggregate or individually, and if material should consider the potential impact on their audit
report.

Prior to evaluating the significance of uncorrected misstatements the auditor should reassess
materiality to confirm whether it remains appropriate to the financial statements. Then the
auditor must assess whether uncorrected misstatements are, individually or in aggregate,
material. To do this they should consider the size and nature of the misstatements, both in
relation to the financial statements as a whole and to particular classes of transaction, account
balances and disclosures.

Other reports

ISA 260 Communication with Those Charged with Governance requires the auditor to make
additional communications to managers, directors and those charged with governance at the
conclusion of the audit of matters significant to the oversight of the financial reporting process.