11: Completion

Question 1

Give four procedures for subsequent events

Answer 1

• Enquire and discuss with management or parties involved
• Review budget, cashflows and forecasts
• Review minutes of meeting for events
• Obtain rep letter saying they have been dealt with appropriately

Question 2

When is active duty?

Answer 2

Period between year and and signing of the auditors report

Question 3

When is passive duty?

Answer 3

Period between audit reports being signed and financial statements being issued

Question 4

If a material even occurs during active duty what happens?

Answer 4

• Discuss with management and ask them to update FS
• If the update then give an unmodified report (True and fair)
• If they don’t update give a modified report

Question 5

If a material even occurs during passive duty until signing what happens?

Answer 5

• Discuss with management and ask them to update
• If they redraft then give a revised audit opinion of unmodified report (True and fair)
• If they don’t update then seek legal advise, attend the AGM to inform shareholders of situation or resign

Question 6

If a material even occurs during passive duty until issuing what happens?

Answer 6

• Discuss with management asking to update FS
• Directors have to recall FS
• If directors revise then give a revised opinion unmodified
• If they refuse to recall, seek legal advise, attend the AGM to inform members or resign.

Question 7

When does break up basis occur

Answer 7

• A business goes into liquidation

- A company ceases to trade

Question 8

Give four indicators of going concern

Answer 8

• Major customer has ceased trading
• Key staff leaving
• Late payments to suppliers
• Inability to pay dividends or meet short term liabilities

Question 9

If directors say Going concern

And the auditors think going concern

What is the opinion?

Answer 9

Unmodified true and fair view

Question 10

If directors say Going concern

And the auditors think break up basis (Material and pervasive)

What is the opinion?

Answer 10

Adverse opinion

Question 11

If directors say Break up basis

And the auditors think break up basis (Material and pervasive)

What is the opinion?

Answer 11

Unmodified opinion with emphasis of matter

Question 12

If directors say Going concern

And the auditors think Going concern is uncertain (Material uncertainty)

What is the opinion?

Answer 12

If adequately disclosed:

• Unmodified
• Material uncertainty relating to going concern

If not adequately disclosed:

• Material misstatement
• Except for opinion

Question 13

If directors say break up basis but period is less than 12 months

And the auditors think want to extend the period assessed and directors refuse

What is the opinion?

Answer 13

Except for / Disclaimer

Question 14

Are management representation letters a form of audit evidence?

Answer 14

Yes

Question 15

What do management representation letters say from managements perspective?

Answer 15

Confirms that they believe they have fulfilled their responsibility

Question 16

What type of decisions do management representation letters help with?

Answer 16

Judgemental decisions

Question 17

What do management representation letters confirm?

Answer 17

That management have communicated all known deficiencies to the auditor

Question 18

What three responsibilities do the management representation letter confirm that they have fulfilled?

Answer 18

• 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

Question 19

Do management rep letters give appropriate evidence?

Answer 19

No

Question 20

What does managements failure to provide a rep letter do?

Answer 20

Casts doubt over the reliability of other audit evidence received, especially if the company is dominated by the directors.

Question 21

What are three things the auditor should do if management fail to provide a rep letter

Answer 21

• Discuss with management and try to resolve their concerns
• Explain consequences of not signing and try to avoid a confrontation
• Modify audit opinion due to inability to get evidence. Disclaimer opinion may be necessary.

Question 22

What are four treatments of misstatement?

Answer 22

• Determine if they are in aggregate or individual
• All should be communicated with those charged with governance on timely basis and request make amendments
• If request refused consider impact on report
• Written rep letter to confirm unadjusted misstatements are immaterial