Completing the Audit

Question 1

Wrap-up Procedures

Answer 1

1. Identifying liabilities not given appropriate accounting treatment
2. Addressing required disclosure
3. Overall review of the audit engagement and formation of the audit opinion
4. Other wrap-up procedures

Question 2

What does the auditor perform to identify unrecorded liabilities

Answer 2

1. Review subsequent cash disbursements
2. Test of unprocessed invoices or open purchase orders
3. Analytical procedures that may indicate understatement of liabilities

Question 3

Who are related parties

Answer 3

Considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions

Question 4

Related Party Transactions

Answer 4

Transfer of resources or obligations between related parties regardless of whether a price is charged

Question 5

Why Auditor needs to be aware of related party transactions

Answer 5

1. Philippine GAAP requires disclosure in the financial statements of certain related party relationship and transactions
2. Existence of related party may affect the financial statmenets
3. Source of audit evidence affects the auditor’s assessment of its reliability
4. Related party transaction may be motivated by other than ordinary business considerations

Question 6

Procedures to check completeness of Related party Disclosures

Answer 6

1. Check prior year financial statement for known related parties
2. Entity’s process for identifying related parties
3. Inquire as to the affiliation of directors with the other enttiy
4. Review shareholder records
5. Review minutes of the meetings
6. Inquire other auditors involved in the audit regarding related parties
7. Review entity’s ITR

Question 7

Indicators of Related Party

Answer 7

1. Transactions with abnormal terms of trade
2. Transactions which lack an apparent logical business reason
3. Transaction in which substance differs from form
4. Transaction processed in unusual manner
5. High volume of transactions with certain customers as compared to others
6. Unrecorded transactions such as the receipt or provision of management services at no charge

Question 8

If not Going Concern what is the responsibility of Management

Answer 8

1. Present FS using other than Going Concern Assumption
2. Disclose the following:
   - Fact that it is not Going Concern
   - Other than Going Concern Assumption used
   - Reasons for not applying going concern

Question 9

Examples of Type 1 Events (Adjusting Events)

Answer 9

1. Loss on receivables resulting from the bankruptcy of major customer that was in deteriorating condition
2. Settlement of litigation for an amount different from an estimate at year-end
3. Disposal of investment or of obsolete or scrapped inventory at a price below book value

Question 10

Example of Type II Events

Answer 10

1. Sale of a bond or capital stock issue
2. Purchase of a business
3. Settlement of litigation when event giving rise to the claim occurred after balance sheet date
4. Loss of plant or inventories due to fortuitous event
5. Loss on receivables resulting from conditions subsequent to balance sheet date

Question 11

Purpose of Management Representation Letter

Answer 11

Evidence that management acknowledges its responsibility for the fair presentation of the financial statements in accordance with GAAP in the Philippines and has approved the financial statements

Question 12

Management Letter

Answer 12

Written by auditor and provided to the client management to encourage a better relationship between auditor and management