It is VERY IMPORTANT that you recognise this module has just one week work allocated to it … it is the culmination of your learning in this unit, so make sure you plan well and do not leave yourself too short in time to work through the prescribed activities. This is what you do all the audit work with due skill and care for – to minimise the audit risk of expressing an inappropriate opinion when there are material misstatements in the financial report. That takes you right back to what you first learned in Module 1!
This final module is about ensuring you have sufficient and appropriate audit evidence (you have been persuaded by the evidence) to support the conclusions you have reached. These conclusions, about the truth and fairness of each of the assertions management have made in the report you are auditing, are the basis for the audit opinion you express in your audit report. Various circumstances revealed by the evidence require a specific audit opinion to be expressed. Finally, you will be asked to reflect on the consequences of not conducting the audit process with due skill and care … the consequences of inadequate quality control and an incorrect opinion were set out in Module 1 and manifest in legal liability to the client (and perhaps third parties). Do the job well, follow the ethical and auditing standards and any hint of not exercising due care is remote. You can be satisfied that you have minimised the audit risk – you will be confident of not expressing an inappropriate opinion when there are material misstatements in the financial report. Well done on reaching the final Module of the unit!
Diagrammatic View of the Unit
You will find a copy of this diagram at the beginning of each chapter of your text. The relevant section of the diagram being covered in that chapter will be shown. You might find it a useful study aide to annotate the diagram with the relevant modules, readings and Lakeside cases that are applicable. This should provide a fairly complete roadmap for you of the material you need to cover to put you in the best position to attempt the activities designed to develop your application of the knowledge – it is this ability to apply what you have learned that be the focus of your final examination. This will only be used and highlighted for each Module. See Figure 1.1 – Module 1.
Chapter 12: Completing and reporting on the audit
A little bit of light hearted fun to get you underway.
What do you see?
Doesn’t it feel good to see that bright light at the end of the tunnel?? Well done on your perseverance … almost done. Final part of the journey.
Text reading
As for earlier Modules, here is a VERY brief overview which in no way intends to be a substitute for making your own summary/notes. My recommendation is reiterated that you makes notes for each chapter objective, compare yours to those at the end of each chapter, including key terms that should be making notes of – as always there is the technical language “in use” that you need to use – you should actually be using much of what you have compiled in your own glossary so that your own (glossary) and the one in your text and your Auditing and Assurance Handbook should now carry more meaning and far fewer new terms. Don’t forget to be thinking about the content in the context of both Lakeside and CLOUD 9.
Finally, and as for earlier Modules, if there are any things in your reading and attempts at the prescribed activities (questions) you do not understand, be sure to make use of the Module 4 DF to seek clarification.
Activities are inserted below for you to review some of what you will read.
Your reading will allow you to be able to explain a variety of procedures that are performed during engagement wrap-up, that is, finishing off (completing) the audit process. You will be able to identify factors that enable you to be satisfied the going concern assumption remains valid; you will able to identify and apply the impact of the two types (classifications) of material subsequent events to the financial report. You will be able to evaluate the overall quantitative and qualitative impact of material misstatements your audit has identified and explain the impact they have on the type of audit opinion you need to express. This will be possible because you will be able to identify the components of the audit report and the various circumstances that determine the type of modification. Finally, you will be able to discuss other forms of communication with the client necessary at the conclusion of the audit process.
You will be reminded of one of the key financial reporting standards is also important to the auditor (seems obvious if you think about it!). AASB 110 deals with events that occur after the reporting period. The guidance for the auditor is provided in ASA 560 called Subsequent Events. So it is important to appreciate in auditing, what we call “subsequent events” is the same as what in financial reporting we call “events that occur after the reporting period”. There are events that require adjustments to the financial reports and others that require disclosures rather than adjustments. See Figures 12.1 and 12.2 and read these in conjunction with ASA 560. Notice that yet again you will see examples of those types of evidence you have been learning about.
Activity 4.1
Indicate which of the following are examples of enquiries of management as to whether any subsequent events might have occurred affecting the financial report?
That is correct.
That is partially correct.
That is not correct.
Remember that you first came across the going concern assumption in Module 2 during your risk assessment. It is a fundamental principle on which the financial report you are auditing has been prepared and the accounting standards are applied. Those charged with governance explicitly acknowledge this (among other things) in their Directors’ Declaration … check it out again in your chosen entity annual report and notice how the basic message is very similar to the auditor’s independent opinion! You revisit it at the end, to ensure you have sufficient and appropriate audit evidence about risk factors of concern you identified during audit planning … do you have the explanations that make sense given what you know about the client and the industry in which they operate. Put another way, if these were areas of concern during planning, are we satisfied that they are no longer areas of concern … or that they remain concerns and thus will impact on the type of opinion we express (see last part of ASA 570 and Appendices and notice how these directly link to what will you learn from ASA 700, 701, 705 and 706 if necessary).
Activity 4.2
ASA 570.10–16 and A3–A20 set out procedures the auditor might use to evaluate management's assessment of the going concern assumption.
That is correct.
That is not correct.
This overall assessment of materiality is at the financial report level. That is, you are considering the impact of all the uncorrected misstatements that have been documented and discussed during the audit process. You are assessing their combined (overall) impact on the financial report as a whole. Remember we will have been talking to management throughout our audit so there should be NO SURPRISES to them or us about any of these at this final stage of the audit. This directly impacts on your decision about the type of audit opinion you need to express. You will explore ASA700, 701, 705 and 706 to expand your knowledge of the elements of the audit report and how they are modified according to nature of the matter giving rise to the need for a modification and the extent of the materiality of those matters – see Table 12.1 which is a version of ASA 705.A1 and the detail in ASA 706.
Activity 4.3
Reorder the items on the right to match the category on the left:
That is correct.
Final point to note is that you will see another example of written representation as an example of improving the quality (persuasiveness) of oral evidence from management. This is covered in ASA 580.
Questions and Activities (Text Chapter 12)
Remember, if you wish to review your comprehension of the content you should feel free to attempt the:
- Multiple Choice Questions, and
- Review Questions presented for each Chapter.
You will find suggested answers to Multiple Choice Questions at the very end of each Chapter. You will NOT find suggested answers to the Review Questions provided BECAUSE I expect that you are capable of locating the relevant material in the Chapter … the questions are in the same sequence as the objectives and sections of the Chapter.
You should NOT expect Multiple Choice or Review style questions in your Final Examination – the style of questions will be based on those set out below that are designed to develop your skills at applying the content you have been learning.
You are provided with suggested feedback for each of these questions. Remember it is very important that you attempt to develop an answer for yourself BEFORE you check the suggestion – otherwise you will NOT learn to apply your knowledge. A direct link is provided for the suggested answers. A new window will open for your use; alternatively, there is a word version of all feedback for each Module.
Module 4 Discussion Forum
If there are any suggested answers, or even material you have been reading, that do not make sense or require clarification please use the Module 4 Discussion Forum (DF) to ask for help!
Remember to try and be as specific as possible about what is not clear to you so that replies can be most immediately helpful; and You are encouraged to help each other and not rely solely on staff responding.