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24 - 1©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Completing the AuditCompleting the Audit
Chapter 24Chapter 24
24 - 2©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Learning Objective 1Learning Objective 1
Conduct a review for contingentConduct a review for contingent
liabilities and commitments.liabilities and commitments.
24 - 3©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Summary of the Audit ProcessSummary of the Audit Process
Phase IPhase IPlan and design an auditPlan and design an auditapproach.approach.
Phase IPhase IPlan and design an auditPlan and design an auditapproach.approach.
Phase IIPhase IIPerform tests of controlsPerform tests of controlsand substantive testsand substantive testsof transactions.of transactions.
Phase IIPhase IIPerform tests of controlsPerform tests of controlsand substantive testsand substantive testsof transactions.of transactions.
Phase IIIPhase IIIPerform analyticalPerform analyticalprocedures and testsprocedures and testsof details of balances.of details of balances.
Phase IIIPhase IIIPerform analyticalPerform analyticalprocedures and testsprocedures and testsof details of balances.of details of balances.
Phase IVPhase IVComplete the audit andComplete the audit andissue an audit report.issue an audit report.
Phase IVPhase IVComplete the audit andComplete the audit andissue an audit report.issue an audit report.
24 - 4©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Phase IV – Completing the AuditPhase IV – Completing the Audit
Review for contingentReview for contingentliabilities.liabilities.
Review for contingentReview for contingentliabilities.liabilities.
Review for Review for subsequent events.subsequent events.
Review for Review for subsequent events.subsequent events.
Accumulate finalAccumulate finalevidence.evidence.
Accumulate finalAccumulate finalevidence.evidence.
Evaluate results.Evaluate results.Evaluate results.Evaluate results.
Issue audit report.Issue audit report.Issue audit report.Issue audit report.
Communicate with Communicate with audit committeeaudit committeeand management.and management.
Communicate with Communicate with audit committeeaudit committeeand management.and management.
24 - 5©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Contingent LiabilitiesContingent Liabilities
A contingent liability is a potential futureA contingent liability is a potential futureobligation to an outside party for anobligation to an outside party for anunknown amount resulting from activitiesunknown amount resulting from activitiesthat have already taken place.that have already taken place.
A contingent liability is a potential futureA contingent liability is a potential futureobligation to an outside party for anobligation to an outside party for anunknown amount resulting from activitiesunknown amount resulting from activitiesthat have already taken place.that have already taken place.
24 - 6©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Likelihood of Occurrence and Likelihood of Occurrence and Financial Statement TreatmentFinancial Statement Treatment
ReasonablyReasonablypossiblepossible
ReasonablyReasonablypossiblepossible
Footnote disclosure isFootnote disclosure isnecessarynecessary
Footnote disclosure isFootnote disclosure isnecessarynecessary
ProbableProbable(likely to occur)(likely to occur)
ProbableProbable(likely to occur)(likely to occur)
Adjust financial statementsAdjust financial statementsoror note disclosure note disclosure
Adjust financial statementsAdjust financial statementsoror note disclosure note disclosure
RemoteRemote(slight chance)(slight chance)
RemoteRemote(slight chance)(slight chance)
No disclosureNo disclosurenecessarynecessary
No disclosureNo disclosurenecessarynecessary
Likelihood ofLikelihood ofoccurrence of eventoccurrence of event
Financial statementFinancial statementtreatmenttreatment
24 - 7©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Auditor’s ConcernsAuditor’s Concerns
Pending litigation for patent infringement,Pending litigation for patent infringement, product liability, or other actionsproduct liability, or other actions Income tax disputesIncome tax disputes Product warrantiesProduct warranties Notes receivable discountedNotes receivable discounted Guarantees of obligations of othersGuarantees of obligations of others Unused balances of outstanding letters of creditUnused balances of outstanding letters of credit
Pending litigation for patent infringement,Pending litigation for patent infringement, product liability, or other actionsproduct liability, or other actions Income tax disputesIncome tax disputes Product warrantiesProduct warranties Notes receivable discountedNotes receivable discounted Guarantees of obligations of othersGuarantees of obligations of others Unused balances of outstanding letters of creditUnused balances of outstanding letters of credit
24 - 8©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Audit Procedures for Finding Audit Procedures for Finding ContingenciesContingencies
Inquire of management (orally and inInquire of management (orally and inwriting) about the possibility ofwriting) about the possibility of unrecorded contingencies.unrecorded contingencies.
Inquire of management (orally and inInquire of management (orally and inwriting) about the possibility ofwriting) about the possibility of unrecorded contingencies.unrecorded contingencies.
Review current and previous years’ internalReview current and previous years’ internalrevenue reports for income tax settlements.revenue reports for income tax settlements.
Review current and previous years’ internalReview current and previous years’ internalrevenue reports for income tax settlements.revenue reports for income tax settlements.
Review the minutes of directors’ andReview the minutes of directors’ andstockholders’ meetings for indicationsstockholders’ meetings for indications of lawsuits or other contingencies.of lawsuits or other contingencies.
Review the minutes of directors’ andReview the minutes of directors’ andstockholders’ meetings for indicationsstockholders’ meetings for indications of lawsuits or other contingencies.of lawsuits or other contingencies.
24 - 9©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Audit Procedures for Finding Audit Procedures for Finding ContingenciesContingencies
Analyze legal expenses and review invoicesAnalyze legal expenses and review invoicesand statements from legal counsel.and statements from legal counsel.
Analyze legal expenses and review invoicesAnalyze legal expenses and review invoicesand statements from legal counsel.and statements from legal counsel.
Obtain a letter from each major attorney of theObtain a letter from each major attorney of theclient as to the status of pending litigation.client as to the status of pending litigation.
Obtain a letter from each major attorney of theObtain a letter from each major attorney of theclient as to the status of pending litigation.client as to the status of pending litigation.
Review audit documentation for any informationReview audit documentation for any informationthat may indicate a potential contingency.that may indicate a potential contingency.
Review audit documentation for any informationReview audit documentation for any informationthat may indicate a potential contingency.that may indicate a potential contingency.
Examine letters of credit in force.Examine letters of credit in force.Examine letters of credit in force.Examine letters of credit in force.
24 - 10©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Learning Objective 2Learning Objective 2
Obtain and evaluate letters fromObtain and evaluate letters from
the client’s attorneys.the client’s attorneys.
24 - 11©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Inquiry of Client’s AttorneysInquiry of Client’s Attorneys
A list including (1) pending threatened litigationA list including (1) pending threatened litigation and (2) asserted or unasserted claims orand (2) asserted or unasserted claims or assessments with which the attorneyassessments with which the attorneyhas had involvement.has had involvement.
A list including (1) pending threatened litigationA list including (1) pending threatened litigation and (2) asserted or unasserted claims orand (2) asserted or unasserted claims or assessments with which the attorneyassessments with which the attorneyhas had involvement.has had involvement.
A request that the attorney furnish informationA request that the attorney furnish informationor comment about the progress of each item listed.or comment about the progress of each item listed.
A request that the attorney furnish informationA request that the attorney furnish informationor comment about the progress of each item listed.or comment about the progress of each item listed.
24 - 12©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Inquiry of Client’s AttorneysInquiry of Client’s Attorneys
A request for the identification of any unlistedA request for the identification of any unlistedpending or threatened legal action or apending or threatened legal action or astatement that the client’s list is complete.statement that the client’s list is complete.
A request for the identification of any unlistedA request for the identification of any unlistedpending or threatened legal action or apending or threatened legal action or astatement that the client’s list is complete.statement that the client’s list is complete.
A statement informing the attorney of the attorney’sA statement informing the attorney of the attorney’sresponsibility to inform management of legal mattersresponsibility to inform management of legal mattersrequiring disclosure in the financial statementsrequiring disclosure in the financial statementsand to respond directly to the auditor.and to respond directly to the auditor.
A statement informing the attorney of the attorney’sA statement informing the attorney of the attorney’sresponsibility to inform management of legal mattersresponsibility to inform management of legal mattersrequiring disclosure in the financial statementsrequiring disclosure in the financial statementsand to respond directly to the auditor.and to respond directly to the auditor.
24 - 13©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Sarbanes-Oxley ActSarbanes-Oxley Act
Congress included provisions in this act directingCongress included provisions in this act directingthe SEC to issue rules requiring attorneys servingthe SEC to issue rules requiring attorneys servingpublic companies to report material violationspublic companies to report material violationsby the company of federal securities laws.by the company of federal securities laws.
Congress included provisions in this act directingCongress included provisions in this act directingthe SEC to issue rules requiring attorneys servingthe SEC to issue rules requiring attorneys servingpublic companies to report material violationspublic companies to report material violationsby the company of federal securities laws.by the company of federal securities laws.
The American Bar Association amended itsThe American Bar Association amended itsattorney-client confidentiality rules to permitattorney-client confidentiality rules to permitattorneys to breach confidentiality if a clientattorneys to breach confidentiality if a clientis committing a crime or fraud.is committing a crime or fraud.
The American Bar Association amended itsThe American Bar Association amended itsattorney-client confidentiality rules to permitattorney-client confidentiality rules to permitattorneys to breach confidentiality if a clientattorneys to breach confidentiality if a clientis committing a crime or fraud.is committing a crime or fraud.
24 - 14©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Learning Objective 3Learning Objective 3
Conduct a post-balance-sheetConduct a post-balance-sheet
review for subsequent events.review for subsequent events.
24 - 15©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Period Covered by Subsequent Period Covered by Subsequent Events ReviewEvents Review
Client’s endingClient’s endingbalance sheetbalance sheet
datedate
12-31-0512-31-05
Date clientDate clientissues financialissues financial
statementsstatements
3-26-063-26-06
AuditAuditreportreportdatedate
3-11-063-11-06
Period to which review forPeriod to which review forsubsequent events appliessubsequent events applies
Period forPeriod forprocessingprocessingthe financialthe financialstatementsstatements
24 - 16©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Types of Subsequent EventsTypes of Subsequent Events
1111Those that have a direct effectThose that have a direct effecton the financial statementson the financial statementsand require adjustmentand require adjustment
Those that have a direct effectThose that have a direct effecton the financial statementson the financial statementsand require adjustmentand require adjustment
2222Those that have Those that have nono direct effect direct effecton the financial statements buton the financial statements butfor which disclosure is advisablefor which disclosure is advisable
Those that have Those that have nono direct effect direct effecton the financial statements buton the financial statements butfor which disclosure is advisablefor which disclosure is advisable
24 - 17©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Requiring AdjustmentRequiring Adjustment
Declaration of bankruptcy by a customerDeclaration of bankruptcy by a customer with an accounts receivable balancewith an accounts receivable balance Settlement of a litigation at an amountSettlement of a litigation at an amount different from the amount recordeddifferent from the amount recorded on the bookson the books Disposal of equipment not being used inDisposal of equipment not being used in operations at a price below the currentoperations at a price below the current book valuebook value Sale of investments at a price belowSale of investments at a price below recorded costrecorded cost
Declaration of bankruptcy by a customerDeclaration of bankruptcy by a customer with an accounts receivable balancewith an accounts receivable balance Settlement of a litigation at an amountSettlement of a litigation at an amount different from the amount recordeddifferent from the amount recorded on the bookson the books Disposal of equipment not being used inDisposal of equipment not being used in operations at a price below the currentoperations at a price below the current book valuebook value Sale of investments at a price belowSale of investments at a price below recorded costrecorded cost
24 - 18©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Advisability of DisclosureAdvisability of Disclosure
Decline in the market value of securitiesDecline in the market value of securities held for temporary investment or resaleheld for temporary investment or resale Issuance of bonds or equity securitiesIssuance of bonds or equity securities Decline in the market value of inventoryDecline in the market value of inventory as a consequence of government actionas a consequence of government action barring further sale of a productbarring further sale of a product Uninsured loss of inventories as a resultUninsured loss of inventories as a result of fireof fire A merger or an acquisitionA merger or an acquisition
Decline in the market value of securitiesDecline in the market value of securities held for temporary investment or resaleheld for temporary investment or resale Issuance of bonds or equity securitiesIssuance of bonds or equity securities Decline in the market value of inventoryDecline in the market value of inventory as a consequence of government actionas a consequence of government action barring further sale of a productbarring further sale of a product Uninsured loss of inventories as a resultUninsured loss of inventories as a result of fireof fire A merger or an acquisitionA merger or an acquisition
24 - 19©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Audit TestsAudit Tests
Procedures normally integrated asProcedures normally integrated asa part of the verification of year-enda part of the verification of year-endaccount balancesaccount balances
Procedures normally integrated asProcedures normally integrated asa part of the verification of year-enda part of the verification of year-endaccount balancesaccount balances
Procedures performed specifically forProcedures performed specifically forthe purpose of discovering events orthe purpose of discovering events ortransactions that must be recognizedtransactions that must be recognizedas subsequent eventsas subsequent events
Procedures performed specifically forProcedures performed specifically forthe purpose of discovering events orthe purpose of discovering events ortransactions that must be recognizedtransactions that must be recognizedas subsequent eventsas subsequent events
24 - 20©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Inquire of management.Inquire of management. Correspond with attorneys.Correspond with attorneys. Review internal statements preparedReview internal statements prepared subsequent to the balance sheet date.subsequent to the balance sheet date. Review records prepared subsequentReview records prepared subsequent to the balance sheet date.to the balance sheet date. Examine minutes issued subsequentExamine minutes issued subsequent to the balance sheet date.to the balance sheet date. Obtain a letter of representation,Obtain a letter of representation,
Inquire of management.Inquire of management. Correspond with attorneys.Correspond with attorneys. Review internal statements preparedReview internal statements prepared subsequent to the balance sheet date.subsequent to the balance sheet date. Review records prepared subsequentReview records prepared subsequent to the balance sheet date.to the balance sheet date. Examine minutes issued subsequentExamine minutes issued subsequent to the balance sheet date.to the balance sheet date. Obtain a letter of representation,Obtain a letter of representation,
Audit TestsAudit Tests
24 - 21©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Dual DatingDual Dating
The first date is the date for theThe first date is the date for thecompletion of field work exceptcompletion of field work exceptfor a specific exception.for a specific exception.
The first date is the date for theThe first date is the date for thecompletion of field work exceptcompletion of field work exceptfor a specific exception.for a specific exception.
The second date, which isThe second date, which isalways later, deals withalways later, deals withthe exception.the exception.
The second date, which isThe second date, which isalways later, deals withalways later, deals withthe exception.the exception.
24 - 22©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Learning Objective 4Learning Objective 4
Design and perform the final stepsDesign and perform the final steps
in the evidence-accumulationin the evidence-accumulation
segment of the audit.segment of the audit.
24 - 23©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
1. Perform final analytical procedures.1. Perform final analytical procedures.2. Evaluate the going-concern assumption.2. Evaluate the going-concern assumption.3. Obtain a management representation letter.3. Obtain a management representation letter.4. Consider information accompanying the4. Consider information accompanying the basic financial statements.basic financial statements.5. Read other information in the annual report.5. Read other information in the annual report.
1. Perform final analytical procedures.1. Perform final analytical procedures.2. Evaluate the going-concern assumption.2. Evaluate the going-concern assumption.3. Obtain a management representation letter.3. Obtain a management representation letter.4. Consider information accompanying the4. Consider information accompanying the basic financial statements.basic financial statements.5. Read other information in the annual report.5. Read other information in the annual report.
Final Evidence AccumulationFinal Evidence Accumulation
24 - 24©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Management Representation Management Representation LetterLetter
To impress upon management its responsibility To impress upon management its responsibility for the assertions in the financial statementsfor the assertions in the financial statements
To impress upon management its responsibility To impress upon management its responsibility for the assertions in the financial statementsfor the assertions in the financial statements
To document the responses from managementTo document the responses from management to inquiries about various aspects of the auditto inquiries about various aspects of the audit
To document the responses from managementTo document the responses from management to inquiries about various aspects of the auditto inquiries about various aspects of the audit
24 - 25©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
1. Financial statements1. Financial statements
2. Completeness of information2. Completeness of information
3. Recognition, measurement, and disclosure3. Recognition, measurement, and disclosure
4. Subsequent events4. Subsequent events
5. Internal control 5. Internal control
1. Financial statements1. Financial statements
2. Completeness of information2. Completeness of information
3. Recognition, measurement, and disclosure3. Recognition, measurement, and disclosure
4. Subsequent events4. Subsequent events
5. Internal control 5. Internal control
Management Representation Management Representation LetterLetter
24 - 26©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
1. Management’s acknowledgment of its1. Management’s acknowledgment of its responsibility for establishing andresponsibility for establishing and maintaining effective internal controlmaintaining effective internal control over financial reportingover financial reporting2. Management’s conclusion about the2. Management’s conclusion about the effectiveness of internal control overeffectiveness of internal control over financial reporting as of the end offinancial reporting as of the end of the fiscal periodthe fiscal period3. Disclosure of all deficiencies3. Disclosure of all deficiencies4. Management’s knowledge of any fraud4. Management’s knowledge of any fraud
1. Management’s acknowledgment of its1. Management’s acknowledgment of its responsibility for establishing andresponsibility for establishing and maintaining effective internal controlmaintaining effective internal control over financial reportingover financial reporting2. Management’s conclusion about the2. Management’s conclusion about the effectiveness of internal control overeffectiveness of internal control over financial reporting as of the end offinancial reporting as of the end of the fiscal periodthe fiscal period3. Disclosure of all deficiencies3. Disclosure of all deficiencies4. Management’s knowledge of any fraud4. Management’s knowledge of any fraud
Management Representation Management Representation Letter: Internal ControlLetter: Internal Control
24 - 27©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Information Accompanying Basic Information Accompanying Basic Financial StatementsFinancial Statements
Balance sheetBalance sheet
Income statementIncome statement
Statement ofStatement ofcash flowscash flows
FootnotesFootnotes
Detailed comparativeDetailed comparativestatementsstatements
Statistical dataStatistical data
Schedule ofSchedule ofinsurance coverageinsurance coverage
BasicBasicfinancialfinancial
statementsstatements
StandardStandardauditor’sauditor’s
reportreport
InformationInformationaccompanyingaccompanyingbasic financialbasic financial
statementsstatements
Separate paragraph –Separate paragraph –unqualified, qualified,unqualified, qualified,
or disclaimeror disclaimer
24 - 28©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Learning Objective 5Learning Objective 5
Integrate the audit evidenceIntegrate the audit evidence
gathered, and evaluate thegathered, and evaluate the
overall audit results.overall audit results.
24 - 29©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Evaluate ResultsEvaluate Results
Sufficiency of evidenceSufficiency of evidenceSufficiency of evidenceSufficiency of evidence
Evidence supports auditor’s opinionEvidence supports auditor’s opinionEvidence supports auditor’s opinionEvidence supports auditor’s opinion
Financial statement disclosuresFinancial statement disclosuresFinancial statement disclosuresFinancial statement disclosures
24 - 30©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Evaluate ResultsEvaluate Results
Audit documentation reviewAudit documentation reviewAudit documentation reviewAudit documentation review
Independent reviewIndependent reviewIndependent reviewIndependent review
Summary of evidence evaluationSummary of evidence evaluationSummary of evidence evaluationSummary of evidence evaluation
24 - 31©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Completing the Engagement Completing the Engagement ChecklistChecklist
YESYES NONO1.1. Examination of prior year’s auditExamination of prior year’s audit
documentationdocumentationa.a. Were last year’s audit files examinedWere last year’s audit files examined
for areas of emphasis in thefor areas of emphasis in thecurrent-year audit?current-year audit?
b.b. Was the permanent file reviewed forWas the permanent file reviewed foritems that affect the current year?items that affect the current year?
YESYES NONO1.1. Examination of prior year’s auditExamination of prior year’s audit
documentationdocumentationa.a. Were last year’s audit files examinedWere last year’s audit files examined
for areas of emphasis in thefor areas of emphasis in thecurrent-year audit?current-year audit?
b.b. Was the permanent file reviewed forWas the permanent file reviewed foritems that affect the current year?items that affect the current year?
24 - 32©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Completing the Engagement Completing the Engagement ChecklistChecklist
YESYES NONO2.2. Internal controlInternal control
a.a. Has internal control been adequatelyHas internal control been adequatelyunderstood?understood?
b.b. Is the scope of the audit adequate inIs the scope of the audit adequate inlight of the assessed control risk?light of the assessed control risk?
c.c. Have all major weaknesses beenHave all major weaknesses beenincluded as reportable conditions inincluded as reportable conditions ina letter to the audit committee or toa letter to the audit committee or tosenior management?senior management?
YESYES NONO2.2. Internal controlInternal control
a.a. Has internal control been adequatelyHas internal control been adequatelyunderstood?understood?
b.b. Is the scope of the audit adequate inIs the scope of the audit adequate inlight of the assessed control risk?light of the assessed control risk?
c.c. Have all major weaknesses beenHave all major weaknesses beenincluded as reportable conditions inincluded as reportable conditions ina letter to the audit committee or toa letter to the audit committee or tosenior management?senior management?
24 - 33©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Completing the Engagement Completing the Engagement ChecklistChecklist
YESYES NONO3.3. General documentsGeneral documents
a.a. Were all current-year minutes andWere all current-year minutes andresolutions reviewed, abstracted,resolutions reviewed, abstracted,and followed up?and followed up?
b.b. Has the permanent file beenHas the permanent file beenupdated?updated?
c.c. Have all major contracts andHave all major contracts andagreements been reviewed andagreements been reviewed andabstracted and copied with allabstracted and copied with allexisting legal requirements?existing legal requirements?
YESYES NONO3.3. General documentsGeneral documents
a.a. Were all current-year minutes andWere all current-year minutes andresolutions reviewed, abstracted,resolutions reviewed, abstracted,and followed up?and followed up?
b.b. Has the permanent file beenHas the permanent file beenupdated?updated?
c.c. Have all major contracts andHave all major contracts andagreements been reviewed andagreements been reviewed andabstracted and copied with allabstracted and copied with allexisting legal requirements?existing legal requirements?
24 - 34©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Evaluating Results and Reaching Evaluating Results and Reaching ConclusionsConclusions
Actual audit evidenceActual audit evidence (by cycle, account,(by cycle, account, and objective)and objective)
Audit proceduresAudit proceduresSample sizeSample sizeItems to selectItems to selectTimingTiming
Actual audit evidenceActual audit evidence (by cycle, account,(by cycle, account, and objective)and objective)
Audit proceduresAudit proceduresSample sizeSample sizeItems to selectItems to selectTimingTiming
Evaluate resultsEvaluate results (by account and cycle)(by account and cycle)
Estimated misstatementEstimated misstatement (by account)(by account)Achieved audit riskAchieved audit risk (by account and cycle)(by account and cycle)
Evaluate resultsEvaluate results (by account and cycle)(by account and cycle)
Estimated misstatementEstimated misstatement (by account)(by account)Achieved audit riskAchieved audit risk (by account and cycle)(by account and cycle)
24 - 35©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Evaluating Results and Reaching Evaluating Results and Reaching ConclusionsConclusions
Evaluate overallEvaluate overall financial statementsfinancial statements
Estimated misstatementEstimated misstatement (overall statements)(overall statements)Achieved audit riskAchieved audit risk (overall statements)(overall statements)
Evaluate overallEvaluate overall financial statementsfinancial statements
Estimated misstatementEstimated misstatement (overall statements)(overall statements)Achieved audit riskAchieved audit risk (overall statements)(overall statements)
IssueIssueauditauditreportreport
IssueIssueauditauditreportreport
24 - 36©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
The audit report is the only thing that mostThe audit report is the only thing that mostusers see in the audit process, and theusers see in the audit process, and theconsequences of issuing an inappropriateconsequences of issuing an inappropriatereport can be severe.report can be severe.
The audit report is the only thing that mostThe audit report is the only thing that mostusers see in the audit process, and theusers see in the audit process, and theconsequences of issuing an inappropriateconsequences of issuing an inappropriatereport can be severe.report can be severe.
Issue the Audit ReportIssue the Audit Report
24 - 37©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Learning Objective 6Learning Objective 6
Communicate effectively with the Communicate effectively with the
audit committee and management.audit committee and management.
24 - 38©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Communicate fraud and illegal actsCommunicate fraud and illegal acts Communicate internal control deficienciesCommunicate internal control deficiencies Other communication with audit committeeOther communication with audit committee Management lettersManagement letters
Communicate fraud and illegal actsCommunicate fraud and illegal acts Communicate internal control deficienciesCommunicate internal control deficiencies Other communication with audit committeeOther communication with audit committee Management lettersManagement letters
Communicate with the Audit Communicate with the Audit Committee and ManagementCommittee and Management
24 - 39©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Learning Objective 7Learning Objective 7
Identify the auditor’sIdentify the auditor’s
responsibilities when factsresponsibilities when facts
affecting the audit report areaffecting the audit report are
discovered after its issuance.discovered after its issuance.
24 - 40©2006 Prentice Hall Business Publishing, ©2006 Prentice Hall Business Publishing, Auditing 11/e,Auditing 11/e, Arens/Beasley/Elder Arens/Beasley/Elder
Period Covered by Subsequent Period Covered by Subsequent Events ReviewEvents Review
Date clientDate clientissues financialissues financial
statementsstatements
3-26-063-26-06
Client’s endingClient’s endingbalance sheetbalance sheet
datedate
12-31-0512-31-05
Period to whichPeriod to whichreview forreview for
subsequentsubsequentevents appliesevents applies
Period forPeriod forprocessingprocessingthe financialthe financialstatementsstatements
AuditAuditreportreportdatedate
3-11-063-11-06
Period in whichPeriod in whichsubsequentsubsequentdiscovery ofdiscovery offacts is madefacts is made