MGA C10 Lecture 10

Completing the Audit II

While you’re waiting, please take

out and display your name cards!
MGA C10 Auditing: Summer2019 1
 Agenda

Recap of Lecture 8
Overview of the Audit Process
Overview of the Audit Completion Stage
Overall Evaluation
The Auditor’s Opinion: Revisited
Client Communications
Finalization of Working Papers
Simulation Assignment

MGA C10 Auditing: Summer2019 2

 Recap of Lecture 8

Overview of the Audit Process

Summary of Other Key Processes
Financial Statement Close Process
Overview of the Audit Completion Stage
Completion Procedures
Management Written Representations

MGA C10 Auditing: Summer2019 3

 Course Check-In

Feedback Summary
Questions or Comments

MGA C10 Auditing: Summer2019 4

 Overview of the
Audit Process

MGA C10 Auditing: Summer2019 5

 Pre-Engagement
Activities

Preliminary Audit
Planning: Risk
Identification

MGA C10 Auditing: Summer2019

Risk Assessment
Procedures to
Plan the Audit Risk Assessment
Internal Control
Documentation
and Testing

Sampling
Decisions
Response to

Substantive
Assessed Risks
The Audit Process

Procedures
The Audit Process

Review Audit
Findings
and

Form Opinion and

Reporting

Issue Report
Concluding

6
 Overview of the Audit
Completion Stage

MGA C10 Auditing: Summer2019 7

 Audit Completion Stage

MGA C10 Auditing: Summer2019 8

 Overall
Evaluation

MGA C10 Auditing: Summer2019 9

 Overall Evaluation

Once all the required procedures are performed, an

overall evaluation is required to assess the results
of the audit as well as the audit itself
This is performed to ensure the audit meets the
requirements as set out in CAS 200 (Lecture 3):
 To obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement,
whether due to fraud or error in order to express his/her
opinion on the financial statements
 To report on the financial statements and communicate
them as required by the CASs and in accordance with the
auditor’s findings
MGA C10 Auditing: Summer2019 10
 Overall Evaluation of Management

An overall evaluation of management needs to

be performed including the following:
 Management’s judgments in applying accounting policies
 Management’s accounting estimates
 Management’s preparation of the financial statements and
notes

These conclusions not only help to complete the

audit but will also serve as a starting point for
subsequent audits

MGA C10 Auditing: Summer2019 11

 Overall Evaluation of the FS

Analytical procedures are required to be performed

on the financial statements as a whole as part of
the completion process
 The purpose is to corroborate conclusions formed during any of
the previous stages of the audit
 It also helps to form the auditor’s opinion

The financial statements as a whole must also be

analyzed to determine if they are fairly presented

MGA C10 Auditing: Summer2019 12

 Overall Evaluation: Going Concern

The going concern assumption is a

fundamental principle in the preparation of the
financial statements
 Management is required to make an assessment of this
assumption when they prepare the financial statements

CAS 570 requires that the auditor evaluate

management’s going concern assessment
and perform additional audit procedures if
events or conditions are identified that question
the assumption

MGA C10 Auditing: Summer2019 13

 Overall Evaluation of the Audit

Reviews of the working papers are performed to

ensure sufficient and appropriate audit
evidence has been collected:
 Detailed review(s)
 Overall review(s)
 Independent review (if required)
This also includes ensure that consultation has
been obtained if needed

MGA C10 Auditing: Summer2019 14

 Discussion Question

Discussion Question 1
SAE and Audit Risk Acceptably Low

Yes No

MGA C10 Auditing: Summer2019 15

 Overall Evaluation of Errors

Remember that only those errors that are not

clearly trivial or inconsequential are
accumulated in a summary of audit adjustments
The amount and factors used to determine what
is clearly trivial or immaterial must be documented
 From a quantitative perspective, this is usually the optional
materiality amount generally referred to as the error threshold
 However, remember that qualitative factors are just as
important to determine what is clearly trivial or inconsequential

MGA C10 Auditing: Summer2019 16

 Overall Evaluation of Errors

At the conclusion of the audit, the auditor must

determine the total possible misstatements in
the financial statements by aggregating the following:
 Known misstatements
 Judgmental misstatements
 Likely misstatements
 Further possible misstatements
 Prior year unadjusted misstatements

The auditor must assess these misstatements using

quantitative and qualitative factors

MGA C10 Auditing: Summer2019 17

 Overall Evaluation of Errors

All errors identified by the auditors (other than those

that are clearly trivial or inconsequential) are
summarized in a summary of audit adjustments
 This includes any errors in note disclosures

This document is used to make the auditor’s overall

decision regarding the errors
 It is also presented to management as proposed adjustments
which may or may not be corrected
 The final version is attached as an appendix to the
management's written representations

MGA C10 Auditing: Summer2019 18

 Overall Evaluation of Errors

MGA C10 Auditing: Summer2019 19

 Discussion Question

Discussion Question 2 Part 1

MGA C10 Auditing: Summer2019 20

 The Auditor’s Opinion:
Revisited

MGA C10 Auditing: Summer2019 21

 The Auditor’s Report: Revisited

There are two general types of audit reports

 Standard Report (Unmodified)
The auditors are not calling attention to anything that may be
wrong in the financial statements or the audit they conducted
Therefore, the auditor was able to conclude that the financial
statements are presented fairly in all material respects
 Modified Report
The auditor is calling attention to an issue with the financial
statements and/or the audit
As a result, the standard report is modified in order to include the
qualification(s)

MGA C10 Auditing: Summer2019 22

 The Auditor’s Opinion: Revisited

Cause for Material and

Material
Modification Pervasive
GAAP Departure
Financial statements Qualified Adverse
are materially Opinion Opinion
misstated
Scope Limitation
Auditors are unable
Qualified Disclaimer of
to obtain sufficient
Opinion Opinion
and appropriate
audit evidence

MGA C10 Auditing: Summer2019 23

 The Auditor’s Report

There are several components to the Auditor’s Report

 Title & Addressee
 Auditor’s Opinion
 Basis for Opinion
 Going Concern
 Key Audit Matters
 Other Information
 Responsibilities for the Financial Statements
 Auditor’s Responsibilities for the Audit of the Financial Statements
 Other Reporting Responsibilities
 Name of the Engagement Partner & Signature
 Date of the Auditor’s Report
MGA C10 Auditing: Summer2019 24
 The Auditor’s Opinion: Revisited

There are two additional paragraphs that can be

added to the auditor’s report:
 Emphasis of Matter Paragraph
Brings attention to a matter that is appropriately presented or
disclosed in the financial statements
 Other Matter Paragraph
Brings attention to a matter that is not presented or disclosed in the
financial statements

MGA C10 Auditing: Summer2019 25

 The Auditor’s Opinion: Revisited

The auditor’s opinion is influenced by the type of

acceptable financial reporting framework used
to compile the financial statements:

MGA C10 Auditing: Summer2019 26

 Discussion Question

Discussion Question 2 Part 2

FS are Fairly Presented in All Material Respects

Yes No Maybe

MGA C10 Auditing: Summer2019 27

 Date of Auditor’s Report

If the overall evaluations determine that sufficient

and appropriate audit evidence has been obtained,
the auditor’s responsibilities are substantially
complete

However, the auditor’s report is not dated until:

 All financial statements and notes have been prepared
 Those with the recognized authority have asserted that they
have taken responsibility for those financial statements
Management’s written representations about their responsibility
are the best evidence to support that this has occurred

MGA C10 Auditing: Summer2019 28

 Subsequent Events

The auditor’s responsibility with respect to

subsequent events is to obtain evidence about the
impact of:
 Events occurring after the financial statement date but before
the date of the auditor’s report
 Events occurring after the date of the auditor’s report but
before the financial statements are released
 Events occurring after the financial statements are released

MGA C10 Auditing: Summer2019 29

 Subsequent Events

MGA C10 Auditing: Summer2019 30

 Dual Dated Auditor’s Report

An audit report is dual dated after completion of the

audit but before the auditor’s report is issued if a
significant subsequent event comes to the
auditor’s attention
 This allows the auditor’s to include this significant subsequent
event without having to update the entire audit
 It also communicates that auditors are only responsible for
discovering subsequent events up until the original auditor’s
report date

MGA C10 Auditing: Summer2019 31

 Evolution of the Auditor’s Report

Remember from Lecture 1 that significant changes

to the Auditor’s Report have occurred over the past
few years
These changes are only expected to be the first set of
changes
 Additional changes to the Auditor’s Report are still being
discussed

MGA C10 Auditing: Summer2019 32

 Client
Communications

MGA C10 Auditing: Summer2019 33

Summary of Client Communications

MGA C10 Auditing: Summer2019 34

 Internal Control Deficiencies

Any deficiencies in internal control identified

during the audit that have not been communicated to
management by other parties and that are of
sufficient importance are communicated to
management
 These are communicated in what is generally referred to as a
management letter
Any significant deficiencies noted must be
communicated to management and those charged
with governance

MGA C10 Auditing: Summer2019 35

 Those Charged with Governance

The auditor is required to communicate with the

those charged with governance regarding:
 The auditor’s responsibilities for the audit
 The planed scope and timing for the audit
 The significant findings from the audit
 Auditor independence (public companies only)

As a professional courtesy, the auditor may also

discuss or review this communication with
management in advance

MGA C10 Auditing: Summer2019 36

 Finalization of Working
Papers

MGA C10 Auditing: Summer2019 37

 Finalization of Working Papers

The working papers are finalized up to 60 days

after the date of the auditor’s report
This process involves ensuring that all audit work
performed has been appropriately documented
and only relevant evidence is included in the
working paper files
 The documentation must clearly show the facts and
circumstances and explain how they support the conclusion
that was made
 This ensures that sufficient and appropriate audit evidence
has been collected
MGA C10 Auditing: Summer2019 38
 Finalization of Working Papers

Source
Financial Lead Supporting
Documents
Statements Sheets Schedules

Trial
Balance and
Adjusting
Entries

MGA C10 Auditing: Summer2019 39

 Audit Timeline

Pre-
Engagement Interim Year End Release of
Activities Work Work FS

Generally done at the

client’s site

Planning Year End Completion Archive

Date Work

MGA C10 Auditing: Summer2019 40

 Coming up...

Lecture 11
 Make sure to complete the required readings, discussion
questions, and activities before lecture

MGA C10 Auditing: Summer2019 41