Auditing &

Investigations II

Audit Finalisations and Review

Key issues

 Going concern review

 Audit Finalisation

 The Final review

1. Introduction

 The final stages of audit work

involves a great deal of skills
and judgement.
 The auditor must evaluate
subsequent events to validate
complex audit areas.
 Knowledge of IAS10 will be
critical.
 Judgement will be critical at
this stage.
2. Key Audit Standards

 ISA560 – Subsequent events

 ISA570 Going concern

 ISA580 Management Representation.

3. Going Concern Review
 Going concern is an underlying
principle in preparing financial
statements that give a true and fair
view.
 The going concern basis implies that
the entity will continue in
operational existence for the
foreseeable future.
 Liabilities are measured on the
basis that they will be discharged or
settled in the normal course of
business.
ISA570 Key provision

 “When planning and

performing audit procedures
and in evaluating the results
thereof, the auditor should
consider the appropriateness
of management’s use of the
going concern assumption in
the preparation of the
financial statements.”
 Continued…..
 “The auditor should evaluate
management’s assessment of the entity’s
ability to continue as a going concern.
 The auditor should consider the same
period as that used by management in
making its assessment under the
financial reporting framework.
 If management’s assessment of the
entity’s ability to continue as a going
concern covers less than 12 months from
the balance sheet date, the auditor
should ask management to extend its
assessment period to 12 months from the
balance sheet date.”
 4. Evaluating Going Concern
Financial Indicators
 excess of liabilities over assets.
 net current liabilities.
 necessary borrowing facilities have not
been agreed.
 defaults on loan agreements.
 liquidity problems.
 losses since the date of the balance sheet.
 sales of non-current assets not replaced.
 restructuring of debt.
 denial of credit from suppliers.
 major debt repayment falling due soon.
 inability to pay debts as they fall due
 Continued…
Operational problems

 inability
to compete due to
changes in technology.
 externallyforced reductions in
operations.
 loss of key staff.
 loss of key suppliers or customers.
 Continued…

Other Factors
 impact of major litigation.

 other uncertainties.
 Going concern audit
procedures
The auditor will examine matters such as:
 cash budgets if available;
 forecasts;
 business plans;
 good order book statistics;
 evidence of bank support for one year
ahead;
 active tendering for new business;
 evidence of healthy cash inflows;
 good staff morale.
 Effects of Going concern
issues on the audit
 May cause auditors to disagree with
directors.
 Management representation may be
required on the directors’ assessment of
going concern.
 Creates reporting issues which could lead
to qualification on the basis of:
a) Limitation of Scope
b) Disagreement on law and accounting
principles.
5. Subsequent Events Review
 “Subsequent events” are
defined for the purposes of ISA
560 as events that occur
between the balance sheet
date and the date of the
auditors’ report, as well as
facts discovered after the date
of the auditors’ report.
 ISA
560 requires auditors to
consider the impact of
subsequent events.
Key Consideration

 Provision of IAS10 – Post Balance

Sheets Event.

 IAS10 - those events both

favourable and unfavourable
which occur between the balance
sheet date and the date on which
the financial statements are
approved by the board of
directors.

 Provisions of ISA560
 Key Audit focus

 Actionup to the date of the

audit report

 Actionafter the date of the

audit report but before the
financial statements are issued

 Actionafter the statements have

been issued but before their
laying before members
Audit Procedures
 Procedures taken by management
to ensure that all events after the
balance sheet date have been
identified, considered and
properly evaluated as to their
effect on the financial
statements.
 Any management accounts and
relevant accounting records.
 Profitforecasts and cashflow
projections for the new period.
Continued…..
 Known “risk” areas and contingencies,
whether inherent in the nature of the
business or revealed by previous audit
experience.
 Minutes of shareholders’, directors’ and
management meetings, and correspondence
and memoranda relating to items included
in the minutes.
 Relevant information which has come to
attention, from sources outside the entity,
including public knowledge, or competitors,
suppliers and customers.
Key Accounting Standards
provision to consider
 IAS 10 _ Post Balance Events –
consideration of adjusting and non
adjusting events.

 IAS37: Provisions, contingent

liabilities and contingent assets –
contingent assets and liabilities items
consideration.
Other Procedures
 Review relevant correspondence,
files and minutes up to the date
the financial statements are
approved.
 Review contracts and agreements
entered into before the balance
sheet date for penalty clauses.
 Review third-party certificates
received during the audit for the
existence of guarantees.
Continued…
 Review certificates from bankers
for bills discounted with recourse
and guarantees.
 Include in the working papers
details of any other work done to
establish the existence of
contingencies.
 Arrange for confirmation of the
proper disclosure of all material
contingencies in the financial
statements.
Management Representation
on Matter
 ISA580 - Management Representation
provides guidance on matter requiring
representation that they should be
summarized in the working papers.

 Representation should be in the form of a

letter = Management representation
Letter.
6. Overall Review of the
financial statements
 Auditorsshould carry out
such a review of the financial
statements as is sufficient, in
conjunction with the
conclusions drawn from the
other audit evidence
obtained, to give them a
reasonable basis for their
opinion on the financial
statements.
Review Focus
 the financial statements have been
prepared using acceptable
accounting policies which have been
consistently applied and are
appropriate to the entity
 the results of operations, state of
affairs and all other information
included in the financial statements
are compatible with each other and
with the auditor’s knowledge of the
enterprise.
Continued…
 there is adequate disclosure of all
appropriate matters and the information
contained in the financial statements is
suitably classified and presented.

 the financial statements comply with all

statutory requirements and other
regulations relevant to the constitution
and activities of that entity.

 the conclusions drawn enable forming an

opinion on the financial statements.
Key Review Matters

Compliance with
accounting regulations.

Consistency and
reasonableness

Significance of
unadjusted differences
 End

Thank you for

your attention