The document provides an overview of audit completion procedures and reporting, including: 1) Completing substantive audit procedures, obtaining attorney letters and management representations, assessing going concern, reviewing adjustments, and subsequent events; 2) Reviewing audit documentation and evaluating whether sufficient evidence was obtained; 3) Procedures that may be required after issuing the audit report if issues are identified, such as omitted procedures or subsequently discovered facts.

1. Learning Objectives
1. Recall the concepts in Identifying and
Assessing the Risk of Material Misstatement
2. Recall the audit procedures performed at the
Completion stage of audit
3. Recall the different types of audit opinions
issued and appropriate audit report
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2. UNDERSTANDING THE ENTITY AND
ITS ENVIRONMENT AND ASSESSING
THE RISKS OF MATERIAL
MISSTATEMENT

3. UNDERSTANDING THE ENTITY
AND ITS ENVIRONMENT
The standard requires that auditor should obtain an understanding of the entity
and its environment, including its internal control, sufficient to identify and assess
the risks of material misstatement. The standard provides guidance on the
following:
• Risk assessment procedures and sources of information about the entity and its
environment including its internal control.
• Assessing the risk of material misstatement.
• Communicating with governance and management.
• Documentation.

4. Risk Assessment Procedures and
Sources of Information
The auditor should perform the following risk assessment procedures to
obtain an understanding of the entity and its environment, including its
internal controls.
• Inquiries of management and others within the entity;
• Analytical procedures
• Observation and inspection.

5. • The auditor is not required to apply all the risk assessment procedures for
each aspect of the understanding required.
• The auditor may obtain information by making inquiries of the entity’s legal
direction or of valuation experts that the entity has used.
• Reviewing information obtained from external sources such as reports by
analysts, banks, or rating agencies, trade and economic journals or
regulatory or financial publications may also be useful in obtaining
information about the entity.

6. Inquiries
The auditor obtains information from management and those responsible for
financial reporting. However, useful information can be obtained from others
within the entity like production staff, internal audit personnel and other
employees.
• Inquiries with governance may help the auditor understand the
environment in which the financial statements are prepared.
• Inquiries directed towards internal audit personnel may relate to their
activities concerning the monitoring of the entity’s internal control.
• Inquiries of employees involved in initiating, processing or recording
complex or unusual transactions.
• Inquiries directed towards in-house legal counsel.
• Inquiries directed towards marketing or sales personnel.

7. Analytical Procedures
These include ratio analysis, trend analysis, and common size analysis of
financial as well as non financial information.
• These procedures enable auditor to identify situation where significant
fluctuations exist.
• Observation and Inspection
• Observation of entity activities and operations
• Inspection of documents
• Reading reports
• Visits to the entity’s plant facilities.

8. Discussion among the Audit Team
• The members of the engagement team should discuss the weakness of the
entity’s financial statements to materials misstatements.
• Such discussion would sharing of knowledge and exchange of information.

9. Understanding the Entity and Its
Environment
• Industry, regulatory, and other external factors, including the applicable
financial reporting framework
• Nature of the entity, including the entity’s selection and application of
accounting policies.
• Objectives and strategies and the related business risks.
• Measurement and review of the entity’s financial performance.
• Internal control.

10. Examples of matters Industry
conditions
• The market and competition, including demand, capacity, and price
competition.
• Cyclical or seasonal activity
• Product technology relating to the entity’s products
• Energy supply and cost

11. Regulatory environment
• Accounting principles and industry specific practices
• Regulatory framework, for a regulated industry (like; baking sector)
• regulation that significantly affect the entity’s operations

12. Other external factors currently
affecting the entity’s business.
• General level of economic activity (for example, recession, growth)
• Interest rates and availability of financing
• Inflation currency revaluation.

13. Nature of the Entity
• The entity’s operations, its ownership and governance, the types of
investments that it is making and plans to make, the way that the entity is
structured and how it is financed.
• It enables the auditor to understand the classes of transactions, account
balances, and disclosures to be expected in the financial statements.

14. Examples of matters Business
Operations Nature of Business
• Products or services and markets
• Conduct of operations
• Joint ventures and outsourcing activities
• Key customers.
• Employment
• Research and development
• Transactions

15. Investments
• Acquisitions, mergers
• Investments and dispositions of securities and loans.
• Capital investment activities

16. Financing
• Group structure
• Debt structure
• Leasing of property, plant or equipment
• Beneficial owners
• Related parties
• Use of derivative financial instruments.

17. Financial Reporting
• Accounting principles and industry specific practices.
• Revenue recognition practices.
• Accounting for fair values.
• Inventories
• Foreign currency assets, liabilities and transactions
• Industry-specific significant categories
• Financial statement presentation

18. Completion and Reporting

19. Timeline for Major Activities in Audit
Date of the auditors’ report
(audit completion date)
Beginning
of year
Year-End Date
(date of the financial
statements)
Audit report
release date
Interim testing (tests
of controls and some
substantive
procedures)
• Complete substantive
procedures
• Attorney’s letters
• Written representations
• Going-concern assessment
• Adjusting journal entries
• Audit documentation review
• Subsequent events
Subsequently
discovered facts
• Subsequently
discovered facts
• Omitted audit
procedures
• Management
letter
• Communications
with those
charged with
governance
11-

20. Procedures Prior to the Audit Report
Release Date
• Completing substantive procedures
• Attorney’s letters
• Written representations
• Going-concern assessment
• Adjusting entries
• Audit documentation review
• Subsequent events
• Subsequently discovered facts
11-

21. Completing Substantive Procedures
Roll-forward procedures: Extend work from interim period to date of the
financial statements
• Include both tests of controls and substantive procedures
• Performed following date of the financial statements
• Idea is to obtain evidence through the date of the financial statements
11-

22. Completing Substantive Procedures
• Analytical procedures: Study of relationships among financial and
nonfinancial data
 Can be used in planning (required), substantive testing, and near the end of the
audit (required)
 Near the end of the audit, analytical procedures identify unusual or unexpected
relationships not previously identified
• Review accounts for “miscellaneous”, “other,” and “clearing” accounts (may
relate to earnings management)
11-

23. Completing Substantive Procedures
Accounting estimates:
• Examples include future cash flows in evaluating asset impairments,
allowance for doubtful accounts for receivables, and depreciation lives for
fixed assets
• Review management’s process for developing estimates
• Review estimates for reasonableness
11-

24. Procedures Prior to the Audit Report
Release Date
• Completing substantive procedures
• Attorney’s letters
• Written representations
• Going-concern assessment
• Adjusting entries
• Audit documentation review
• Subsequent events
• Subsequently discovered facts
11-

25. Procedures for Litigation, Claims,
and Assessments
• Inquiry of clients
• Review minutes of meetings of stockholders,
directors, and committees
• Review contracts, loan agreements, and
correspondence from taxing and governmental
agencies
• Obtain information concerning guarantees from
bank confirmations
• Review documentation related to legal services
• Attorney’s letters
11-25

26. Attorney’s Letters
Attorney Letter
(with response)
Attorney Letter
Auditors Request
Client to Prepare
Attorney Letter
2
3
1
CLIENT
ATTORNEY
AUDITORS
Sent by
Auditors
11-26

27. Attorney’s Letters: Responsibilities
• Auditors
 Initiate request for attorney letter
 Send letter to attorney including information related to
litigation, claims, and assessments
• Client
 Prepare listing, description, and evaluation of litigation,
claims, and assessments for letter
• Attorney
 Respond to auditors directly regarding client’s
description of litigation, claims, and assessments
contained in attorney letter
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28. Attorney’s Letters: Contents
• Listing of pending litigation, claims, and assessments
• Description of each item or case included in the listing
• Evaluation of the likelihood of an unfavorable outcome – PAS 37
• Estimate of the range of potential loss
• Understanding regarding unasserted claims
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29. Procedures Prior to the Audit Report
Release Date
• Completing substantive procedures
• Attorney’s letters
• Written representations
• Going-concern assessment
• Adjusting entries
• Audit documentation review
• Subsequent events
• Subsequently discovered facts
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30. Written Representations or
Management Representation Letter
• Provided by management to auditors
• Dated using date of auditors’ reports (audit
completion date)
• Broad purpose
 Impress upon management its primary responsibility
for the financial statements
 May establish auditors’ defense if a question related to
inquiries subsequently arises
• Qualify or disclaim an opinion if not provided by
the client
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31. Contents of Written Representations
• Information related to financial statements
 Management’s responsibility for F/S and internal
control over financial reporting
 Appropriate disclosure, presentation, and
reasonableness of items
 Statement that uncorrected misstatements are
immaterial
• Information provided to auditors by management
• Internal control over financial reporting (for public
entities)
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32. Procedures Prior to the Audit Report
Release Date
• Completing substantive procedures
• Attorney’s letters
• Written representations
• Going-concern assessment
• Adjusting entries
• Audit documentation review
• Subsequent events
• Subsequently discovered facts
11-32

33. Going-Concern Assessment
• Auditors required to consider whether evidence obtained during audit raises
questions about ability to continue as a going concern
• If concerns exist, evaluate management’s plans to mitigate
 If concerns do not remain: No effect on report or financial statements
 If concerns remain: Disclose in F/S and modify auditors’ report
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34. Adjusting Entries
• Accumulate dollar effects of identified misstatements
• Evaluate materiality
 Rollover method considers the current period income effect(s) of
misstatements
 Iron curtain method considers the aggregate effect of the
adjustments on the entity’s balance sheet
 Philippine Standards on Auditing requires adjustments to be
proposed if material under either approach
• Recommend adjustment of all misstatements identified
• Carry any uncorrected misstatements forward for
consideration in future audits
• Communicate all adjustments and misstatements to audit
committee or individuals charged with governance
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35. Audit Documentation Review
• Audit supervisor
 Have all steps in audit plan been performed?
 Is referencing among documentation clear?
 Are explanations understandable?
• Audit manager and partner
 Is the overall scope of the audit adequate?
 Do overall conclusions support the opinion?
• Reviewing partner
 Is the quality of audit work and reporting consistent with
quality standards of the firm?
 Engagement quality review
11-35

36. Procedures Prior to the Audit Report
Release Date
• Completing substantive procedures
• Attorney’s letters
• Written representations
• Going-concern assessment
• Adjusting entries
• Audit documentation review
• Subsequent events
• Subsequently discovered facts
11-36

37. Timeline and Terms
• Subsequent events occur between the date of the financial
statements and date of the auditors’ report
• Subsequently discovered facts become known after the date of the
auditors’ report
Date of the auditors’ report
(Audit completion date)
Beginning
of year
Year-End Date
(Date of the Financial
Statements)
Audit report
release date
Subsequent Events
Subsequently
Discovered Facts
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38. Procedures to Identify Subsequent
Events
• Obtain understanding of procedures management performs to identify
subsequent events
• Inquire of management and those charged with governance
• Read minutes of meetings of owners, management, and those charged with
governance
• Review entity’s interim financial statements
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39. Types of Subsequent Events
• Provide new information about conditions existing at date of the financial
statements
 Adjust financial statements to reflect new information
• Involve events that arose following the date of the financial statements
 Disclose in financial statements
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40. Subsequently Discovered Facts
• If discovered prior to audit report release date, perform procedures related
to items
 Revise date of auditors’ reports to reflect new completion date
 Dual date auditors’ reports
• Following audit report release date: If facts would result in revision of
auditors’ report or F/S and individuals are relying on F/S
 Notify individuals relying on F/S
 Issue revised F/S which provide disclosure of facts
11-40

41. Procedures Following Audit Report
Release Date
• Subsequently discovered facts
• Omitted procedures
• Communication with those charged with governance
• Management letters
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42. Omitted Procedures
• Perform procedures if:
 Omitted procedures are important
 Individuals are currently relying on financial
statements and auditors’ reports
• If previous opinion can be supported, no further
action necessary
• If previous opinion cannot be supported
 Withdraw the original report
 Issue revised reports
 Inform persons currently relying on the financial
statements
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43. Communication with Individuals Charged
with Governance
• Auditors’ responsibility
under GAAS
• Overview of planned scope
and timing of audit
• Judgment about quality of
accounting policies,
estimates, and disclosures
• Significant difficulties
encountered during audit
• Uncorrected
misstatements
• Disagreements with
management
• Material, uncorrected
misstatements
• Representations
requested from
management
• Management
consultations with other
auditors
• Significant issues
discussed with
management
• Other findings or issues
significant and relevant to
those charged with
governance
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44. Summary of Audit Communications
Type From To Timing Method
Engagement
letter
Auditors Client Before
engagement
Written
Acceptance
letter
Client Auditors Before
engagement
Written
Attorney letter
response
Attorney Auditors Near date of
auditors’
report
Written
Written
representation
s
Client Auditors Date of
auditors’
report
Written
11-44

45. Summary of Audit Communications
(Continued)
Type From To Timing Method
Internal
control
deficiencies
Auditors Individuals
charged
with
governance
For public
entities,
prior to audit
report
release date
Written
Communicatio
n with those
charged with
governance
Auditors Individuals
charged
with
governance
After audit Oral or
written*
Management
letter
Auditors Client After audit Oral or
written
11-45
*If oral communication, document in audit documentation.