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  1. 2. WRAP-UP PHASE <ul><li>Search for unrecorded liabilities & significant subsequent events </li></ul><ul><li>Summarize & conclude </li></ul><ul><li>Partner, manager & senior review </li></ul>
  2. 3. SEARCH FOR UNRECORDED LIABILITIES & SIGNIFICANT SUBSEQUENT EVENTS <ul><li>What period are we talking about. . . ? </li></ul><ul><li>-- From year-end / December 31 </li></ul><ul><li>-- To last day of field work </li></ul>
  3. 4. SEARCH FOR UNRECORDED LIABILITIES & SIGNIFICANT SUBSEQUENT EVENTS <ul><li>What are we looking for . . . ? </li></ul><ul><li>-- Two kinds of unrecorded </li></ul><ul><li>liabilities </li></ul><ul><li>-- Two kinds of significant </li></ul><ul><li>subsequent events </li></ul>
  4. 5. TWO KINDS OF UNRECORDED LIABILITIES <ul><li>Known liabilities </li></ul><ul><li>Contingent liabilities </li></ul><ul><li>-- Remote </li></ul><ul><li>-- Reasonably possible </li></ul><ul><li>-- Probable </li></ul>
  5. 6. CONTINGENT LIABILITY Record, disclose &/or ignore depending upon probability
  6. 7. FASB 5 LEVELS OF PROBABILITY <ul><li>REMOTE - Don’t disclose or record </li></ul><ul><li>REASONABLY POSSIBLE - Disclose </li></ul><ul><li>PROBABLE & MEASURABLE - </li></ul><ul><li>- Record and disclose </li></ul><ul><li>- If range of loss possible, record lower end of range and disclose possible additional loss </li></ul>
  7. 8. TWO KINDS OF SIGNIFICANT SUBSEQUENT EVENTS <ul><li>Events confirming a condition existing at year-end </li></ul><ul><li>Events discretely related to subsequent period </li></ul>
  8. 9. FIRST KIND OF SIGNIFICANT SUBSEQUENT EVENT Event that confirms an already existing situation at year-end
  9. 10. CONFIRMS AN EXISTING SITUATION <ul><li>Lawsuit settled after year-end </li></ul><ul><li>Customer files for bankruptcy after year-end </li></ul><ul><li>Record adjustment on y/e financial statements </li></ul>
  10. 11. SECOND KIND OF SIGNIFICANT SUBSEQUENT EVENT Event that relates discretely to the following year
  11. 12. RELATES DISCRETELY TO FOLLOWING YEAR <ul><li>Factory burns down on Jan 18 </li></ul><ul><li>Airliner crashes at O’Hare on Feb 20 killing 328 people </li></ul><ul><li>Failure to disclose in notes to F/Ss makes F/Ss misleading </li></ul>
  12. 13. SEARCH FOR UNRECORDED LIABILITIES & SIGNIFICANT SUBSEQUENT EVENTS <ul><li>Search for unrecorded payables </li></ul><ul><li>Review interim financial statements </li></ul><ul><li>Review significant books of account </li></ul><ul><li>Obtain legal letters </li></ul>
  13. 14. SEARCH FOR UNRECORDED LIABILITIES & SIGNIFICANT SUBSEQUENT EVENTS <ul><li>Review minutes & obtain minute representation letter </li></ul><ul><li>Make inquiries of management </li></ul><ul><li>Obtain management representation letter </li></ul>
  14. 15. SEARCH FOR UNRECORDED PAYABLES <ul><li>Relates to audit of A/P </li></ul><ul><li>Search through end of audit </li></ul><ul><li>Examine subsequent C/Ds </li></ul><ul><li>Propose PJE for unrecorded </li></ul>
  15. 16. REVIEW LATEST INTERIM FINANCIAL STATEMENTS <ul><li>Internal monthly F/Ss prepared for January or February </li></ul><ul><li>Look for large, unusual variations from audited F/Ss </li></ul><ul><li>Investigate until explanation found </li></ul>
  16. 17. REVIEW SIGNIFICANT BOOKS OF ACCOUNT <ul><li>General ledger </li></ul><ul><li>General journal </li></ul><ul><li>Cash receipts journal </li></ul><ul><li>Sales journal </li></ul><ul><li>Purchases journal </li></ul>
  17. 18. REVIEW SIGNIFICANT BOOKS OF ACCOUNT <ul><li>Review through end of audit </li></ul><ul><li>Review for large, unusual activity </li></ul><ul><li>Investigate unusual items to resolution </li></ul>
  18. 19. OBTAIN LEGAL LETTERS <ul><li>Standard request on page 715 </li></ul><ul><li>Addresses asserted & unasserted claims </li></ul><ul><li>FASB 5 standards </li></ul><ul><li>Confirm understanding </li></ul><ul><li>Dated close to last day </li></ul><ul><li>Difficulties with attorneys </li></ul>
  19. 20. REVIEW MINUTES <ul><li>Obtain minutes thru last day </li></ul><ul><li>Agenda & resolutions for recent meetings </li></ul><ul><li>Obtaim minute representation letter from Corporate Secretary </li></ul>
  20. 21. MAKE INQUIRIES OF MANAGEMENT <ul><li>On last day of fieldwork </li></ul><ul><li>Use checklist </li></ul><ul><li>Discuss with CEO & CFO </li></ul>
  21. 22. OBTAIN MANAGEMENT REPRESENTATION LETTER <ul><li>Prepare draft for management </li></ul><ul><li>Dated last day of fieldwork </li></ul><ul><li>Signed by CEO & CFO </li></ul><ul><li>Formalize oral & implied reps(720) </li></ul><ul><li>Qualified opinion if management won’t sign </li></ul>
  22. 23. MANAGEMENT REP LETTER <ul><li>Management primarily responsible </li></ul><ul><li>Financial statements present fairly </li></ul><ul><li>Specific financial statement matters </li></ul><ul><li>Issues addressed during audit </li></ul><ul><li>Opinions of management </li></ul><ul><li>Plans/intentions of management </li></ul><ul><li>All records available/none withheld </li></ul>
  23. 24. SUMMARIZE & CONCLUDE <ul><li>Proposed journal entry schedule </li></ul><ul><li>Final engagement memo </li></ul>
  24. 25. REVIEW PROCESS <ul><li>Senior review </li></ul><ul><li>Manager review </li></ul><ul><li>Partner review </li></ul>
  25. 26. REVIEW PROCESS - All procedures complete - Sufficient evidence - GAAP & GAAS correct
  26. 27. ISSUE REPORT PHASE The Sixth Phase of the Audit Process
  28. 29. PROCESSING THE REPORT <ul><li>Senior drafts report </li></ul><ul><li>Review by client & audit team </li></ul><ul><li>Processing changes </li></ul><ul><li>Comparing (calling) & footing </li></ul><ul><li>Referencing by another senior </li></ul><ul><li>Second partner review </li></ul><ul><li>Signing by partner </li></ul>
  29. 30. ISSUE REPORT <ul><li>Unqualified report </li></ul><ul><li>Qualified report </li></ul><ul><li>- Scope limitation </li></ul><ul><li>- GAAP deviation </li></ul>