Lesson 4.1: Concluding
1. Senior & Manager or other file review Checklists:
a. It is important to ensure that these checklists are thoroughly completed. They serve as a reminder of procedures which may have been missed and show evidence of the extent of the review performed, but should not serve as a working paper on its own.
b. It serves as a summary of what was reviewed on file for the benefit of the partner, and may include procedures required by standards, and provides a valuable summary of all aspects addressed in file in support of conclusions reached.
2. Partner sign-off:
a. Most audit methodologies includes a partner sign-off working paper/checklist and this is a very important document, as it includes required considerations and procedures, supports the opinion expressed in the audit report.
b. It is critical that the engagement partner works through the entire list of concluding considerations (per ISA 700 (Revised) and ISA 220(Revised)) and first check whether he/she has in fact performed all the listed steps and considered all the listed aspects prior to sign off.
c. If modifications to the audit report are considered, a separate working paper or more detailed documentation may be required to reflect the auditor’s considerations in support of the audit report.
3. Management representation letter:
a. This is a very important final document to finalise and put on file.
b. It must be signed by management as close as possible to the date of the audit report.
c. The management representation letter template must be provided to the client – the client should copy it onto their own letterhead and sign it.
d. It is very important that the date of the letter is clearly indicated.
e. A copy of the summary of unadjusted differences should be attached and initialled by the client.
ISA 700 (Revised)
- The auditor shall form an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.
- In order to form that opinion, the auditor shall conclude as to whether the auditor has obtained reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. That conclusion shall take into account:
(a) The auditor’s conclusion, in accordance with ISA 330, whether sufficient appropriate audit evidence has been obtained;
(b) The auditor’s conclusion, in accordance with ISA 450, whether uncorrected misstatements are material, individually or in aggregate; and
(c) The evaluations required by paragraphs 12–15.
- The auditor shall evaluate whether the financial statements are prepared, in all material respects, in accordance with the requirements of the applicable financial reporting framework. This evaluation shall include consideration of the qualitative aspects of the entity’s accounting practices, including indicators of possible bias in management’s judgments. (Ref: Para. A1–A3)
- In particular, the auditor shall evaluate whether, in view of the requirements of the applicable financial reporting framework:
(a) The financial statements appropriately disclose the significant accounting policies selected and applied. In making this evaluation, the auditor shall consider the relevance of the accounting policies to the entity, and whether they have been presented in an understandable manner; (Ref: Para. A4)
(b) The accounting policies selected and applied are consistent with the applicable financial reporting framework and are appropriate;
(c) The accounting estimates and related disclosures made by management are reasonable;
(d) The information presented in the financial statements is relevant, reliable, comparable, and understandable. In making this evaluation, the auditor shall consider whether:
- The information that should have been included has been included, and whether such information is appropriately classified, aggregated or disaggregated, and characterized.
- The overall presentation of the financial statements has been undermined by including information that is not relevant or that obscures a proper understanding of the matters disclosed. (Ref: Para. A5)
(e) The financial statements provide adequate disclosures to enable the intended users to understand the effect of material transactions and events on the information conveyed in the financial statements; and (Ref: Para. A6)
(f) The terminology used in the financial statements, including the title of each financial statement, is appropriate.
- When the financial statements are prepared in accordance with a fair presentation framework, the evaluation required by paragraphs 12–13 shall also include whether the financial statements achieve fair presentation. The auditor’s evaluation as to whether the financial statements achieve fair presentation shall include consideration of: (Ref: Para A7–A9)
(a) The overall presentation, structure and content of the financial statements; and
(b) Whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
- The auditor shall evaluate whether the financial statements adequately refer to or describe the applicable financial reporting framework. (Ref: Para. A10–A15)
- The auditor shall request written representations from management with appropriate responsibilities for the financial statements and knowledge of the matters concerned. (Ref: Para. A2–A6)
- The auditor shall request management to provide a written representation that it has fulfilled its responsibility for the preparation of the financial statements in accordance with the applicable financial reporting framework, including, where relevant, their fair presentation, as set out in the terms of the audit engagement. (Ref: Para. A7–A9, A14, A22)
- The auditor shall request management to provide a written representation that:
(a) It has provided the auditor with all relevant information and access as agreed in the terms of the audit engagement; and
(b) All transactions have been recorded and are reflected in the financial statements. (Ref: Para. A7–A9, A14, A22)
- Management’s responsibilities shall be described in the written representations required by paragraphs 10 and 11 in the manner in which these responsibilities are described in the terms of the audit engagement.
- Other ISAs require the auditor to request written representations. If, in addition to such required representations, the auditor determines that it is necessary to obtain one or more written representations to support other audit evidence relevant to the financial statements or one or more specific assertions in the financial statements, the auditor shall request such other written representations. (Ref: Para. A10–A13, A14, A22)
- The date of the written representations shall be as near as practicable to, but not after, the date of the auditor’s report on the financial statements. The written representations shall be for all financial statements and period(s) referred to in the auditor’s report. (Ref: Para. A15–A18)
- The written representations shall be in the form of a representation letter addressed to the auditor. If law or regulation requires management to make written public statements about its responsibilities, and the auditor determines that such statements provide some or all of the representations required by paragraphs 10 or 11, the relevant matters covered by such statements need not be included in the representation letter. (Ref: Para. A19–A21