Navigating the Crucial Phases of Audit Completion
As the year is drawing to a close, many audits are being finalised. Completing an audit is a multifaceted process that involves meticulous attention to detail, comprehensive analysis, and rigorous adherence to established protocols. As auditors approach the culmination of their engagements, several key components demand intricate scrutiny and consideration to ensure the accuracy, compliance, and reliability of financial statements. Let’s explore these essential elements integral to audit completion procedures.
Subsequent events procedures
Subsequent events occurring between year-end and the date of the audit report may impact an entity’s financial position significantly. Auditors must perform thorough procedures to identify and evaluate such events to ascertain their relevance, and ensure appropriate disclosure or adjustment in the financial statements.
Document all procedures performed in a re-performable manner, indicating details of enquiries and information inspected. Consider the process management followed to identify subsequent events, inspect the latest available financial information and minutes of meetings, compare results with other related working papers and knowledge of the business, and obtain a management representation letter. Perform procedures up to the date of the audit report. The conclusion must be appropriate, and supported by sufficient and appropriate audit evidence documented in the working paper.
Going concern assessment
The going concern assessment is pivotal in determining an entity’s ability to continue operations without significant interruption or liquidation. Auditors need to evaluate management’s own going concern assessment, spanning 12 months, calculate key ratios based on final figures, consider results from related working papers, such as subsequent events, and apply professional judgment to determine whether the going concern assumption is appropriate.
If events or conditions were identified that may cast significant doubt on the entity’s ability to continue as a going concern, the auditor needs to perform additional procedures to determine whether a material uncertainty exists. Confirm that your conclusion is appropriate and supported by sufficient, appropriate audit evidence documented in the working paper, as it directly impacts the audit report, if incorrect.
Final analytical review
The purpose of the final analytical review is to assist with determining whether the final financial statements are consistent with the auditor’s understanding of the entity. The objective is to assess the reasonability of the financial statements, as opposed to assessing risk as in planning.
If new risks are identified from this final analysis, the risk assessment must be revised, and additional detailed work performed to respond to the identified risks, as necessary.
Unadjusted misstatements
The identification and evaluation of unadjusted misstatements play a critical role in the completion procedures. Auditors need to meticulously review these misstatements, determining whether they are cumulatively material in each category, and require adjustments to rectify any inaccuracies in the financial statements.
Determine the final materiality, evaluate misstatements individually and in aggregate, consider qualitative materiality factors, consider prior year misstatements carried forward, and document the reasoning followed to support the overall conclusion. Management should sign off the unadjusted differences.
Non-compliance with laws and regulations
Ensuring compliance with relevant laws and regulations is a cornerstone of audit completion procedures. Auditors must investigate potential instances of non-compliance and assess their impact on the financial statements, ensuring appropriate disclosure and resolution.
Measure all instances of non-compliance against the Non-Compliance with Laws and Regulations (NOCLAR) and reportable irregularity definitions to determine that appropriate steps have been followed. Document all thought processes applied in reaching your conclusions and clearly indicate the impact on the audit report.
Communication with those charged with governance and reporting on deficiencies
Effective communication with those charged with governance is essential. Auditors share significant findings, discuss areas of concern, and seek necessary clarifications or additional information to ensure transparency and accuracy in the audit process.
Identification and reporting of control deficiencies within the entity’s internal control structure are critical. Auditors document and communicate any deficiencies found during the audit, contributing to the enhancement of internal controls and risk management. The client can obtain the most value from the audit in this area.
Concluding the audit process
As auditors wrap up the completion procedures, they consolidate their findings, review documentation, and ensure that all necessary steps have been taken to support their conclusions and recommendations. The management representation letter is a very important final document to finalise as close as possible to the date of the audit report, and put on file.
Audit report
The audit report represents the culmination of the audit process. It includes an opinion on the fair presentation of the financial statements, highlighting any material misstatements, instances of non-compliance, or significant concerns identified during the audit.
Considerations supporting the audit opinion, the content of the audit report and the format of the report must be clearly documented – ideally, in a separate working paper to provide adequate support for the audit report.
In summary
Audit completion procedures encompass a series of meticulous steps and evaluations vital to ensuring the reliability, and integrity of financial reporting. Each component demands careful attention, adherence to standards, and effective communication to uphold the trust and confidence of stakeholders in the financial information presented by the entity. As auditors navigate through these phases, their commitment to accuracy, compliance, and transparency plays a pivotal role in maintaining the credibility and reliability of the audit process.
LEAF can assist firms with monitoring audit engagement quality, thorough file reviews and EQR reviews, providing practical advice, reviewing methodology design, designing audit working paper templates, and providing staff training on the relevant requirements and procedures.
References
- ISA 560, Subsequent events
- ISA 570 (Revised), Going concern
- ISA 520, Analytical procedures
- ISA 450, Evaluation of misstatements identified during the audit
- ISA 250 (Revised), Consideration of laws and regulations in an audit of financial statements
- ISA 260 (Revised), Communication with those charged with governance
- ISA 265, Communicating deficiencies in internal control to those charged with governance and management
- ISA 580, Written representations
- ISA 700 (Revised), Forming an opinion and reporting on financial statements
- ISA 701, Communicating key audit matters in the independent auditor’s report
- ISA 705 (Revised), Modifications to the opinion in the independent auditor’s report
- ISA 706 (Revised), Emphasis of matter paragraphs and other matter paragraphs in the independent auditor’s report.
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