Scribd
Upload
187 views4 pages

Santos, Donise Ronadel D. Section 9 Activity Module 9

The document discusses standard audit completion procedures such as evaluating contingencies and commitments, performing subsequent events procedures, reviewing the going concern assumption, identifying related parties and transactions, obtaining a management representation letter, and other procedures. It provides definitions and examples of provisions, contingent liabilities, contingent assets, subsequent events, related parties, related party transactions, and management representation letters. It also discusses the auditor's responsibilities regarding the going concern assumption, related parties, and implications if management refuses to provide a representation letter.

Uploaded by

Donise Ronadel Santos
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
187 views4 pages

Santos, Donise Ronadel D. Section 9 Activity Module 9

The document discusses standard audit completion procedures such as evaluating contingencies and commitments, performing subsequent events procedures, reviewing the going concern assumption, identifying related parties and transactions, obtaining a management representation letter, and other procedures. It provides definitions and examples of provisions, contingent liabilities, contingent assets, subsequent events, related parties, related party transactions, and management representation letters. It also discusses the auditor's responsibilities regarding the going concern assumption, related parties, and implications if management refuses to provide a representation letter.

Uploaded by

Donise Ronadel Santos
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

Santos, Donise Ronadel D.

Section 9
Activity Module 9
1. What are the standard audit completion procedures?
The following are the standard audit completion procedures:
 Identify and evaluate contingencies and commitments
 Perform subsequent events procedures
 Review the reasonableness of management’s assessment of the use of the
going concern assumption
 Identify related parties and related-party transactions
 Obtain the management representation letter
 Other procedures as may be deemed necessary

2. What is a provision? What is a contingent liability? A contingent asset?

Provision is a liability of uncertain amount or timing. It is an amount set aside


from a company’s profits to cover an expected liability or a decrease in the value of an
asset, even though the specific amount might be unknown. However, it is not a form of
savings; instead, it is a recognition of an upcoming liability.

Contingent liability is a potential liability that may occur in the future, such as
pending lawsuits or honoring product warranties. If the liability is likely to occur and the
amount can be reasonably estimated, the liability should be recorded in the accounting
records of a firm.

Contingent asset is a potential economic benefit that is dependent on future


events out of a company's control. Not knowing for certain whether these gains will
materialize, or being able to determine their precise economic value, means these assets
cannot be recorded on the balance sheet.

3. Enumerate the procedures to test for contingencies and commitments.


 Inquiry with the management or those charged with governance regarding
possible transactions which qualify for recognition in the financial
statements.
 Read the permanent file of the client and review related documents.
 Read correspondence and communication files of the client.
 Review both the minutes of the board of directions and shareholders for
possible lawsuit and contingencies.
 Send out confirmation letters with legal counsel and inspect replies for any
pending litigation or contingent liabilities.
 Test the professional fees account.
 Test the reasonableness of any accounting estimates made by the
management.
 Review the current file and results of other procedures for indication of
contingencies and commitments.
 Read news items related to the company that might indicate the existence of
environmental or other liabilities.

4. What are subsequent events? Give at least two examples of subsequent events.

Subsequence events are events that occurs after a reporting period, but before the
financial statements for that period have been issued or are available to be issued.
Examples are the testing of inventory cutoff and payments to creditors.

5. Enumerate the procedures to test for subsequent events in the context of an audit.

The following are the procedures to test for subsequent events in the context of an
audit:

 Obtain an understanding of any procedures the management has


established.
 Inquiring the management and, where appropriate, those charged with
governance as to whether any subsequent events have occurred which might
affect the financial statements.
 Reading the minutes of the meetings of shareholders, board of directors and
audit and executive committees held after period end and inquiring about
matters discussed during the meetings.
 Reading the entity’s latest available interim financial statements and other
management reports.
 Inquiring, or extending previous oral or written inquiries, of the entity’s
lawyers concerning litigation and claims.
 Inquiring the management as to whether any subsequent events have
occurred which might affect the financial statements.

6. Give the three major time periods (subsequent to balance sheet date) of concern to
the auditor.

 The period from the balance sheet date up to the date of the auditor’s
report.
 The period from the date of the auditor’s report up to the date when the
financial statements are issued.
 The period from the time the financial statements were issued onwards.

7. Explain the going concern assumption. Who is responsible for assessing the
reasonableness of the going concern assumption?
The going concern assumption is about its financial statements that are prepared on
the assumption that the entity is a going concern and will continue its operations for
the foreseeable future. The management of the entity is responsible to assess the its
ability to continue as a going concern since it is a fundamental principle in the
preparation of financial statements.

8. Give at least three examples of conditions and events which may cause the auditor
to have doubt about the entity's ability to continue as a going concern.

 Indications of withdrawal of financial support by debtors and other creditors.


 Change from credit to cash-on-delivery transactions with suppliers.
 Adverse key financial ratios.

9. What are related parties? What are related party transactions?

Related parties is a person or entity that is related to the reporting entity and it may
be identified by inquiries of management and predecessor auditors and by reviews
of stockholder listings, and material investment transactions. Meanwhile, related
party transaction is a transfer of resources, services or obligations between related
parties, regardless of whether a price is charged.

10. What is the main concern of the auditor regarding related parties?

Obtaining sufficient appropriate audit evidence regarding the identification and


disclosure by management of related parties and the effect of related party
transactions that are material to the financial statements.

11. Give examples of transactions which may alert the auditor regarding possible
previously unidentified related party transactions.

 Transactions which lack an apparent logical business reason for the


occurrence.
 Transactions in which substance differs from form.
 High volume or significant transactions with certain customers or suppliers as
compared with others.

12. What is a management representation letter? Give examples of the content of


management representation letters.

A management representation letter is a form letter written by a company's external


auditors, which is signed by senior company management. In essence, the letter
states that all of the information submitted is accurate, and that all material
information has been disclosed to the auditors. The auditors use this letter as part of
their audit evidence. The letter also shifts some blame to management, if it turns out
that some elements of the audited financial statements do not fairly represent the
financial results, financial position, or cash flows of the business. It contains matters
noted in an audit, as well as other information which the auditor wishes to
communicate with management.

13. How is the management representation letter dated?

The management representation letter would ordinarily be signed by the members


of management and would be dated the same date as the auditor’s report.
Although, there are some circumstances that the management representation letter
will be dated during the course of the audit or at a date after the date of auditor’s
report.

14. What are the audit implications if management refuses to give a representation
letter?

If the management refuses to give a representation letter, the auditor should


express a qualified opinion or a disclaimer opinion.

15. Identify other completion procedures which an auditor performs in an audit


engagement.

 Performing final analytical procedures.


 Reviewing the working papers and drawing results of audit procedures
performed.
 Obtaining the approval of the client regarding disclosures and any
adjustments made to the financial statements.
 Evaluation of the overall financial statement presentation.
 Review of other information or documents that contain the audited financial
statements and ascertain their consistency.
 Communication with management and those charged with governance
regarding the scope of the audit and other matters of interest to the client.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy