COMPLETING THE AUDIT

LEARNING OBJECTIVES
1. Identify the different procedures
performed to complete an audit
engagement, including those that relate to
a. Related party transactions
b. Subsequent events
c. Contingencies and commitments
d. Going concern
e. Management representations
f. Final evidential evaluation process
2. Explain the requirements of PSAs for the
different completion procedures.
AUDPRIN 2
COMPLETING THE AUDIT
Do not pertain to specific transaction cycles or accounts

Performed after the statement of financial position date

Involve many subjective judgments

Usually performed by audit managers or other senior members of the audit team

AUDPRIN 3
ISSUES TO CONSIDER
▪ Related party transactions (PSA 550)
▪ Review of subsequent events (PSA 560)
▪ Letters of inquiry/review for contingent liabilities
▪ Evaluating going concern status (PSA 570)
▪ Management representation (PSA 580)
▪ Analytical procedures (PSA 520)
▪ Evaluating findings, formulating an opinion and drafting the audit report

AUDPRIN 4
RELATED PARTY TRANSACTIONS
Financial reporting
framework may require Existence of related parties
disclosure in financial or related party transactions
statements of certain may affect financial
related party relationships statement.
and transactions.

Related party transaction

Source of audit evidence
may be motivated by other
affects auditor’s assessment
than ordinary business
of its reliability.
considerations.

AUDPRIN 5
RELATED PARTY TRANSACTIONS
▪ An audit cannot be expected to detect all related party transactions.

▪ Audit objective
▪ To obtain 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

AUDPRIN 6
RELATED PARTY TRANSACTIONS
▪ Audit procedures
▪ Conduct inquiries of management
▪ Review SEC filings, shareholders’ listings and conflict-of-interest statements
obtained by client from its executives
▪ Review information provided by the directors and management identifying the
names of all known related parties and test for completeness of such
information (e.g. review prior year working papers and other relevant
documentation)
▪ Routine audit procedures which may identify existence of transactions with
related parties (e.g. review minutes of meetings of shareholders and directors)

AUDPRIN 7
RELATED PARTY TRANSACTIONS
▪ Be alert for transactions which appear unusual in the circumstances and may indicate
existence of previously unidentified related parties
▪ transactions which have abnormal terms of trade, such as unusual prices, interest
rates, guarantees and repayment terms
▪ transactions which lack an apparent logical business reason for their occurrence
▪ transactions in which substance differs from form
▪ transactions processed in an unusual manner
▪ high volume or significant transactions with certain customers or suppliers as
compared with others
▪ unrecorded transactions such as receipt or provision of management services at no
charge

AUDPRIN 8
RELATED PARTY TRANSACTIONS
▪ Examine identified related party transactions
▪ Obtain sufficient appropriate audit evidence to determine whether
transactions have been properly recorded and disclosed (given limited
availability of appropriate evidence about such transactions)
▪ Confirm terms and amount of transaction with related party.
▪ Inspect evidence in possession of related party.
▪ Confirm or discuss information with persons associated with the transaction
e.g. banks, lawyers, guarantors, agents.

AUDPRIN 9
RELATED PARTY TRANSACTIONS

Auditor should obtain written Auditor should modify audit

representation from management report appropriately if
concerning
Completeness of information provided Unable to obtain sufficient appropriate
regarding identification of related parties evidence concerning related parties and
Adequacy of related party disclosures in the transactions with such parties
financial statements Concludes that their disclosure in the financial
statements is not adequate
AUDPRIN 10
RELATED PARTY TRANSACTIONS
▪ Disclosure requirements
▪ nature of the related party relationship
▪ description of transactions, including peso amounts
▪ amounts due to and from related parties
▪ not required
▪ in consolidated financial statements in respect of intra-group transactions
▪ in parent financial statements when they are made available or published with consolidated
financial statements
▪ in financial statements of a wholly-owned subsidiary if its parent is incorporated in the same
country and provides consolidated financial statements in that country
▪ in financial statements of state-controlled enterprises of transactions with other state-controlled
enterprises

AUDPRIN 11
 SUBSEQUENT EVENTS REVIEW
• Determine whether any events, favorable or unfavorable,
occurred after statement of financial position date that
might affect valuation or disclosure of statements being
audited
• Between the period and the date of auditor’s report
• Between the date of auditor’s report but before financial
statements are issued
• After the financial statements have been issued

AUDPRIN 12
 SUBSEQUENT EVENTS REVIEW
• Types of subsequent events
• Type 1 (adjusting events)
• Throws further light on conditions existing at statement of financial
position date, e.g. realization of assets, settlement of estimated
liabilities
• Requires existing information in the financial statements to be adjusted
• Type 2 (disclosing events)
• Creates new conditions distinct from any that may have existed at
statement of financial position date, e.g. purchase or disposal of
business entity, bond issuance
• Requires disclosure in the financial statements of additional information
relating to event

AUDPRIN 13
SUBSEQUENT EVENTS REVIEW

12/31/19 2/15/20 3/5/20

AUDPRIN 14
 DUAL DATING
When a subsequent event is recorded or disclosed in the financial
statements after completion of the field work but before the issuance
of the financial statements, the auditor has the following options for
dating of the auditor’s report:
• “Dual date” the report (limits liability).
• Use the date of the subsequent event.

AUDPRIN 15
SUBSEQUENT EVENTS REVIEW
• Management has primary responsibility for making adjustments or disclosures in
financial statements.
• Auditor is responsible for applying audit procedures sufficient to determine
whether all material Type 1 and Type 2 events have been appropriately adjusted
for or disclosed in the financial statements.
• It is to auditor’s interest to
• Encourage client to finalize financial statements as soon as possible after
statement of financial position date
• Perform review of subsequent events as close as possible to date of audit
report in order to gather evidence that is relevant

AUDPRIN 16
SUBSEQUENT EVENTS REVIEW
• Audit procedures
• Relevant routine procedures applied to specific transactions occurring after Statement of
Financial Position date, e.g. cut-off tests
• Additional procedures to be performed as near as practicable to date of auditor’s report
• Review minutes of meetings of shareholders, board of directors, executive committees held
after balance sheet date; inquire about matters discussed at meetings for which minutes
are not yet available.
• Read client’s latest available interim financial statements and other relevant reports
deemed necessary.
• Extend previous oral or written inquiries of lawyers concerning litigation and claims.
• Inquire of management as to whether any subsequent events have occurred which might
affect the financial statements.

AUDPRIN 17
SUBSEQUENT EVENTS REVIEW
• Dividends
• If entity declares dividends to holders of equity instruments after the
statement of financial position date, the entity shall not recognize those
dividends as a liability at the statement of financial position date.
• If the dividends are declared after the statement of financial position date but
before the financial statements are authorized for issue, the dividends are not
recognized as a liability at statement of financial position date but are
disclosed in the notes to the financial statements.

AUDPRIN 18
SUBSEQUENT EVENTS REVIEW
• Disclosures
• Date when financial statements were authorized for issue and who gave such authorization; if
entity’s owners or others have power to amend financial statements after issue, the entity
shall disclose that fact
• Updated disclosures relating to conditions that existed at statement of financial position date
in light of any new information received after statement of financial position date about said
conditions
• Material non-adjusting events after statement of financial position date if non-disclosure could
influence economic decisions of users taken on basis of the financial statements
• Nature of the event
• Estimate of its financial effect or a statement that such an estimate cannot be made

AUDPRIN 19
CONTINGENT LIABILITIES
Examples
Pending or threatened litigation
Actual or possible claims and assessments
Income tax disputes
Product warranties or defects
Guarantees of obligations to others
Agreement to repurchase receivables that have been sold

Probable: The future event is likely to occur. (Adjust if able to estimate, else,
disclose in a note)
Reasonably Possible: The chances of the future event occurring is more than
remote but less than probable. (Disclose in a note.)
Remote: The chance of the future event occurring is slight.

AUDPRIN 20
CONTINGENT LIABILITIES
• Contingent liabilities are not recognized in financial statements; information
about the contingency must be disclosed in certain circumstances, except where
disclosure of information would seriously prejudice the position of entity in a
dispute with other parties
• Management : primarily responsible for identifying and deciding appropriate
accounting treatment for contingent liabilities.
• Auditor: needs to exercise keen judgment and creativity in detecting
contingent liabilities since their existence is not always readily apparent

AUDPRIN 21
AUDIT PROCEDURES FOR IDENTIFYING
CONTINGENT LIABILITIES
Read minutes of meetings Review contracts, loan
of the board of directors, agreements, leases, and
committees of the board, correspondence from
and stockholders. government agencies.

Review income tax liability,

tax returns, and BIR letters,
if any.

Confirm or otherwise
Inspect other documents for
document guarantees and
possible guarantees.
letters of credit.

AUDPRIN 22
 AUDIT PROCEDURES FOR IDENTIFYING
CONTINGENT LIABILITIES
Specific Audit Procedures Conducted Near
Completion of Audit
Inquiry and discussion with
Examine documents in the entity’s
management about its policies and
records such as correspondence
procedures for identifying,
and invoices from attorneys for
evaluating, and accounting for
pending or threatened lawsuits.
contingent liabilities.

Obtain written representation from

Obtain a legal letter that describes management that all litigation,
and evaluates any litigation, claims, asserted and unasserted claims,
or assessments. and assessments have been
disclosed.
AUDPRIN 23
 COMMITMENTS

Long-term contracts to purchase raw

materials or sell their products at a fixed
price

To obtain a favorable To secure the availability

pricing arrangement of raw materials.

Long-term commitments are usually identified through inquiry of client

personnel during the audit of the revenue and purchasing processes. In most
cases, such commitments are disclosed in a footnote to the financial statements. 24
AUDPRIN
 FINAL EVIDENTIAL EVALUATION
PROCESSES
Evaluate entity’s ability
Perform final analytical Obtain a
to continue as a going
procedures. representation letter.
concern.

Evaluation of financial
Review working Final assessment of
statement presentation
papers. audit results.
and disclosure.

Obtain an independent
review of the
engagement.

AUDPRIN 25
GOING CONCERN CONSIDERATIONS
• Auditor’s objectives (PSA 570)
• To obtain sufficient appropriate audit evidence about appropriateness of
management’s use of going concern assumption in the preparation and
presentation of financial statements
• To conclude, based on audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may cast significant
doubt on entity’s ability to continue as a going concern
• To determine the implications for the auditor’s report

AUDPRIN 26
GOING CONCERN CONSIDERATIONS
• Financial and non-financial indicators
• Substantial operating losses
• Net liability or net current liability position
• Excessive reliance on short-term borrowings to finance long-term assets
• Fixed-term borrowings approaching maturity without realistic prospects of renewal or repayment
• Adverse key ratios
• Change from credit to COD transactions with suppliers
• Loss of key management without replacement
• Loss of major market, franchise, license or principal supplier
• Labor difficulties or shortages of important supplies
• Non-compliance with capital or other statutory requirements
• Changes in legislation or government policy

AUDPRIN 27
GOING CONCERN CONSIDERATIONS
• Auditor should evaluate whether there is substantial doubt about entity’s ability to
continue as a going concern for at least 1 year after Statement of Financial Position date
• Relevant factors to consider
• Degree of uncertainty associated with outcome of condition increases significantly
the farther into the future a judgment is being made about the outcome
• Judgment about future is based on information available at time judgment is made
which can be contradicted by a subsequent event
• Size and complexity of entity, nature and condition of its business affect judgment
regarding outcome of conditions

AUDPRIN 28
GOING CONCERN CONSIDERATIONS
• Additional audit procedures at completion stage
• Review subsequent events
• Analyze latest interim financial reports
• Read minutes of meetings
• Review and test for compliance with terms of loan agreements
• Inquire from lawyers regarding litigations and claims
• Confirm existence, legality, enforceability of funding arrangements with
related and other parties
• Perform analytical procedures

AUDPRIN 29
GOING CONCERN CONSIDERATIONS
• If conditions or events create substantial doubt as to ability of entity to continue
as going concern, the auditor should
• consider whether management has plans for and ability to implement
alternative means of maintaining adequate cash flows
• examine evidence to support management’s ability to carry out plans
• if evidence cannot be obtained or if substantial doubt remains about
entity’s ability to continue as going concern, evaluate whether matter is
adequately disclosed and consider whether audit report requires
modification

AUDPRIN 30
REPRESENTATION LETTER
• Nature and purpose
• emphasizes to management their responsibility for the fair presentation of
financial statements in accordance with relevant financial reporting
framework
• provides audit evidence, particularly in areas not susceptible to normal audit
procedures
• minimizes misunderstandings between management and the auditor
• formalizes management’s responses to inquiries made by the auditor during
audit
• Drafted by the auditor and given to management to sign

AUDPRIN 31
REPRESENTATION LETTER
• Application
• Where other evidence is available, auditor does not rely solely on evidence
obtained through management representations.
• Where other evidence is not available, evidence gathered solely through
management representations is not normally considered to be particularly
reliable.
• Evidence obtained through management representation letter may be
particularly applicable to corroboration of evidence relating to subsequent
events and the appropriateness of the going concern assumption.

AUDPRIN 32
REPRESENTATION LETTER
• Elements
• Signed ordinarily by members of management who have primary
responsibility for entity and its financial aspects based on the best of their
knowledge and belief
• Addressed to the auditor and should be dated the same date as the audit
report
• Management’s refusal to provide letter results to scope limitation that is
sufficient cause for auditor to express a qualified opinion or disclaimer of
opinion

AUDPRIN 33
REPRESENTATION LETTER
• Items included regardless of materiality
• Management’s acknowledgment of its responsibility for the fair presentation of the
financial statements in conformity with PAS/PFRS
• Availability of all financial records and related data
• Recognitions, measurements and disclosures
• Completeness and availability of all minutes of meetings of stockholders, directors
and committees of directors
• Communications from regulatory agencies concerning noncompliance with/or
deficiencies in financial reporting practices
• Information concerning fraud involving management or employees who have
significant roles in internal controls

AUDPRIN 34
REPRESENTATION LETTER

• Items included if individually or collectively

material
• Information regarding subsequent events
• Losses from sales commitments
• Related party transactions
• Significant estimates
• Gain and loss contingencies

AUDPRIN 35
WRAP-UP PROCEDURES
• Final analytical procedures
• To assist in overall review of reasonableness of financial report
• To ensure consistency of financial report with auditor’s knowledge of entity
• To corroborate conclusions formed during audit
• Working paper review
• To ensure that all significant matters and problems have been identified, considered and
satisfactorily resolved
• Consider size and nature of errors
• Allows evaluation of less-experienced personnel, quality control and reduction of bias
• Work initially performed by assistants is reviewed by in-charge; ultimate responsibility for overall
quality of work rests with engagement partner; review concentrating on quality of audit work and
firm’s quality control standards is done by a second partner (concurring partner)

AUDPRIN 36
WRAP-UP PROCEDURES
• Drawing conclusions
• Auditor forms an opinion on the financial statements as a whole based on:
• evaluation of extent to which financial statements are consistent with auditor’s
understanding of entity and its environment
• auditor’s conclusions regarding extent of misstatement in individual account balances
determined in previous stage
• Facilitated by preparation of issues documentation or matters requiring attention of partner
• Provides an appropriate record of matters of significance that arise from audit work
• Clearance of auditor’s opinion evidenced by partners’ signing off the issues
documentation
• Audit completion checklist often useful to help ensure that all relevant matters are
attended to before audit report is signed

AUDPRIN 37
WRAP-UP PROCEDURES
• Client approval of audit adjustments and disclosures
• Misstatements detected by auditor are initially brought to management’s attention
• If management disagrees, auditor includes details of misstatements on a schedule or
summary of audit differences, whether material or immaterial
• Form of auditor’s report is conditional upon client acceptance of audit adjustments and
recommended footnote disclosures.
• Client may object to income statement effects of certain proposed adjustments or may
deem certain footnote disclosures too harsh
• Accounting negotiations can affect financial statements materially, and auditor actively
participates in client’s accounting and disclosure choices.
• Auditor should be independent and is expected to balance the scales by insisting fairness
of financial presentation and disclosure or taking exceptions in their audit reports.

AUDPRIN 38
WRAP-UP PROCEDURES
• Evaluating financial statement presentation
• Test mathematical accuracy of statements by recomputing balances and tracing reported numbers to specific
references within working papers.
• Use disclosure checklist (completed and reviewed by experienced audit team members) to ensure that all
required information has been included in financial statements.
• Evaluation pursuant to PSA 700 includes considering whether
• accounting policies selected and applied are consistent with financial reporting framework and are
appropriate in the circumstances
• Accounting estimates made by management are reasonable in the circumstances
• Information presented in the financial statements, including accounting policies, is relevant, reliable,
comparable, and understandable
• Financial statements provide sufficient disclosures to enable users to understand effect of material
transactions and events on information conveyed in financial statements

AUDPRIN 39
WRAP-UP PROCEDURES
• Communicating audit results
• Made internally and externally in accordance with provisions of auditing standards
• General -use auditor’s reports: communicated to 3rd parties
• Restricted-use auditor’s reports: intended only for specified parties
• Reports to audit committees – to ensure that they are informed of problems
encountered during the audit; communications may be oral or written and may
occur after release of financial statements
• Reports on internal control – indicating nature of any reportable conditions that
were uncovered during audit
• Management letters – to bring other issues not directly related to internal control or
financial statements to the attention of management; generally relates to ways in
which entity can more effectively run its operations

AUDPRIN 40
 COMPLETION PROCEDURES SUMMARY
Procedure PSA Requirement
Identify related parties • Identify related parties and related party transactions
and perform procedures • Check whether substance of transaction is properly
to test related party reflected in the financial statements
transactions (PSA 550) • Review disclosures on related parties and related party
transactions

Perform subsequent • Proper accounting treatment for subsequent events

events procedures • Proper financial statement disclosure, where
(PSA 560) appropriate

AUDPRIN 41
 COMPLETION PROCEDURES SUMMARY
Procedure PSA Requirement
Identify and evaluate • Proper accounting treatment for contingencies and
potential contingencies and commitment
commitments • Proper financial statement disclosure for
contingencies and commitments that require
disclosure (PSA 37)

Review reasonableness of • Check whether going concern assumption needs to

management’s assessment be abandoned
of going concern • Determine proper financial statement presentation
assumption (PSA 570) and disclosure in the context of the going concern
assumption
AUDPRIN 42
 COMPLETION PROCEDURES SUMMARY
Procedure PSA Requirement
Obtain management representation • Use letter as a form of evidence, where
letter (PSA 580) necessary
• Highlight division of responsibility between
auditor and client management and those
charged with governance
Perform final analytical procedures • Use procedures to check reasonableness of
(PSA 520); evaluate overall financial financial statements
statement presentation
Review working papers and draw • Ensure compliance with PSAs
conclusion on results of audit • Ensure that working papers support the
procedures performed audit report issued for the engagement
AUDPRIN 43
 COMPLETION PROCEDURES SUMMARY
Procedure PSA Requirement
Obtain client approval re • Highlight management’s responsibility for
disclosures and adjustments to financial statements
financial statements; communicate • Ensure that all matters required to be known
with management and those by client management and those charged
charged with governance re scope with governance have been properly
of audit and other matters of communicated to them by the auditor
interest to client (PSA 260)

AUDPRIN 44
FURTHER READINGS
1. https://www.iedunote.com/completing-
the-audit

2. https://kfknowledgebank.kaplan.co.uk/
audit-and-assurance/audit-completion

3. https://www.journalofaccountancy.com
/issues/2020/may/auditing-during-
coronavirus-pandemic.html

AUDPRIN 45
SELF-TEST QUESTIONS
1. Why should the auditor be aware of related party transactions?
2. What are the 2 types of subsequent events? In which ways are they treated differently
in the financial statements?
3. What is the purpose of dual dating an audit report?
4. Enumerate the procedures to test for contingent liabilities.
5. What should the auditor do when he believes that substantial doubt exists as to
whether the entity is a going concern?
6. Cite the audit implications if management refuses to give a representation letter.
7. Identify other completion procedure which an auditor performs in an audit
engagement.
AUDPRIN 46
LEARNING ACTIVITY
The fieldwork for the December 31, 2019 audit of Katy Inc. ended on March 17, 2020. The financial statements and
auditor’s report were issued and mailed to stockholders on March 29, 2020.
In each of the material situations below, indicate the appropriate action and justify your answer. The possible actions
are as follows:
a. Adjust the December 31, 2019 financial statements.
b. Disclose the information in a footnote in the December 31, 2019 financial statements.
c. Request the client to revise and reissue the December 31, 2019 financial statements. The revision should involve an
adjustment to the December 31, 2019 financial statements.
d. Request the client to revise and reissue the December 31, 2019 financial statements. The revision should involve
the addition of a footnote, but no adjustment, to the December 31, 2019 financial statements.
e. No action is required.

AUDPRIN 47
LEARNING ACTIVITY
The situations are as follows:
1. On April 5, 2020, you discovered that, on February 16, 2020, a flood destroyed the entire
uninsured inventory in one of Katy’s warehouses.
2. On February 17, 2020, you discovered that, on February 16, 2020, a flood destroyed the entire
uninsured inventory in one of Katy’s warehouses.
3. On February 17, 2020, you discovered that, on November 30, 2019, a flood destroyed the entire
uninsured inventory in one of Katy’s warehouses.
4. On April 5, 2020, you discovered that, on March 30, 2020, a fire destroyed one of Katy’s 13
plants.
5. On April 7, 2020, you discovered that a debtor of Katy went bankrupt on January 6, 2020, due
to gradual declining financial health.

AUDPRIN 48
AUDPRIN 49