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15 Cards in this Set
- Front
- Back
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What occurs when nearing the completing of engagement? |
1. Discuss with mgmt their policies and procedures for identifying and evaluating contingent liabilities 2. Examine documents in the entity's records such as correspondence and invoices from lawyers for pending/threatened lawsuits 3. Obtain a legal letter from company's lawyers 4. Obtain representation letter from the client |
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What is a representation letter? |
A written letter from company mgmt that is prepared on the client's letterhead, addressed to the public accounting firm and signed by president and CFO |
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What does a representation letter confirm? |
• Assets exist, are owned and appropriately valued • Liabilities are complete, appropriately valued and fully disclosed •All financial records, related data and minutes of the meetings of shareholders and directors have been made available to the auditor •F/S note disclosures are fairly presented under GAAP (including details of accounting policy choice, contingencies, related parties, subsequent events…) |
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What is a legal letter? |
The auditor asks the lawyer to confirm details of any lawsuits of which the auditor is aware, and to provide details on any other legal actions |
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What are the two categories of lawsuits? |
1. Outstanding/asserted claim - filed 2. Possible/unasserted claim - could lead to claim |
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What are examples of contingent liabilities? |
1. Pending/threatened legal action 2. Actual/possible claims and assessments 3. Income tax disputes 4. Product warranties/defects 5. Guarantees of obligations to others 6. Agreements to repurchase receivables that have been sold |
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How does an auditor identify possible contingencies? |
1. Read minutes of meetings of BoD/shareholders 2. Review contracts 3. Review income tax liability, tax returns, other tax-related material 4. Confirm or otherwise document guarantees and letters of credit obtained from financial institutions or other lending agencies 5. Inspect documents with related parties for mention of any possible guarantees 6. Analyze legal expenses |
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What are subsequent events? |
Events or transactions that have a material effect on the f/s, and occur after the balance sheet date, but prior to the issuance of the f/s and auditor's report |
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What are the audit procedures for subsequent events? |
1. Review any interim f/s that are available for the period after YE, for significant changes 2. Scan the G/L for the subsequent events period looking for unusual t/s 3. Ask mgmt about subsequent events 4. Read the avail meeting minutes of BoD and other committees for the subsequent events period 5. Enquire of client's lawyers re: claims and assessments 6. Obtain a representation letter from mgmt |
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What to do when there is a growing concern? |
CLEAN, UNQUALIFIED OPINION, but with: "emphasis of matter" paragraph in the auditor's report |
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What is a working paper? |
Working paper prepared by Audit Jr, review by Audit Sr, then reviewed by Audit Manager |
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Why should working papers be reviewed? |
1.To evaluate the performance of inexperienced personnel 2.To make sure that the audit meets the public accounting firm's standard of performance (follows GAAS and SAAE obtained) 3.To counteract the bias that frequently enters into auditor's judgment |
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What is the second partner review? |
EQCR/second partner review, is a high-level evaluation of work performed, and is done by the audit firm's quality control partner as members of the audit team can sometimes be "too close" to the audit file to identify problems |
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What communication occurs at the end of an audit? |
Management Letter - letter of recommendation Auditor to BOD/Audit Committee - disagreements, difficulties, illegal acts, reportable internal control conditions Auditor to Audit Committee - responsibilities under GAAS, audit approach, independence, relationships with entity, unresolved matters |
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What occurs when there is a subsequent discovery of facts? |
Auditor has no obligation to make any enquiries or conduct any audit procedures after the f/s and audit report have been issued. Can request for adjustments/revisions If management does not cooperate = 1. auditor's report must not associate with f/s 2. notify regulatory agencies 3. seek legal advice |
