Auditing Operations and Completing the Audit

Chapter 16: Auditing Operations and Completing the Audit

Analytical procedures: evaluations of F/S made by a study of plausible relationships between financial and nonfinancial.

Represenation letter: A letter prepared by officers of client at the auditors request setting forth certain representations about the company financial position. x`

Adjusting entries passed”:

Relationship between aggregated miss. (known and likely) are significantly less than a material amount.

Qualitive materialty examples: Arise from an item pf precise measurement. hide failure to meet anaylsts expections, affect compliance with regulatory requirement, increase management compensation

Rollover approach:considers only the misstatement originating in the current year income statement.

Iron Curtain approach: considers the balance sheet effect of correcting the total misstatement existing at the enf of the year.         

However, SEC requires the consideration of both methods, if any result in material miss, then an adjustment must be made.

Review of Financial stat disclosures: Disclosure checklists: that lists all specific disclosures required by the FASB, GASB, FASAC and SEC. Auditors must complete the checklist.

Review the engagement: AICPA states that the work perfumed by each assistant should be reviewed to determine if it was adequately perfumed. Review is primarily performed thru review of the audit working papers when papers are completed.

Other information: including financial and nonfinancial: report of management discussing current year results, financial summaries, employment data and planned expenditure.

AICPA requires auditors to read this information for inconsitencies, if any with the audited financial statements. If no inconsistencies, the auditor is not required to reference the other info in the auditors report.

Other matter paragraph:

AICPA requires that audit committee be informed about grad or illegal acts that auditors found, if management is involved in fraud, the communication should be directly to audit committee

Post-Audit responsibilities: If after the issuance of audit repot, CPA firm found evidence indicating materially misstated items in F/S or lacked required dosculusers, the auditors should immediately investigate. If material, they should advice the client to make appropriate dosculuse fo the facts to anyone actually or likely relying upon the audit report. For a public company, disclose that F/S shouldn't be relied upon is made through the client filing tof a form 8-k with SEC. if client refuses, CPA should inform each member of the client BOD, as well as notifying regulatory agencies having jusridicions over the client.