Chapter 7- COMPLETION AND

REVIEW
SA 560- Subsequent Events
Subsequent events are Events occurring between the date of the FS and the date of the
auditor’s report, and facts that become known to the auditor after the date of the
auditor’s report.

FS may be affected by certain events that occur after the date of the FS. Many FRF specifically
refer to ordinarily identify two types of events that provides evidence of conditions that:

a) Existed at the date of the FS; and

b) Arose after the date of the FS.

Objective
• Obtain SAAE about subsequent events that require adjustment or disclosure in FS
• Respond appropriately to facts, that, had they been known to the auditor at that date, may have
caused the auditor to amend the auditor’s report

Audit Procedure Regarding Events Occurring between the Date of the

FS and Date of Auditor’s Report
• Perform AP designed to obtain SAAE that all events occurring between the date of the FS and
the date of the auditor’s report that require adjustment of, or disclosure in, the FS have been
identified.
• The auditor is not, however, expected to perform additional AP on matters to which previously
applied AP have provided satisfactory conclusions.
• Perform the procedures required above so that they cover the period from the date of the FS
to the date of the auditor’s report, or as near as practicable thereto. The auditor shall consider
the auditor’s risk assessment which shall include the following:
a) Obtaining an understanding of any procedures management has established to identify
subsequent events.
b) Inquire management & TCWG as to whether any subsequent events have occurred which might
affect the FS.
c) Reading minutes of the meetings, of the entity’s owners, management and TCWG, that have
been held after the date of the FS and inquiring matters discussed if minutes not yet available.
d) Reading the entity’s latest subsequent interim FS, if any.
 Request management & TCWG to provide a written representation (SA 580) that all events
occurring subsequent to the date of the FS and which are adjusted or disclosed as per applicable
FRF.

Auditor’s Obligations Regarding Subsequent Events

See Chart given in class

SA 570 Going concern

It deals with

• The auditor’s responsibilities in the audit of FS relating to going concern and

• The implications for the auditor’s report

The auditor’s responsibilities in the audit of financial statements relating to going concern:

If a material uncertainty related to events or conditions that may cast significant doubt on the
entity’s ability to continue as a going concern is exists- it is to be reported as a KAM as per SA
701.

Responsibility for assessment of the entity’s ability to continue as a

going concern
The preparation of the financial statements requires management to assess the entity’s ability
to continue as a going concern. Management’s assessment of the entity’s ability to continue as
a going concern involves making a judgment The following factors are relevant to that
judgment: -

• The degree of uncertainty associated with the outcome of an event or condition

increases significantly the further into the future an event or condition or the outcome
occurs.

• The size and complexity of the entity, the nature and condition of its business and the
degree to which it is affected by external factors affect the judgment regarding the
outcome of events or conditions.

• Any judgment about the future is based on information available at the time at which
the judgment is made.

Responsibilities of the Auditor

1) To obtain SAAE regarding & conclude on, the appropriateness of management’s use of the
going concern basis of accounting in the preparation of the FS, and
2) To conclude, based on the audit evidence obtained, whether a material uncertainty exists about
the entity’s ability to continue as a going concern.

However, as per SA 200, the potential effects of inherent limitations on the auditor’s ability to
detect material misstatements are greater for future events/conditions that may cause an entity
to cease to continue as a going concern.

The auditor cannot predict such future events or conditions. The absence of any reference to a
material uncertainty about the entity’s ability to continue as a going concern in an auditor’s
report cannot be viewed as a guarantee as to the entity’s ability to continue as a going concern.

Risk Assessment Procedures and Related Activities

When performing RAP as per SA 315, the auditor shall consider whether events/conditions exist
that may cast significant doubt on the entity’s ability to continue as a going concern.

Also, determine whether management has already performed a preliminary assessment of the
entity’s ability to continue as a going concern, and:

a) If such an assessment has been performed, discuss the assessment with management &
determine whether management has identified events/conditions that, may cast significant
doubt on the entity’s ability to continue as a going concern and, if so, management’s plans to
address them; or
b) If such assessment yet to be performed, discuss with management the basis for the intended
use of the going concern basis of accounting, & inquire of management whether
events/conditions exist that, may cast significant doubt on the entity’s ability to continue as a
going concern

The auditor shall remain alert throughout the audit for audit evidence of events/conditions that
may cast significant doubt on the entity’s ability to continue as a going concern.

As per SA 315, revise the auditor’s RAP and modify the FAP accordingly when additional audit
evidence is obtained during the audit that affects the auditor’s assessment of risk.

Additional Audit Procedures When Events or Conditions Are Identified

a) Requesting management to make its assessment of the entity’s ability to continue as GC, if not
made
b) Evaluating management’s plans for future actions, whether outcome of these plans likely to
improve the situation & are feasible in the circumstances.
c) Where the entity has prepared a cash flow forecast, and analysis of the forecast is a significant
procedure:
i) Evaluate the reliability of the data generated to prepare the forecast; and
ii) Determine adequate support for the assumptions underlying the forecast.
d) Considering any additional facts or info. have become available since the management
assessment date.
e) Requesting written representations from management regarding their future action plans & the
feasibility of these plans.

Audit procedures that are relevant to the requirement as stated above may include the
following:

• Analyzing & discussing cash flow, profit and other relevant forecasts with management.
• Analyzing & discussing the entity’s latest available interim FS.
• Reading terms of debentures & loan agreements and determining whether any have been
breached.
• Reading minutes of the meetings of shareholders, TCWG and relevant committees for reference
to financing difficulties.
• Inquiring with entity’s legal counsel regarding the existence of litigation & claims and the
reasonableness of management’s assessments of their outcome & their financial implications.
• Confirming existence, legality & enforceability of arrangements to provide/maintain financial
support with related & third parties and assessing the financial ability of such parties to provide
additional funds.
• Evaluating the entity’s plans to deal with unfilled customer orders.
• Performing AP to identify those that either mitigate or otherwise affect the entity’s ability to
continue as a going concern.
• Confirming the existence, terms and adequacy of borrowing facilities.
• Obtaining and reviewing reports of regulatory actions.
• Determining the adequacy of support for any planned disposals of assets.

Implications for the Auditor’s Report

Refer Chart given in class

SA 450 Evaluation of Misstatements Identified during the

Audit
SA 450 deals with the auditor’s responsibility to evaluate the effect of identified misstatements
on the audit and of uncorrected misstatements, if any, on the financial statements.

Objectives of auditor in accordance with SA 450

The objective of the auditor is to evaluate: -
(a) The effect of identified misstatements on the audit and
(b) The effect of uncorrected misstatements, if any, on the financial statements.

Consideration of identified misstatements as the auditprogresses

The auditor shall determine whether the overall audit strategy and audit plan need to be
revised if: -
The nature of identified misstatements and the circumstances of their occurrence indicate that
other material misstatements may exist
The aggregate of misstatements accumulated during the audit approaches materiality
determined in accordance with SA 320.

Communication and correction of misstatements

The auditor shall communicate on a timely basis all misstatements accumulated during the audit
with the appropriate level of management

If management refuses to correct some or all of the misstatements communicatedby the

auditor, the auditor shall obtain an understanding of management’s reasons for not making the
corrections and shall take that understanding into account when evaluating whether the
financial statements as a whole are free from material misstatement.

Evaluating the effect of uncorrected misstatements

The auditor shall determine whether uncorrected misstatements are material, individually
or in aggregate. In making this determination, the auditor shall consider: -
(a) The size and nature of the misstatements, both in relation to particular classes of transactions,
account balances or disclosures and the financial statementsas a whole, and the particular
circumstances of their occurrence and
(b) The effect of uncorrected misstatements related to prior periods on the relevant classes of
transactions, account balances or disclosures, and the financial statements as a whole.

Communication with those charged with governance

The auditor shall communicate with those charged with governance regarding uncorrected
misstatements and the effect

Documentation regarding misstatements identified during audit

The audit documentation shall include: -
(a) The amount below which misstatements would be regarded as clearly trivial;
(b) All misstatements accumulated during the audit and whether they have beencorrected; and
(c) The auditor’s conclusion as to whether uncorrected misstatements are
material, individually or in aggregate, and the basis for that conclusion.

SA-580 Written Representations

Written statement by management provided to the auditor to confirm certain matters or
to support other audit evidence.

Objectives of the auditor

a) To obtain written representations
Obtain WR from management that they have fulfilled responsibility for the preparation of the
FS and all the information provided to the auditor.
b) To support other evidence
It supports other evidence relevant to the FS or specific assertions in the FS by means of WR;
c) To respond appropriately
Respond appropriately to WR provided by management or if management does not provide
the WR requested by the auditor

Written Representations about Management’s Responsibilities

Request management to provide a WR that they have fulfilled their responsibility for the
preparation of the FS in accordance with the applicable FRF.

In some cases, however, management may decide to make inquiries of others who participate
in preparing and presenting the financial statements for e.g.- An actuary, staff engineer, Internal
Counsel

Information Provided and Completeness of Transactions

The auditor shall request management to provide a WR that:

• It has provided the auditor with all relevant info. & Access agreed as per terms of the
engagement, &
• All transactions have been recorded & are reflected in the FS.

Management’s responsibilities shall be described in the WR in the manner in which these

responsibilities are described in the terms of the audit engagement.

Why Written representations about management responsibilities are

necessary?
 Auditor is not able to judge solely on other audit evidence whether management has prepared
and presented the financial statements and provided information to the auditor

Thus, WR draws on the agreed acknowledgement & understanding of management of its

responsibilities by requesting confirmation that it has fulfilled them. The auditor may also ask
management to reconfirm its acknowledgement & understanding of those responsibilities in
WR. This is particularly appropriate when:

• Those who signed the terms on behalf of the entity no longer have the relevant responsibilities.
• The terms of the audit engagement were prepared in a previous year.
• There is any indication that management misunderstands those responsibilities; or
• Changes in circumstances make it appropriate to do so.

Other Written Representations

Other SAs require the auditor to request WR. If, in addition to such required representations,
the auditor determines that it is necessary to obtain one or more WR to support other audit
evidence relevant to the FS or specific assertions, the auditor shall request such other written
representations.

Written representations about specific assertions

When obtaining evidence about, or evaluating, judgments and intentions, theauditor
may consider one or more of the following:
✓ The entity’s past history in carrying out its stated intentions.
✓ The entity’s reasons for choosing a particular course of action.
✓ The entity’s ability to pursue a specific course of action.
✓ The existence or lack of any other information that might have been obtained during
the course of the audit that may be inconsistent with management’s judgment or
intent.
Date of and Period(s) Covered by Written Representations
It shall be as near as practicable to but not after, the date of the auditor’s report on the FS. It
shall be for all FS and period(s) referred to in the auditor’s report. The auditor’s opinion cannot
be expressed, and the auditor’s report cannot be dated, before the date of the WR as it is audit
evidence.

Auditor is concerned with events occurring up to the date of the auditor’s report that may
require adjustment to or disclosure in the FS, the WR are dated as near as practicable to, but
not after, the date of the auditor’s report on the FS.
 Doubt as to the Reliability of Written Representations
If auditor has concern about competence, integrity, ethical values or diligence of management,
or about its commitment to, determine effect that may have on the reliability of representations
(oral or written) & audit evidence in general.

If WR are inconsistent with other audit evidence, the auditor shall perform AP to resolve the
matter.

If the matter remains unresolved, reconsider the assessment of the competence, integrity,
ethical values or diligence of management, or of its commitment to & determine the effect that
may have on the reliability of representations (oral or written) & audit evidence in general.

If concluded that WR are not reliable, take appropriate actions, including possible effect on the
opinion in the auditor’s report as per SA 705.

Requested Written Representations Not Provided

• Discuss the matter with management.
• Re-evaluate the integrity of management & evaluate the effect that may have on the reliability
of representations (oral or written) & audit evidence in general; and
• Take appropriate actions, including determining the possible effect on the opinion in the
auditor’s report in accordance with SA 705.

SA 260- Communication with Those Charged with

Governance
SIGNIFICANCE OF COMMUNICATION WITHTHOSE CHARGED WITH
GOVERNANCE

Communication from auditor is important with those charged with governance. An

effective two-way communication is important in assisting: -

• The auditor and those charged with governance in understanding mattersrelated

to the audit
• The auditor in obtaining from those charged with governance information relevant to
the audit.
• Those charged with governance in fulfilling their responsibility to oversee the financial
reporting process, thereby reducing the risks of material misstatement of the financial
statements.
 Objectives of auditor in accordance with SA 260
The objectives of the auditor are: -

(a) To communicate clearly with those charged with governance the responsibilities of the auditor
in relation to the financial statement audit, and an overview of the planned scope and timing
of the audit;

(b) To obtain from those charged with governance information relevant to the audit;

(c) To provide those charged with governance with timely observations arising from the audit that
are significant and relevant to their responsibility to oversee the financial reporting process
and
To promote effective two-way communication between the auditor and those charged with
governance.

Matters to be communicated by auditor

Following matters are required to be communicated by auditor with those charged with
governance: -
a) The auditor’s responsibilities in relation to the financial statement audit
I. The auditor is responsible for forming and expressing an opinion on the financial statements
that have been prepared by management with the oversight of those charged with governance
and
II. The audit of the financial statements does not relieve management or those charged with
governance of their responsibilities.
b) Planned scope and timing of the audit
c) Significant findings from the audit
The auditor shall communicate with those charged with governance: -
• The auditor’s views about significant qualitative aspects of the entity’s accounting
practices, including accounting policies, accounting estimates and financial statement
disclosures.
• Significant difficulties, if any, encountered during the audit;
• Significant matters arising during the audit that were discussed, or subject to
correspondence, with management;
• Written representations the auditor is requesting
• Circumstances that affect the form and content of the auditor’s report,
 Communication of auditor’s independence in case of listedentities
In the case of listed entities, the auditor shall communicate with those chargedwith
governance: -
A statement that the engagement team and others in the firm as appropriate, the firm and,
when applicable, network firms have complied with relevant ethical requirements regarding
independence
All relationships and other matters between the firm, network firms, and the entity that, in the
auditor’s professional judgment, may reasonablybe thought to bear on independence.

SA 265- Communicating Deficiencies in Internal Control to

Those Charged with Governance and Management
Objective of auditor in accordance with SA 265
The objective of the auditor is to communicate appropriately to those charged with governance
and management deficiencies in internal control that the auditor has identified during the audit
and that, in the auditor’s professional judgment, are of sufficient importance to merit their
respective attentions.

Meaning of “Deficiency in internal control” and “significant deficiency

in internal control”
a. Deficiency in internal control – This exists when: -
(i) A control is designed, implemented or operated in such a way that it is unable to prevent, or
detect and correct, misstatements in the financial statements on a timely basis or
(ii) A control necessary to prevent, or detect and correct, misstatements in the financial statements
on a timely basis is missing.
b. Significant deficiency in internal control –
A deficiency or combination of deficiencies in internal control that, in the auditor’s
professional judgment, is of sufficient importance to merit the attention of those charged with
governance.

Examples of matters that the auditor may consider in determining whether a deficiency
or combination of deficiencies in internal control constitutes a significant deficiency
➢ Likelihood of the deficiencies leading to material misstatements
➢ Susceptibility to loss or fraud
➢ Subjectivity and complexity of determining estimated amounts financial statement
 amounts exposed to the deficiencies.
➢ The importance of the controls to the financial reporting process,
➢ The cause and frequency of the exceptions detected as a result of thedeficiencies in
the controls.
Examples of indicators of significant deficiencies in internal control
➢ Evidence of ineffective aspects of the control environment, such as: -
▪ Indications that significant transactions in which management is financially interested are
not being appropriately scrutinised by those charged with governance.
▪ Identification of management fraud, whether or not material, that was not prevented
by the entity’s internal control.
▪ Management’s failure to implement appropriate remedial action on significant
deficiencies previously communicated.
▪ Absence of a risk assessment process within the entity
▪ Evidence of an ineffective entity risk assessment process
▪ Evidence of an ineffective response to identified significant risks
▪ Misstatements detected by the auditor’s procedures that were not prevented, or detected
and corrected, by the entity’s internal control.

Communication of significant deficiencies in internalcontrol to those

charged with governance
The auditor shall communicate in writing significant deficiencies in internal control identified
during the audit to those charged with governance on a timely basis.
The auditor shall also communicate to management at an appropriate level ofresponsibility on
a timely basis: -
In writing, significant deficiencies in internal control that the auditor has communicated or
intends to communicate to those charged with governance
Other deficiencies in internal control identified during the audit that have not been
communicated to management by other parties
The auditor shall include in the written communication of significant deficiencies in
internal control:
(a) A description of the deficiencies and an explanation of their potential effects;and
(b) Sufficient information to enable those charged with governance andmanagement to
understand the context of the communication.

In particular, the auditor shall explain that:

 i. The purpose of the audit was for the auditor to express an opinion on the financial
statements;
ii. The audit included consideration of internal control relevant to the preparation of the
financial statement.
iii. The matters being reported are limited to those deficiencies that the auditor has
identified during the audit