It is worthwhile to note that the procedures performed in completing the audit have several distinct characteristics.
For instance, they do not pertain to specific transactions cycles or accounts; they are performed after the balance sheet date; they involve many subjective judgments by the auditor, and are usually performed by audit managers or other senior members of the audit team.
Generally speaking, the auditor’s responsibilities in completing the audit involve completing the fieldwork, evaluating the findings, and communicating with the client.
1. Completing the Audit Field Work
In particular, completing the fieldwork involves performing the following procedures to obtain additional audit evidence:
- Making a subsequent events review.
- Reading minutes of meetings.
- Obtaining evidence concerning litigation, claims, and assessments.
- Obtaining a management representation letter.
- Performing analytic procedures.
These are explained below;
Making a Subsequent Events Review
Subsequent events are events and transactions that occur after the balance sheet date but before the issuance of the financial statements and the auditor’s report.
In effect, the subsequent events period extends from the balance sheet date to the end of the fieldwork.
However, the auditor has no responsibility to discover subsequent events that occur between the end of fieldwork and the issuance of the audit report.
Reading Minutes of Meetings
The reading of minutes of meetings of stockholders, the board of directors and its subcommittees may reveal information about matters that have audit significance. These should be read as soon as they become available.
Obtaining Evidence Concerning Litigation, Claims, and Assessments
In completing an audit following GAAS, the auditor must determine whether litigation, claims, and assessments are reported in conformity with accounting standards.
Management represents the primary source of such information, whereas a letter of audit inquiry to the client’s outside legal counsel is the auditor’s primary means of corroborating this information.
Obtaining a Management Representation Letter
The auditor must also obtain written representations from management as to the matters that are either individually or collectively material to the financial statements.
Such a letter complements other auditing procedures and may reveal matters not otherwise discovered by the auditor.
It should be noted that the refusal by management to provide such a letter in effect limits the scope of the audit, and could result in the auditor not issuing a standard audit report.
Performing Analytical Procedures
Performing analytical procedures at the end of the fieldwork is a required part of an overall review.
It assesses the conclusions reached during the audit and evaluates the overall Financial statement preparation.
The procedures are applied to critical audit areas identified during the audit and are based on financial statement data after all adjustments and reclassifications have been recognized.
2. Evaluating the Findings
After an audit team collects the facts and completes its investigation, it is time to determine the results of the investigation.
For audits, the results are called reported audit findings.
The first step is to evaluate the evidence against the audit criteria. The evidence is the factual information collected or observed during the performance of the audit.
The audit criteria are the standards, procedures, regulations or objectives the organization was audited against. The criteria represent requirements the organization must comply with.
Informing an opinion on whether the financial statements are presented fairly, in all material respects, in conformity with the applicable financial reporting framework, the auditor should take into account all relevant audit evidence, regardless of whether it appears to corroborate or to contradict the assertions in the financial statements.
In the audit of financial statements, the auditor’s evaluation of audit results should include evaluation of the following:
- The results of analytical procedures performed in the overall review of the financial statements (“overall review”);
- Misstatements accumulated during the audit, including, in particular, uncorrected misstatements;
- The qualitative aspects of the company’s accounting practices;
- Conditions identified during the audit that relate to the assessment of the risk of material misstatement due to fraud (“fraud risk”);
- The presentation of the financial statements, including the disclosures; and
- The sufficiency and appropriateness of the audit evidence obtained.
When evaluating whether the financial statements as a whole are free of material misstatement, the auditor should evaluate the qualitative aspects of the company’s accounting practices, including potential bias in management’s judgments about the amounts and disclosures in the financial statements.
If the auditor identifies bias in management’s judgments about the amounts and disclosures in the financial statements, the auditor should evaluate whether the effect of that bias, together with the effect of uncorrected misstatements, results in a material misstatement of the financial statements.
Also, the auditor should evaluate whether the auditor’s risk assessments, including, in particular, the assessment of fraud risks and the related audit responses remain appropriate.
3. Communicating with the Client
The auditor’s communicating with the client after the audit involves the following aspects:
- Communicating internal control structure matters.
- Communicating matters about the conduct of an audit.
- Preparing management letter.
These are explained below;
Communication of Internal Control Structure Matters
Communication of internal control structure represents significant deficiencies in the design or operation of the internal control structure, which could adversely affect the organization’s ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial‘statements.
The communication should be made promptly either during the audit or after its conclusion.
Communicating Matters About Conduct of Audit
Communication with the audit committee requires the auditor to communicate certain matters about the conduct of the audit to those who have responsibility for overseeing the financial reporting process.
Normally this responsibility is assigned to an audit committee of the board of directors or a group with equivalent authority such as a financial committee.
The communication may be oral or written and it may occur during or shortly after the audit.
When the communication is in writing the report should indicate that it is intended for the audit committee or the board of directors and, if appropriate, management.
Preparing Management Letter
During an audit engagement, auditors observe many facets of the client’s business organization and operations.
After an audit, many auditors believe it is desirable to write a letter to management, known as a management letter that contains recommendations not included in the required communication with the audit committee.
These recommendations usually relate to improving the efficiency and effectiveness of the company’s operations. Management letters may include comments on:
- Internal control structure matters that are not considered to be reportable conditions.
- Management of resources such as each, inventories, and investments.
- Tax-related matters.