℃ opening PART V (chapter 23) Good Review Requires More Than Looking At Working Papers Arens, Loebbecke, Auditing, &/E o2000 by Prentice Hall, Il
Arens, Loebbecke; Auditing, 8/E © 2000 by Prentice Hall, Inc. 23 Good Review Requires More Than Looking At Working Papers PART V (chapter 23)
LEARNING OBJECTIVES Objective 23-1 Conduct a review for contingent Objective 23-2 liabilities and commitments L Objective 23-3 Obtain and evaluate letters form the Conduct a post-balance sheet client's attorneys review for subsequent event Objective 23-4 Objective 23-5 Design and perform the final steps in Integrate the audit evidence gathered, the evidence accumulation segment and evaluate the overall audit results of the audit Objective 23-6 Obiective 23-7 Communicate effectively with Identify the auditors responsibilities the audit committee and management when facts affecting the audit report are discovered after its issuance Arens, Loebbecke, Auditing, &/E o2000 by Prentice Hall, Il
Arens, Loebbecke; Auditing, 8/E © 2000 by Prentice Hall, Inc. Objective 23 - 1 Conduct a review for contingent liabilities and commitments. LEARNING OBJECTIVES Objective 23 - 2 Obtain and evaluate letters form the client’s attorneys.. Conduct a post-balance sheet review for subsequent event. Objective 23 - 4 Design and perform the final steps in the evidence accumulation segment of the audit. Objective 23 - 5 Integrate the audit evidence gathered, and evaluate the overall audit results. Objective 23 - 6 Communicate effectively with the audit committee and management. Objective 23 - 7 Identify the auditor’s responsibilities when facts affecting the audit report are discovered after its issuance. Objective 23 - 3
A Contingent Liabilities A contingent liability is potential future obligation to an outside party for an unknown amount resulting from activities that have already taken place. Arens, Loebbecke, Auditing, &/E o2000 by Prentice Hall, Il
Arens, Loebbecke; Auditing, 8/E © 2000 by Prentice Hall, Inc. A Contingent Liabilities A contingent liability is potential future obligation to an outside party for an unknown amount resulting from activities that have already taken place
Certain contingent liabilities are of considerable concern to the auditor Pending litigation for patent infringement, product liability, or other actions · Income tax disputes Product warranties Notes receivable discounted Guarantees of obligations of others Unused balances of outstanding letters of credit Arens, Loebbecke, Auditing, &/E o2000 by Prentice Hall, Il
Arens, Loebbecke; Auditing, 8/E © 2000 by Prentice Hall, Inc. Certain contingent liabilities are of considerable concern to the auditor: • Pending litigation for patent infringement, product liability, or other actions • Income tax disputes • Product warranties • Notes receivable discounted • Guarantees of obligations of others • Unused balances of outstanding letters of credit
Audit procedures for Finding Contingencies 2 Inquire of management (orally and in writing) about the possibility of unrecorded contingencies. 2 Review current and previous years' internal revenue agent reports for income tax settlements. p Review the minutes of directors and stockholders' meetings for indications of lawsuits or other contingencies. continued Arens, Loebbecke, Auditing, &/E o2000 by Prentice Hall, Il
Arens, Loebbecke; Auditing, 8/E © 2000 by Prentice Hall, Inc. Audit Procedures for Finding Contingencies Inquire of management (orally and in writing) about the possibility of unrecorded contingencies. Review current and previous years’ internal revenue agent reports for income tax settlements. Review the minutes of directors’ and stockholders’ meetings for indications of lawsuits or other contingencies. continued
Audit procedures continued for Finding contingencies 2 Analyze legal expense for the period under audit and review invoices and statements from legal counsel 2 Obtain a letter for each major attorney performing legal services 2 Review working papers for any information that may indicate a potential contingency. 2 Examine letters of credit in force as of the balance sheet date and obtain a confirmation of the used and unused balance Arens, Loebbecke, Auditing, &/E o2000 by Prentice Hall, Il
Arens, Loebbecke; Auditing, 8/E © 2000 by Prentice Hall, Inc. Analyze legal expense for the period under audit and review invoices and statements from legal counsel. Obtain a letter for each major attorney performing legal services. Review working papers for any information that may indicate a potential contingency. Examine letters of credit in force as of the balance sheet date and obtain a confirmation of the used and unused balance. Audit Procedures for Finding Contingencies continued
FIGURE 23-2 BANERGEE BUILDING CO 409 Lane Drive Buffalo, New York 10126 5th Street Ne January 26, 2000 k, New york 10023 Our auditors, Clarrett Co, CPAs(1133 Broadway, New York, New York 10019), are conducting an audit of our fi for the fiscal year ended December 31, 1999. Typical th respect Inquire we the completion of their audit, which is anticipated to be on or about February 13,200 rovide to our auditor (1)Such explanation, if any, that you volvinssary to supplement the listed ginning of this fiscal year through h the date of Attorney,≡ (2)Such explanation, if any, that you co pplement the listing of may differ from those stated and an identification of the igation, claim, and assessment or a an explanation of those matters as to which your views may differ from thos We understand tha ania l statement disclosure, you have feted possible daim or ble clai dards No 5 Please specifically identify the of and reasons for any limitations in your response. Caut gona Clark Jones, Pres Arens, Loebbecke, Auditing, &/E o2000 by Prentice Hall, Il
Arens, Loebbecke; Auditing, 8/E © 2000 by Prentice Hall, Inc. Typical Inquire of Attorney FIGURE 23-2
Balance sheet Audit Report Date Date SUBSEQUENT DISCOVERY OF SUBSEQUENT EVENTS FACTS Requires Adjustment Original event took place before audit report date Transaction or event took place before the balance Auditor discovered event sheet date after the audit report date. An event or transaction If auditor had known of occurred between balance facts existing on the sheet and audit report date balance sheet date he or that affects the valuation of she would have required the original transaction adjustment or issued a different。 pinion REQUIRES DISCLOSURE REQUIRES RECALL OF FINANCIAL STATEMENTS DISTINCTION An event or transaction that BETWEEN REVIEW occurred between balance sheet and audit report date FOR SUBSEQUENT is so significant that it EVENTS AND requires disclosure even though it does not directly SUBSEQUENT affect current period DISCOⅤ ERY OF transactions FACTS AFTER THE BALANCE Arens, Loebbecke, Auditing, &/E SHEET DATE o2000 by Prentice Hall, Il
Arens, Loebbecke; Auditing, 8/E © 2000 by Prentice Hall, Inc. DISTINCTION BETWEEN REVIEW FOR SUBSEQUENT EVENTS AND SUBSEQUENT DISCOVERY OF FACTS AFTER THE BALANCE SHEET DATE
TYPE OR WORKING 式式出 Types of Who When Review Does one Purpose In-charge review Audit partner review Independent review Peer review Arens, Loebbecke, Auditing, &/E o2000 by Prentice Hall, Il
Arens, Loebbecke; Auditing, 8/E © 2000 by Prentice Hall, Inc. Types of Who When Review Does Done Purpose In-charge review Audit partner review Independent review Peer review
Perform Final Analytical Procedures 2 Evaluate Going Concern Assumption Obtain Management Representation Letter Read other Information in the annual report
Arens, Loebbecke; Auditing, 8/E © 2000 by Prentice Hall, Inc. Perform Final Analytical Procedures Evaluate Going Concern Assumption Obtain Management Representation Letter Read Other Information in the Annual Report