 Studying internal controls

 Substantive testing

Completing the Audit

After the major audit procedure (RAP and FAP) for gathering evidence
with regards to faithful representation, audit must perform final audit
procedures:

 Search for unrecorded liabilities

 Perform review of related parties
 Perform review of entity’s ability to continue as “going concern”
 Perform review for subsequent events that may materially affect the
financial statement

Auditor must also review all of conclusion/evidence reached during

major audit procedures:

 Perform analytical procedure for review stage (chapter 10)

 Review working papers by the manager, partner, and possibly the
second audit partner
 Evaluate findings
 Communicate with audit committee (Chapter 13)

Search for unrecorded liabilities

Auditor place his greater concern on completeness of the assertions
when it comes to liabilities since companies tend to understate them.
The following auditor can do to address this skepticism:

1. Review cash disbursement

Reviewing subsequent payment may provide evidence that liability exist
at period end but not duly recognized by the entity. To do this, obtain
disbursement listing of company covering period. These payments
supports (such as checks, or proof of electronic payment) are requested
Vendor’s invoice, purchase order, and receiving reports are also used to
evaluate if it relates to any liability included or excluded from payable
balances

2. Test of unprocessed invoices or Open Purchase order

Reviewing all listing of purchase order processed by A/P department
may uncover existing liabilities not duly recognized. To do this, obtain
unprocessed invoices or open purchase order at period end and select a
sample. Evaluate if they are included or excluded from payable balances

3. Analytical procedure that may indicate understatement of liabilities

Analytical procedure may vary from audit to audit depending on the
nature of the company. Predictors such as, expected balance based on
historical balance of payables, current year changes in purchase/cash
payments/credit received.

Litigation and claims

Litigation and claims could materially affect entity’s assertion in financial
statement if left untreated. Thus, ang hinahanap lang naman dito is to
ensure they are properly disclosed or recognized in FS.

Internal counsel
The use of internal counsel is up to the extent of knowing any existing
litigation and claims involving the entity which may give rise to material
misstatement

External counsel
The use of external counsel is if the auditor believes meron pang
litigations or claim may exist na di aware internal counsel. The auditor
shall:

1. Provide letter of general inquiry or specific inquiry

An inquiry of any litigation and claims that the Only use when external counsel is unlikely to
counsel are aware of, including general respond appropriately. Inquire the following:
assessment of outcome of the litigation claims 1. List of litigation and claim
and estimation of financial implication, including 2. If available, assessment of outcome of the
cost. litigation claims and estimation of financial
implication, including cost.
3. Reasonableness of management’s
assessment
4. If any incorrect reasonableness, request for
further information
Review of related parties
Related parties is if one party is able to exercise control or significant
influence to another

Related-party transactions are transaction made by related parties. In

other words, intercompany transaction.

Responsibilities
 Management - must properly disclose and identify any related
parties and its transaction. Design and implement an adequate
accounting policy and internal control for such transaction between
parties (i.e PFRS 3 business combination)

 Those in Charge with Governance (TCWG) - obtain information from

management to understand about the entity’s related parties and
transactions and monitor the overall process of the system

 Auditor - obtain sufficient appropriate evidence if disclosure of the

management to the related parties and its transaction are
adequately controlled and recognized. Must also obtain
understanding of the related parties and their transactions

Even if ordinary/normal man ang existence ng related parties and the

transactions, the auditor still needs to become aware of this kase:
1. The existence of related parties and transaction may affect materially
FS
2. Source of evidence affect the the auditor’s assessment sa reliability
3. Related party transaction may be motivated by other than ordinary
business consideration such as:
a) Transactions that have abnormal terms of trade, unusual prices,
interest rates, guarantees, repayment terms
b) Transaction lack of apparent logical business reason for their
occurrence
c) Substance differ from form
d) High volume or significant transaction with certain customers or
suppliers compare to others
e) Unrecorded transaction

Audit procedures
Identify the occurrence of the transaction related parties
1. Perform test of details
2. Review accounting for unusual transaction or balances paying
particular attention recognized at or near year end
3. Reviewing confirmation from banks
4. Review investment transaction (business combi)

Procedure to check completeness provided by the client

1. Review prior year working papers for business combi
2. Inquire as to affiliation or directors with other entities
3. Review investment record
4. Review tax returns and other supplied regulatory agencies
5. …...
Review the ability of going concern
Going concern is an assumption of continuing the business existence for
the foreseeable future with no intention or necessity for liquidation or
ceasing operation

General purpose FS are prepared on going concern basis. While specific

purpose FS may or may not be prepared on going concern basis since
the foreseeable future is relevant.

Normally, going concern application is appropriate when asset of the

entity are able to realize, and its liability can be settled in a normal
course of trade or business.

Responsibilities
 Management - make a specific assessment that can prove the ability
of the entity’s continuance for at least 12 months after the reporting
period and Disclose any material uncertainties while at it.

 Auditor - evaluate the appropriateness and reasonable of

management’s going concern. Inquire the management if there are
any material uncertainties need to be disclosed.

Events that could arise some doubts about the going concern
assumption: (material uncertainties)
When events are identified and casted doubt to the entity’s going concern, the auditor shall:
1. Seek and written representation of future action and review it
2. Gather enough evidence to confirm and dispel any material uncertainties

Should there be a delay for approval of FS after reporting date, the

auditors consider: (when the delay is related to events/conditions to
going concerns of the business)
1. Need to perform additional audit procedure
2. Any affects to auditor’s conclusion tungkol sa existence of any
material uncertainties

Review of Subsequent period

Subsequent period are events occurring between Date of FS and date of
auditor’s report. Also include facts known after the date of auditor’s
report

Date of FS is the end date of the Date of Auditor’s report is a date that informs
latest period covered by FS users of auditor’s findings and every thing he
has considered (events and transaction) which
the auditor became aware of
Date of approval of FS is a date
where those with recognized
Date of auditor’s report supersede (take place
authority have taken responsibility
after) the gathering evidence procedure on
of assertion and prepares the FS
which to base the auditor’s opinion.
for issuance

Date of issuance of the FS is a date

that auditor’s report are made
available to the users.

Types of subsequent event

1. Type 1 events
Events that provide evidence that existed at the date of financial
statement (aka adjusting event)

2. Type 2 events
Events that provide indicative of conditions that arose after the date of
financial statement. (aka non-adjusting event)
Responsibilities
 Management - ensure that it is properly accounted and adequately
disclose. Disclose to the auditor all subsequent event that occur
under the audit
 Auditor - obtain sufficient appropriate evidence that all events are
up to the date of auditor’s report. Shall request from
management/TCWG, where appropriate, a written representation
that all events under subsequent period is applicable to any
acceptable financial reporting framework

Audit procedure
Procedure that cover from the period of date of FS to date of auditor’s
report. As long as its practical.

1. Obtain the understanding of procedure to ensure that subsequent

events are identified
2. Inquiring management/TCWG, where appropriate, any subsequent
events that could materially affect FS
a) Any new commitments, borrowings, or guarantees entered
b) Sales or acquisition of asset
c) Issuance of debt/equity instrument or an agreement to merger
or liquidate
d) Any asset appropriated by government or destroyed by
fortuitous event
e) Development regarding contingencies
f) Unusual accounting adjustment or contemplated
g) ….……..

3. ….………….

Facts discovered after date of auditor’s report

Auditor does not have any responsibilities anymore, regarding to FS,
after the date of auditor’s report only if there is any subsequent event
comes to auditor’s attention, the following shall perform

When management amends (change) the financial statement

Report shall not be dated earlier than

the date of approval of the amended of
FS.

Auditor’s procedure related to

subsequent event shall be extended to
the new date of auditor’s report

Analytical Procedure in Review Stage

It was previously mention that analytical procedure is required at review
phase of the audit. To evaluate the the overall conclusion as to whether
the auditor has a consistent understanding of the business.

Results from analytical procedure in review stage:

1. Corroborating conclusion formed Hence, auditor shall revise the RAP
and assessment its impact to FAP.
2. Identify any ROMM that previously unrecognized
3. Identify ROMM due to fraud that previously unrecognized
Any indicative of fraud is a matter of professional judgement. The auditor
places emphasis on year-end revenue and income due to their relevance.
Should the auditor identified any inconsistency and/or differ from
expected value by significant amount, the audit shall investigate such
differences:
1. Inquire and obtain sufficient appropriate evidence from relevant
response of management
2. Performing audit procedure necessary to respond to the
circumstances