wrap-up phase
TRANSCRIPT
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WRAP-UP PHASEWRAP-UP PHASE
The Fifth PhaseThe Fifth Phaseof the Audit Processof the Audit Process
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WRAP-UP PHASEWRAP-UP PHASE●Search for unrecorded liabilities & Search for unrecorded liabilities &
significant subsequent eventssignificant subsequent events●Summarize & concludeSummarize & conclude●Partner, manager & senior reviewPartner, manager & senior review
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SEARCH FOR UNRECORDED SEARCH FOR UNRECORDED LIABILITIES & SIGNIFICANT LIABILITIES & SIGNIFICANT
SUBSEQUENT EVENTSSUBSEQUENT EVENTS
●What period are we talking What period are we talking about. . . ?about. . . ?
-- From year-end / December 31-- From year-end / December 31 -- To last day of field work-- To last day of field work
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SEARCH FOR UNRECORDED SEARCH FOR UNRECORDED LIABILITIES & SIGNIFICANT LIABILITIES & SIGNIFICANT
SUBSEQUENT EVENTSSUBSEQUENT EVENTS●What are we looking for . . . ?What are we looking for . . . ? -- Two kinds of unrecorded -- Two kinds of unrecorded liabilitiesliabilities -- Two kinds of significant -- Two kinds of significant subsequent eventssubsequent events
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TWO KINDS OF TWO KINDS OF UNRECORDED LIABILITIESUNRECORDED LIABILITIES
●Known liabilitiesKnown liabilities●Contingent liabilitiesContingent liabilities -- Remote-- Remote -- Reasonably possible-- Reasonably possible -- Probable-- Probable
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CONTINGENT LIABILITYCONTINGENT LIABILITY
Record, disclose &/or ignore Record, disclose &/or ignore depending upon probabilitydepending upon probability
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FASB 5 LEVELS OF FASB 5 LEVELS OF PROBABILITYPROBABILITY
●REMOTE - Don’t disclose or recordREMOTE - Don’t disclose or record●REASONABLY POSSIBLE - DiscloseREASONABLY POSSIBLE - Disclose●PROBABLE & MEASURABLE -PROBABLE & MEASURABLE - - Record and disclose- Record and disclose - If range of loss possible, record - If range of loss possible, record
lower end of range and disclose lower end of range and disclose possible additional losspossible additional loss
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TWO KINDS OF SIGNIFICANT TWO KINDS OF SIGNIFICANT SUBSEQUENT EVENTSSUBSEQUENT EVENTS
●Events confirming a condition Events confirming a condition existing at year-endexisting at year-end
●Events discretely related to Events discretely related to subsequent periodsubsequent period
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FIRST KIND OF FIRST KIND OF SIGNIFICANT SUBSEQUENT SIGNIFICANT SUBSEQUENT
EVENTEVENT
Event that confirms an Event that confirms an already existing situation at already existing situation at
year-endyear-end
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CONFIRMS AN CONFIRMS AN EXISTING SITUATIONEXISTING SITUATION
●Lawsuit settled after year-endLawsuit settled after year-end●Customer files for bankruptcy Customer files for bankruptcy
after year-endafter year-end●Record adjustment on y/e Record adjustment on y/e
financial statementsfinancial statements
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SECOND KIND OF SECOND KIND OF SIGNIFICANT SIGNIFICANT
SUBSEQUENT EVENTSUBSEQUENT EVENT
Event that relates Event that relates discretely to the discretely to the following yearfollowing year
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RELATES DISCRETELY RELATES DISCRETELY TO FOLLOWING YEARTO FOLLOWING YEAR
●Factory burns down on Jan 18Factory burns down on Jan 18●Airliner crashes at O’Hare on Airliner crashes at O’Hare on
Feb 20 killing 328 peopleFeb 20 killing 328 people●Failure to disclose in notes to Failure to disclose in notes to
F/Ss makes F/Ss misleadingF/Ss makes F/Ss misleading
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SEARCH FOR UNRECORDED SEARCH FOR UNRECORDED LIABILITIES & SIGNIFICANT LIABILITIES & SIGNIFICANT
SUBSEQUENT EVENTSSUBSEQUENT EVENTS●Search for unrecorded payablesSearch for unrecorded payables●Review interim financial Review interim financial
statementsstatements●Review significant books of Review significant books of
accountaccount●Obtain legal lettersObtain legal letters
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SEARCH FOR UNRECORDED SEARCH FOR UNRECORDED LIABILITIES & SIGNIFICANT LIABILITIES & SIGNIFICANT
SUBSEQUENT EVENTSSUBSEQUENT EVENTS
●Review minutes & obtain minute Review minutes & obtain minute representation letterrepresentation letter
●Make inquiries of managementMake inquiries of management●Obtain management Obtain management
representation letterrepresentation letter
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SEARCH FOR SEARCH FOR UNRECORDED PAYABLESUNRECORDED PAYABLES
●Relates to audit of A/PRelates to audit of A/P●Search through end of auditSearch through end of audit●Examine subsequent C/DsExamine subsequent C/Ds●Propose PJE for unrecordedPropose PJE for unrecorded
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REVIEW LATEST REVIEW LATEST INTERIM FINANCIAL INTERIM FINANCIAL
STATEMENTSSTATEMENTS● Internal monthly F/Ss prepared for Internal monthly F/Ss prepared for
January or FebruaryJanuary or February●Look for large, unusual variations Look for large, unusual variations
from audited F/Ssfrom audited F/Ss●Investigate until explanation foundInvestigate until explanation found
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REVIEW SIGNIFICANT REVIEW SIGNIFICANT BOOKS OF ACCOUNTBOOKS OF ACCOUNT
●General ledgerGeneral ledger●General journalGeneral journal●Cash receipts journalCash receipts journal●Sales journalSales journal●Purchases journalPurchases journal
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REVIEW SIGNIFICANT REVIEW SIGNIFICANT BOOKS OF ACCOUNTBOOKS OF ACCOUNT
●Review through end of auditReview through end of audit●Review for large, unusual activityReview for large, unusual activity●Investigate unusual items to Investigate unusual items to
resolutionresolution
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OBTAIN LEGAL LETTERSOBTAIN LEGAL LETTERS●Standard request on page 715Standard request on page 715●Addresses asserted & unasserted Addresses asserted & unasserted
claimsclaims●FASB 5 standardsFASB 5 standards●Confirm understandingConfirm understanding●Dated close to last dayDated close to last day●Difficulties with attorneysDifficulties with attorneys
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REVIEW MINUTESREVIEW MINUTES
●Obtain minutes thru last dayObtain minutes thru last day●Agenda & resolutions for recent Agenda & resolutions for recent
meetingsmeetings●Obtaim minute representation Obtaim minute representation
letter from Corporate Secretaryletter from Corporate Secretary
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MAKE INQUIRIES OF MAKE INQUIRIES OF MANAGEMENTMANAGEMENT
●On last day of fieldworkOn last day of fieldwork●Use checklistUse checklist●Discuss with CEO & CFODiscuss with CEO & CFO
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OBTAIN MANAGEMENT OBTAIN MANAGEMENT REPRESENTATION LETTERREPRESENTATION LETTER
●Prepare draft for managementPrepare draft for management●Dated last day of fieldworkDated last day of fieldwork●Signed by CEO & CFOSigned by CEO & CFO●Formalize oral & implied reps(720)Formalize oral & implied reps(720)●Qualified opinion if management Qualified opinion if management
won’t signwon’t sign
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MANAGEMENT REP MANAGEMENT REP LETTERLETTER
●Management primarily responsibleManagement primarily responsible●Financial statements present fairlyFinancial statements present fairly●Specific financial statement mattersSpecific financial statement matters●Issues addressed during auditIssues addressed during audit●Opinions of managementOpinions of management●Plans/intentions of managementPlans/intentions of management●All records available/none withheldAll records available/none withheld
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SUMMARIZE & SUMMARIZE & CONCLUDECONCLUDE
●Proposed journal entry scheduleProposed journal entry schedule●Final engagement memoFinal engagement memo
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REVIEW PROCESSREVIEW PROCESS
●Senior reviewSenior review●Manager reviewManager review●Partner reviewPartner review
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REVIEW PROCESSREVIEW PROCESS
- All procedures complete- All procedures complete - Sufficient evidence- Sufficient evidence - GAAP & GAAS correct- GAAP & GAAS correct
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ISSUE REPORT PHASEISSUE REPORT PHASE
The Sixth PhaseThe Sixth Phaseof the Audit Process of the Audit Process
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ISSUE REPORT PHASEISSUE REPORT PHASE
RIGHT . . .RIGHT . . . EXACTLY RIGHT . . .EXACTLY RIGHT . . . ON THE FIRST TRY! ! !ON THE FIRST TRY! ! !
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PROCESSING THE REPORTPROCESSING THE REPORT●Senior drafts reportSenior drafts report●Review by client & audit teamReview by client & audit team●Processing changesProcessing changes●Comparing (calling) & footingComparing (calling) & footing●Referencing by another seniorReferencing by another senior●Second partner reviewSecond partner review●Signing by partnerSigning by partner
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ISSUE REPORTISSUE REPORT
●Unqualified reportUnqualified report●Qualified reportQualified report - Scope limitation- Scope limitation - GAAP deviation- GAAP deviation