Accounting 133 Chapter 11 Notes

Accounting 133 - Auditing Chapter 11 We have learned so far the auditor's use of the audit risk model to limit exposure to audit risk the auditor's

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Auditing Chapter 11 We have learned so far, the auditor’s use of the audit risk model to limit exposure to audit risk, the auditor’s tests of controls to determine the operating effectiveness of internal control and to assess control risk, and the auditor’s substantive procedures to determine the fairness of the account balances and classes of transactions. The following are just a few questions that the auditor may be asking as the audit is concluding: Are there year-end adjustments that significantly affect the financial statements? What events that occur after year-end could affect the current year’s financial statements? What potential exposure does the client have for pending litigation? Has the client provided all relevant information to the auditor during the engagement? What matters need to be discussed with the audit committee? Beginning of Year (Time period A) interim testing (tests of controls and substantive procedures) End of Year (Time period B) “Roll-forward” work, revenue and expense accounts, attorney’s letters, management representations, adjusting journal entries, audit documentation review, and subsequent events. Last Day of Fieldwork (Time period C) Subsequent events (dual dating) Issuance of Audit Reports (Time period D) Subsequent discovery of facts, omitted audit procedures, management letter, audit committee communications. Assume that work was carefully planned in such a manner that the auditor was satisfied that the financial statements were fairly presented as of October 15, 2006. In this case, the auditor would perform tests of controls and substantive procedures from the period October 16, 2006, through December 31, 2006. These procedures are often referred to as “roll-forward” work because they allow the auditor to roll the conclusion forward to the end of the year under audit. The significant characteristic of time period B is that the auditor is still conducting fieldwork. In some instances, the auditor becomes aware of a development affecting the client after the last day of fieldwork but prior to the issuance of the audit reports (time period C). These events present significant challenges to the auditor who is no longer performing fieldwork; however, the audit reports have not yet been issued. In this case the auditor may consider dual dating the report on the company’s financial statements to limit responsibility for other developments. Some issues can come to the auditor’s attention after the issuance of the audit reports (time period D). Although the company’s Form 10-K and audit reports have been released, it is important that the auditor take important steps to ensure that the reports are not being inappropriately relied on by third parties. The
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auditor must make other communications to the client and its audit committee based on observations during the audit examination. Procedures Performed During Fieldwork
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This note was uploaded on 04/17/2008 for the course ACCT 133 taught by Professor ? during the Fall '07 term at Hofstra University.

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Accounting 133 - Auditing Chapter 11 We have learned so far the auditor's use of the audit risk model to limit exposure to audit risk the auditor's

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