Completing_the_audit_web

Completing_the_audit_web - Completing the Audit 1...

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1 Completing the Audit
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2 Objectives Describe how the auditor searches for contingent liabilities Discuss communication with the client’s law firms (purpose, format) Identify procedures used to examine subsequent events Provide examples of work completed as part of the final evidence gathering process How is overall evidence evaluated?
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3 I. Plan and design an audit approach. Review for contingent liabilities Review for subsequent events Accumulate final evidence Evaluate results Issue audit report Communicate with audit IV. Complete the audit and issue an audit report.
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4 Contingent liabilities Contingencies are existing conditions or situations that will be resolved at some future time (S 3290.02) E.g. lawsuits The auditor needs to obtain information about the nature of the contingent liability, the amount involved, and then assess the likelihood of the outcome
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5 Searching for contingent liabilities Search for contingent liabilities: Enquire of management Review minutes of shareholders’ and directors’ meetings Read contracts, agreements, and related correspondence Must actively search for contingent liabilities
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6 Evaluating known contingent liabilities Once the contingent liability has been described and documented, then management’s disclosure needs to be evaluated Based upon the likelihood of the event, it may not need to be disclosed, may need to be in the footnotes, or may require an adjustment to the financial statements
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7 Commitments Commitments are certain (as opposed to contingent liabilities, where there is uncertainty with respect to the result) They are usually disclosed in the notes to the F/S Use similar procedures to identify and document commitments as for contingent liabilities
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8 Why are contingencies and commitments important? Represent the encumbrance of potentially material amounts of future resources Potentially affect future cash flows GAAP requires disclosure
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Confirmation from client’s law firms Used to evaluate two categories of lawsuits: Outstanding (or asserted) claim: Client has been notified of the suit or the suit has already been filed Possible (or unasserted) claim: The client is aware of a situation that could lead to a claim. Standard format (exhibit 15-2) is used
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This note was uploaded on 11/23/2009 for the course AFM 480 taught by Professor Gb during the Spring '09 term at Waterloo.

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Completing_the_audit_web - Completing the Audit 1...

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