This chapter will consider the reviews that take place during the completion stage of the audit, which include subsequent events and going concern. These are both important disclosure issues in the financial statements, because, if the disclosures are not correct, this will impact on the auditor's report.
In this chapter, we also consider the use and reliability of written representations from management as audit evidence.
Financial reporting knowledge is particularly important at the review stage of the audit. Auditors need to be able to interpret accounts and understand the requirements of specific accounting standards. Analytical procedures must be used when undertaking the financial review of the financial statements.
Immaterial misstatements may not be corrected by the audit client. The final part of this chapter looks at how the auditor should respond to uncollected, but immaterial misstatements.
The review stage of the audit is very important and likely to come up in the exam both in section A and in section B. For example, in the exam, you could be asked to describe audit procedures which should be performed in relation to a subsequent event. It is very important that you undertsand the difference between the review stage of the audit and the earlier testing stage and are able to describe the auditor's responsibility in respect of misstatements.
Other topics likely to be examined include:
- Matters requiring written representations
- Going concern indicators, and audit procedures to test the going concern basis of accounting
- The effect of subsequent events on the auditor's report.
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