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Chapter 4

Audit & Assurance

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Chapter 4

  2. 2. Define the subsequent event and after balance sheet event. Subsequent event  Events occurring between the date of the financial statements and the date of the auditor’s report, and facts that become known to the auditor after the date of the auditor’s report. After balance sheet event  Favorable and unfavorable, that occur between the reporting date and the date when the financial report is authorized for issue.
  3. 3. DIFFERENCES Subsequent event After balance sheet event  The period after the balance sheet date during which management of a reporting entity shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements. Objective  When an entity should adjust its financial statements for events after balance sheet and the disclosures that an entity should give about the date when the financial report was authorized for issue and about events after balance sheet.  Transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of process of preparing financial statements.  Events that provide evidence that provide evidence about conditions that did not exist at the date of the balance sheet but arose subsequent to that date. Types  Those that provide evidence of conditions that existed at the reporting date ( adjusting events after the reporting date) Those that are indicative of conditions that arose after the reporting date ( non-adjusting events after the reporting date).
  5. 5. 1.Settlement Of Court Case 2.Declaration Of Bankruptcy By A Customer With Outstanding Accounts Receivable Balance (Bad Debts Written Off) 3.Sale Of Inventories 4.Disposal Of Dormant Equipment 5.Sale Of Investments At A Price Below Recorded Cost 6.Determination Of Bonus Payment 7.Discovery Of Fraud/Errors
  6. 6. 1. Decline In The Market Value Of Investments 2. Declaration Of Dividend To Equity Holders 3. Major Business Combination 4. Announcement To Discontinue Operation 5. Major Purchases/Disposal Of Assets 6. Destruction Of A Major Production Plant Due To Natural Disaster 7. Announcing/Commencing Of A Major Restructuring 8. Major Ordinary Share Transactions 9. Large Changes In Asset Prices Or Forex 10.Changes In Tax Rates 11.Entering Into Significant Commitments Or Contingent Liabilities 12.Commencing Major Litigation 13.Issuance Of Bonds/Securities 14.Decline In Market Value Of Inventory
  7. 7. 1. Obtaining An Understanding Of The Procedures That Management Has Established To Ensure That The Subsequent Events Are Identified. 2. Read Minutes Of The Meetings Of The Shareholders, Board Of Directors And Audit Executive Committees Held After The Year End. 3. Inquire About Matters Discussed At Meetings For Which Minutes Are Yet To Be Available. 4. Peruse The Latest Available Interim Financial Statements, Budgets, Cash Flow Forecast And Related Management Reports. 5. Inquire From The Company’s Lawyer Concerning Litigation And Claims That Arise. 6. Inquire The Managemnent For Any Subsequent Events Occurred Which Might Affect The Financial Statements.
  8. 8. a) Review the audit working paper. b) Evaluate the audit results. c) Ensure compliance with applicable approved accounting standards and statutory requirements. d) Ensure proper disclosure with Schedule 9 to the Companies Act 1965 and applicable approved accounting standard in Malaysia. e) Ensure consistent application of accounting policies. f) Ensure the appropriateness of accounting treatments. g) Ensure compliance with the applicable disclosure required by Bursa Malaysia for public listed company. h) Review financial statement disclosures for consistency and reasonableness. i) Ensure the disclosure are consistent with management assertions and fair. j) Ensure proper completion of the relevant checklist and questionnaires pertaining to the audit.
  9. 9. Review for contingent liabilities Review for subsequent events Accumulate final evidence Evaluate results and issue audit report Communication with audit committee and management
  10. 10. a) The letter provides pending threatened litigation and asserted or unasserted claims or assessments by the lawyer significant involvement. b) The letter furnish information or comment about the progress of each item listed. c) The letter provides unlisted pending or threatened legal actions or a statements that the clients involvement is complete. d) The letter inform the lawyer’s responsibility which is to inform the management of legal matters requiring disclosure in the financial statements and to respond directly to the auditor.
  11. 11. • Auditor is responsible for determining client has properly identified, accounted for, and disclosed material contingencies Sources of Evidence. • Primary sources include management and client's legal counsel Additional sources include corporate minutes, contracts, correspondence from government agencies, and bank confirmations • Obtain sufficient appropriate audit evidence about the appropriateness of management's use of the going concern assumption in the preparation and presentation of FS.
  12. 12. Type From To Timing Method Engagement letter Auditors Client Before engagement Written Acceptance letter Client Auditors Before engagement Written Attorney letter response Attorney Auditors Near date of auditors’ report Written Written representations Client Auditors Date of auditors’ report Written
  13. 13. Type From To Timing Method Internal control deficiencies Auditors Individuals charged with governance For public entities, prior to audit report release date Written Communication with those charged with governance Auditors Individuals charged with governance After audit Oral or written Management letter Auditors Client After audit Oral or written