AUDIT-THE FINAL REVIEW STAGE

AUDIT- THE FINAL REVIEW STAGE

CHAPTER OBJECTIVE

1. THE OVERALL REVIEW OF THE FINANCIAL STATEMENTS
2. THE GOING CONCERN REVIEW
3. SUBSEQUENT EVENTS
4. THE WRITTEN REPRESENTATIONS LETTER
5. THE MANAGEMENT LETTER

1. THE OVERALL REVIEW OF THE FINANCIAL STATEMENTS

Before the audit report can be signed, the audit work needs to be reviewed.
The elements of this overall review process are as follows.
 Accounting policy: accordance with statutory requirement and accounting standards.
 Consistency of the financial statements: individual amounts
 Presentation and disclosure: law requirement and accounting standard
 Evaluation of uncorrected misstatement.

2. THE GOING CONCERN REVIEW

The going concern concept is defined as the assumption that the enterprise will continue in operational existence for the foreseeable future. This means in particular that the statements of financial position and comprehensive income assume no intention or necessity to liquidate or curtail significantly the scale of operations.
Financial indicator for going concern problem:
 Liabilities are greater than assets
 Defaults on loans, breach of loan covenants
 Significant liquidity or cash flow problems
Non-financial indicator for going concern problem:
 Loss of key suppliers or customers or obsolescence of product
 Major litigation
 Loss of key management or staff, labour difficulties, dependence on a few product lines where the market is depressed.

3. SUBSEQUENT EVENTS

Subsequent events: are events occurring and facts discovered between the period end and the laying of the financial statements.
IAS 10 events after the reporting date:
Adjusting events: are those events after the reporting period that provide additional evidence relating to conditions existing at the reporting date. Such events require adjustments in the financial statements. Examples include:
 Receivable became evident after the year end not pay
 Insurance claims
 Determination of purchase or sale price of non current assets purchased or sold before the year end.

Non-adjusting events: are those events after the reporting period that concern conditions which did not exist at the reporting date but which may be of such materiality that their disclosure is required to ensure that financial statements are not misleading.
Examples of non-adjusting events include:
 Loss of non-current assets or inventory as result of fires or floods.
 Issue of new shares or loan capital.

4. THE WRITTEN REPRESENTATIONS LETTER

Written representations are statements made to the auditor during the course of the audit which provide audit evidence in respect of specific ( or general) matters.
The letter of representation is a key document providing evidence from the directors of issues where the auditor is unable to obtain independent, external, third party evidence.
The letter is signed by directors, addressed to the auditor which gives written assurance on a number of matters of significance to the audit.

5. THE MANAGEMENT LETTER

Management letters- the means by which the auditor communicates to management any deficiencies discovered in the system of internal control or the use of inappropriate accounting policies or procedures.
The management letter produced by the auditor is an internal document detailing control deficiencies; it is not generally a statutory requirement but is considered to be part of the service provided to management.

Source:

1. Kaplan, FAU
2. Phnom Penh HR