WRAP-UP PHASEWRAP-UP PHASE

The Fifth PhaseThe Fifth Phaseof the Audit Processof the Audit Process

WRAP-UP PHASEWRAP-UP PHASE●Search for unrecorded liabilities & Search for unrecorded liabilities &

significant subsequent eventssignificant subsequent events●Summarize & concludeSummarize & conclude●Partner, manager & senior reviewPartner, manager & senior review

SEARCH FOR UNRECORDED SEARCH FOR UNRECORDED LIABILITIES & SIGNIFICANT LIABILITIES & SIGNIFICANT

SUBSEQUENT EVENTSSUBSEQUENT EVENTS

●What period are we talking What period are we talking about. . . ?about. . . ?

-- From year-end / December 31-- From year-end / December 31 -- To last day of field work-- To last day of field work

SEARCH FOR UNRECORDED SEARCH FOR UNRECORDED LIABILITIES & SIGNIFICANT LIABILITIES & SIGNIFICANT

SUBSEQUENT EVENTSSUBSEQUENT EVENTS●What are we looking for . . . ?What are we looking for . . . ? -- Two kinds of unrecorded -- Two kinds of unrecorded liabilitiesliabilities -- Two kinds of significant -- Two kinds of significant subsequent eventssubsequent events

TWO KINDS OF TWO KINDS OF UNRECORDED LIABILITIESUNRECORDED LIABILITIES

●Known liabilitiesKnown liabilities●Contingent liabilitiesContingent liabilities -- Remote-- Remote -- Reasonably possible-- Reasonably possible -- Probable-- Probable

CONTINGENT LIABILITYCONTINGENT LIABILITY

Record, disclose &/or ignore Record, disclose &/or ignore depending upon probabilitydepending upon probability

FASB 5 LEVELS OF FASB 5 LEVELS OF PROBABILITYPROBABILITY

●REMOTE - Don’t disclose or recordREMOTE - Don’t disclose or record●REASONABLY POSSIBLE - DiscloseREASONABLY POSSIBLE - Disclose●PROBABLE & MEASURABLE -PROBABLE & MEASURABLE - - Record and disclose- Record and disclose - If range of loss possible, record - If range of loss possible, record

lower end of range and disclose lower end of range and disclose possible additional losspossible additional loss

TWO KINDS OF SIGNIFICANT TWO KINDS OF SIGNIFICANT SUBSEQUENT EVENTSSUBSEQUENT EVENTS

●Events confirming a condition Events confirming a condition existing at year-endexisting at year-end

●Events discretely related to Events discretely related to subsequent periodsubsequent period

FIRST KIND OF FIRST KIND OF SIGNIFICANT SUBSEQUENT SIGNIFICANT SUBSEQUENT

EVENTEVENT

Event that confirms an Event that confirms an already existing situation at already existing situation at

year-endyear-end

CONFIRMS AN CONFIRMS AN EXISTING SITUATIONEXISTING SITUATION

●Lawsuit settled after year-endLawsuit settled after year-end●Customer files for bankruptcy Customer files for bankruptcy

after year-endafter year-end●Record adjustment on y/e Record adjustment on y/e

financial statementsfinancial statements

SECOND KIND OF SECOND KIND OF SIGNIFICANT SIGNIFICANT

SUBSEQUENT EVENTSUBSEQUENT EVENT

Event that relates Event that relates discretely to the discretely to the following yearfollowing year

RELATES DISCRETELY RELATES DISCRETELY TO FOLLOWING YEARTO FOLLOWING YEAR

●Factory burns down on Jan 18Factory burns down on Jan 18●Airliner crashes at O’Hare on Airliner crashes at O’Hare on

Feb 20 killing 328 peopleFeb 20 killing 328 people●Failure to disclose in notes to Failure to disclose in notes to

F/Ss makes F/Ss misleadingF/Ss makes F/Ss misleading

SEARCH FOR UNRECORDED SEARCH FOR UNRECORDED LIABILITIES & SIGNIFICANT LIABILITIES & SIGNIFICANT

SUBSEQUENT EVENTSSUBSEQUENT EVENTS●Search for unrecorded payablesSearch for unrecorded payables●Review interim financial Review interim financial

statementsstatements●Review significant books of Review significant books of

accountaccount●Obtain legal lettersObtain legal letters

SEARCH FOR UNRECORDED SEARCH FOR UNRECORDED LIABILITIES & SIGNIFICANT LIABILITIES & SIGNIFICANT

SUBSEQUENT EVENTSSUBSEQUENT EVENTS

●Review minutes & obtain minute Review minutes & obtain minute representation letterrepresentation letter

●Make inquiries of managementMake inquiries of management●Obtain management Obtain management

representation letterrepresentation letter

SEARCH FOR SEARCH FOR UNRECORDED PAYABLESUNRECORDED PAYABLES

●Relates to audit of A/PRelates to audit of A/P●Search through end of auditSearch through end of audit●Examine subsequent C/DsExamine subsequent C/Ds●Propose PJE for unrecordedPropose PJE for unrecorded

REVIEW LATEST REVIEW LATEST INTERIM FINANCIAL INTERIM FINANCIAL

STATEMENTSSTATEMENTS● Internal monthly F/Ss prepared for Internal monthly F/Ss prepared for

January or FebruaryJanuary or February●Look for large, unusual variations Look for large, unusual variations

from audited F/Ssfrom audited F/Ss●Investigate until explanation foundInvestigate until explanation found

REVIEW SIGNIFICANT REVIEW SIGNIFICANT BOOKS OF ACCOUNTBOOKS OF ACCOUNT

●General ledgerGeneral ledger●General journalGeneral journal●Cash receipts journalCash receipts journal●Sales journalSales journal●Purchases journalPurchases journal

REVIEW SIGNIFICANT REVIEW SIGNIFICANT BOOKS OF ACCOUNTBOOKS OF ACCOUNT

●Review through end of auditReview through end of audit●Review for large, unusual activityReview for large, unusual activity●Investigate unusual items to Investigate unusual items to

resolutionresolution

OBTAIN LEGAL LETTERSOBTAIN LEGAL LETTERS●Standard request on page 715Standard request on page 715●Addresses asserted & unasserted Addresses asserted & unasserted

claimsclaims●FASB 5 standardsFASB 5 standards●Confirm understandingConfirm understanding●Dated close to last dayDated close to last day●Difficulties with attorneysDifficulties with attorneys

REVIEW MINUTESREVIEW MINUTES

●Obtain minutes thru last dayObtain minutes thru last day●Agenda & resolutions for recent Agenda & resolutions for recent

meetingsmeetings●Obtaim minute representation Obtaim minute representation

letter from Corporate Secretaryletter from Corporate Secretary

MAKE INQUIRIES OF MAKE INQUIRIES OF MANAGEMENTMANAGEMENT

●On last day of fieldworkOn last day of fieldwork●Use checklistUse checklist●Discuss with CEO & CFODiscuss with CEO & CFO

OBTAIN MANAGEMENT OBTAIN MANAGEMENT REPRESENTATION LETTERREPRESENTATION LETTER

●Prepare draft for managementPrepare draft for management●Dated last day of fieldworkDated last day of fieldwork●Signed by CEO & CFOSigned by CEO & CFO●Formalize oral & implied reps(720)Formalize oral & implied reps(720)●Qualified opinion if management Qualified opinion if management

won’t signwon’t sign

MANAGEMENT REP MANAGEMENT REP LETTERLETTER

●Management primarily responsibleManagement primarily responsible●Financial statements present fairlyFinancial statements present fairly●Specific financial statement mattersSpecific financial statement matters●Issues addressed during auditIssues addressed during audit●Opinions of managementOpinions of management●Plans/intentions of managementPlans/intentions of management●All records available/none withheldAll records available/none withheld

SUMMARIZE & SUMMARIZE & CONCLUDECONCLUDE

●Proposed journal entry scheduleProposed journal entry schedule●Final engagement memoFinal engagement memo

REVIEW PROCESSREVIEW PROCESS

●Senior reviewSenior review●Manager reviewManager review●Partner reviewPartner review

REVIEW PROCESSREVIEW PROCESS

- All procedures complete- All procedures complete - Sufficient evidence- Sufficient evidence - GAAP & GAAS correct- GAAP & GAAS correct

ISSUE REPORT PHASEISSUE REPORT PHASE

The Sixth PhaseThe Sixth Phaseof the Audit Process of the Audit Process

ISSUE REPORT PHASEISSUE REPORT PHASE

RIGHT . . .RIGHT . . . EXACTLY RIGHT . . .EXACTLY RIGHT . . . ON THE FIRST TRY! ! !ON THE FIRST TRY! ! !

PROCESSING THE REPORTPROCESSING THE REPORT●Senior drafts reportSenior drafts report●Review by client & audit teamReview by client & audit team●Processing changesProcessing changes●Comparing (calling) & footingComparing (calling) & footing●Referencing by another seniorReferencing by another senior●Second partner reviewSecond partner review●Signing by partnerSigning by partner

ISSUE REPORTISSUE REPORT

●Unqualified reportUnqualified report●Qualified reportQualified report - Scope limitation- Scope limitation - GAAP deviation- GAAP deviation