Unit 5 10. ll. Completing the Audit Describe the tasks the auditor has to perform after obtaining audit evidence but before formulating the audit opinion. How shall an auditor review and assess the appropriateness of the client's accounting for and disclosure of loss contingencies? How shall an auditor review and assess the appropriateness of the client's signicant accounting estimates? Discuss the implications on the audit report when the use of the going concern assumption is appropriate for a client but a material uncertainty exists. What are the examples of analytical review procedures that an auditor may perform toward the completion of the audit? Give examples of events aer the reporting period that require adjustments and events after the reporting period that may require disclosures. Describe a letter of audit inquiry. In completing the audit, the auditor must obtain a management representation letter. What does this letter contain? In completing the audit, the auditor communicates with management and those charged with governance through a management letter. What does this letter contain? Bullnch.com is a website design company whose year-end was December 3 l, 2018. The audit is almost complete and the financial statements are due to he signed shortly. Revenue for the year is P1 1.2 million and profit before tax is P33 million. A key customer, with account balance at year end of P281000 has just notied Bullnch.com that they are experiencing cash ow difculties and so are unable to make payments for the foreseeable tture. The nance director has notied the auditor that he will write o' this balance as an irrecoverable debt in the 2018 financial statements. a] Explain whether or not the 2013 nancial statements require amendment. b) Describe the audit procedures which should be performed in order to form a conclusion on any required amendment During your conduct of analytical review procedures, you have discovered that the valuation of the work in progress of Pedro Company involves a number of assumptions that are out-of- date and unreasonable. The directors of Pedro have indicated that they do not wish to adjust the financial statements. b) Describe the audit procedures which should be performed in order to form a conclusion on any required amendment 11. During your conduct of analytical review procedures, you have discovered that the valuation of the work in progress of Pedro Company involves a number of assumptions that are out-of- date and unreasonable. The directors of Pedro have indicated that they do not wish to adjust the financial statements. Explain the procedures you as auditor would perform and the impact on the audit report of the directors' refusal to revise the financial statements. 12. You are the audit manager of Villa and Company, and you are currently reviewing the audit files of your clients for which the fieldwork is complete. The audit seniors have raised the following issues: Czech Company Czech Company is a pharmaceutical company and has incurred research expenditures of P21 million and development expenditure of P32 million during the year. These have all been capitalized as intangible assets. Profit before tax is P263 million. Dawson Company Dawson Company's computerized wages program is backed up daily, however for a period of two months the wages records and the back-ups have been corrupted, and thereforecannot be accessed. Wages and salaries for these two months are P1 1 million. Prot before tax is P 100 million. For each of the clients above: a} Discuss the issue, including an assessment of whether it is material; and b) Describe and impact on the audit report if the issue remains unresolved. MULTIPLE CHOICE l. The auditor is not responsible for A. Expressing an opinion on the fairness of the presentation of the nancial statements B. Expressing an opinion on the company's ability to continue as a going concern C. Conducting an audit in accordance with the International Standards of Auditing D. Reviewing events after the reporting period 2. Which of the following statements, relating to the auditor's reporting responsibilities for going concern, if any, isJare correct? I. when management is unwilling to make their assessment of the company's ability to continue as a going concern1 the auditor should include an emphasis of matter paragraph in the audit \"3P0\"- II. Where the use of the going concern assumption is inappropriate, the auditor should include a qualied opinion in the audit report. I only,I II only Both I and II Neither I nor [1 POP\"? 3. Which two of the following events which occur after the reporting date of a company but before the nancial statements are authorized for issue are classied as adjusting events in accordance with IAS 10 after the Reporting Period? C. Both I and II D. Neither I nor II 3. Which two of the following events which occur after the reporting date of a company but before the financial statements are authorized for issue are classified as adjusting events in accordance with IAS 10 after the Reporting Period? I. A change in the tax rate announced at the reporting date, but affecting the current tax liability. II. The discovery of a fraud which had occurred during the year. III. The determination of the sale proceeds of an item sold before the year end. IV. The destruction of a factory by fire. A. I and II B. I and III C. II and III D. III and IV 4. The audit of Giggs Company's financial statements for the year ended December 31, 2017 has been completed. The audit report and the financial statements have been signed but not yet issued. The finance director of Giggs Company has just informed the audit team that he has received notification that a material receivable balance has become irrecoverable and Giggs Company will not receive any of the amounts owing. What actions if any, should the auditors now take to satisfy responsibilities under 560 Subsequent Events? A. No actions required as the audit report and financial statements have already been signed. B. Request management to adjust the financial statements, verify the adjustment and provide a new audit report. Request management to make disclosure of the event in the financial statements.What actions if any, should the auditors now take to satisfy responsibilities under 560 Subsequent Events? A. No actions required as the audit report and financial statements have already been signed. B. Request management to adjust the financial statements, verify the adjustment and provide a new audit report. C. Request management to make disclosure of the event in the financial statements. D. Request that management adjust for this event in the 2018 financial statements as it occurred in year 2018. 5. Which of these statements is/are correct? I. The going concern evaluation is based on information obtained from normal audit procedures performed to test management's assertions; no separate procedures are necessary, unless the auditor believes that there is substantial doubt on the ability of the client to operate as a going concern. II. One purpose of the management representation letter is to confirm oral responses obtained by the auditor earlier in the audit and the continuing appropriateness of the responses. A. Both I and II. B. I only C. II only D. Neither I nor II 6. Which of the following is likely a source of evidence regarding contingencies? A. Communication with internal and external legal counsel B. Product warranties and premium offers C. Income tax assessments from the BIR D. All of the above. 7. In completing the audit, the auditor should review the management's significant accounting estimates to obtain reasonable assurance that A. Estimates are reasonable. B. Estimates consider the applicable reporting framework C. The disclosure about the estimate is adequate D. All of the above 8. Which of the following events after the reporting periods would mostly require disclosures but not adjustments in the client's financial statements? A. Collection of receivable previously written off B. Acquisition of another entity that is expected to affect significantly enterprise operations C. Sale of a non-monetary asset that amount to significantly below its carrying value D. Discovery of a material misstatement in ending inventory due to error in pricing