CHAPTER 5 : AUDIT REVIEW (PSP_DAT5B_GROUP 5)

 

CHAPTER 5 : AUDIT REVIEW

 

 

 

 

GROUP MEMBERS :

SANTHIYA SAGARAN                                       10DAT18F1078

KENNETH BERNARD                                        10DAT18F1122

NOR FAIZAH BINTI ABDUL RAHMAN              10DAT18F1100

NUR ASHIQIN AQILLAH BINTI DERMAWI       10DAT18F1020

NUR ILLYIA BINTI KAMAL                                10DAT18F1108

 

 

1. What the subsequent event ?

 

Financial statements may be affected by certain events that occur after the date of the financial statements. Many financial reporting frameworks specifically refer to such events. Such financial reporting frameworks ordinarily identify two types of events:

 

(a) Those that provide evidence of conditions that existed at the date of the financial statements; and

 

(b) Those that provide evidence of conditions that arose after the date of the financial statements.

 

2. What the subsequent event after balance sheet event ?

 

An event, which could be favourable or unfavourable, that occurs between the end of the reporting period and the date that the financial statements are authorised for issue.

 

 

3. Adjusting Events and Non-Adjusting Events

 

-          Adjusting Events – Those events that provide further evidence about conditions that existed at the end of reporting period.

 

-          Non-Adjusting Events – Those events that reflect conditions that arose after the end of reporting period.

 

4. Adjusting Events

 

´  If any events occur after the end of the reporting period that provide further evidence of conditions that existed at the end of reporting period (i.e. Adjusting Events), then the financial statements must be adjusted accordingly.

 

5. Non - Adjusting Events

 

´  Entity shall not adjust the financial statements in respect of those events after the end of reporting period that reflect conditions that arose after the end of reporting period (i.e. Non-Adjusting Events).

´  Examples of Non-Adjusting Events include:

´  Declaration of dividends after the reporting date does not indicate existence of liability to pay dividends at the reporting date and shall not therefore trigger the recognition of liability in financial statements in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

´  Destruction of assets of the entity by floods occurring after the reporting period does not indicate that the assets of the entity were impaired at the end of reporting period. Hence, the financial statements should not be adjusted to account for the impairment loss that arose after the end of reporting period.

´  Initiation of litigation against the company arising out of events that occurred after the reporting period does not indicate the existence of liability at the reporting date and shall not therefore trigger the recognition of liability in the financial statements in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

´  The nature and estimate of the financial impact of material non-adjusting events shall be disclosed in the financial statements.

´  Non-Adjusting Events are considered material if they could influence the economic and financial decisions of the users of financial statements.

´  Examples of material non-adjusting events include:

´  Management’s plan to discontinue or significantly curtail its activities in major geographic segments.

´  Initiation of a major litigation against the company arising out of events that occurred after the reporting period.

´  Major losses suffered as a result of a natural disaster occurring after the end of reporting period

6. Effect on Financial Reporting

 

An entity shall present and disclose information that enables users of the financial statements to evaluate the effects of events after reporting period:

In the Notes to the financial statement:

 

(a) An entity shall disclose the date when the financial statements were authorised for issue and who gavethat authorisation. If the entity’s owners or others have the power to amend the financial statementsafter issue, the entity shall disclose that fact.

 

(b) If an entity receives information after the reporting period about conditions that existed at the end of the reporting period, it shall update disclosures that relate to those conditions, in the light of the additional information.

 

(c) In some cases, an entity needs to update the disclosures in its financial statements to reflect information received after the reporting period, even when the information does not affect the amounts that it recognises in its financial statements.

 

(d) If non-adjusting events after the reporting period are material, non-disclosure could influence theeconomic decisions that users make on the basis of the financial statements. Accordingly, an entity shalldisclose the following for each material category of non-adjusting event after the reporting period:

 

´  (i) the nature of the event; and

´  (ii) an estimate of its financial effect, or a statement that such an estimate cannot be made.

 

7. Procedures to handle subsequent event

 

´  Certain specific procedures are applied to transactions occurring after the balance-sheet date such as:

 (a) the examination of data to assure that proper cutoffs have been made and

(b) the examination of data which provide information to aid the auditor in his evaluation of the assets and liabilities as of the balance-sheet date.

 

 

 

 

 

 

8. Auditors’ responsibilities upon completing the audit

 

´  The auditor’s objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes the auditor’s opinion

´  Auditor exercises professional judgment and maintains professional scepticism throughout the audit. The auditor also:

´  Identifies and assesses the risks of material misstatement of the financial statements, whether due to fraud or error, designs and performs audit procedures responsive to those risks, and obtains audit evidence that is sufficient and appropriate to provide a basis for the auditor’s opinion.

´   Obtains an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s

´  Evaluates the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

´  Concludes on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity’s (or where relevant, the group’s) ability to continue as a going concern

´  Evaluates the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation

´  Where the auditor is required to report on consolidated financial statements, obtains sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. The group auditor is responsible for the direction, supervision and performance of the group audit. The group auditor remains solely responsible for the audit opinion.

 

9. Important communications made by  auditors following completion of the audit and report release date.

 

´  Significant Issues Discussed with Management in Connection with the Auditor's Appointment or Retention

´   The auditor should establish an understanding of the terms of the audit engagement with the audit committee.

´  The auditor should inquire of the audit committee about whether it is aware of matters relevant to the audit , but not limited to violations or possible violations of laws or regulations.

´  The auditor should communicate to the audit committee an overview of the overall audit strategy, including the timing of the audit,and discuss with the audit committee the significant risks identified during the auditor's risk assessment procedures.

´  The auditor should communicate to the audit committee, when applicable, the following matters relating to the auditor's evaluation of the company's ability to continue as a going concern.

´  The auditor should communicate to the audit committee any disagreements with management about matters, whether or not satisfactorily resolved, that individually or in the aggregate could be significant to the company's financial statements or the auditor's report.

 

Q&A

 

1. what will auditor do after balance sheet date?

 

-          Check on transaction that occur

-          Identify any event or activity that will affect true and fair view on FS

-          Write date on report so that consumer know auditor have taken into consideration or impact on FS in the auditor report

 

2. what (2) type of event in subsequent event ?

 

-          Provides evidence of conditions that existed at the date of the FS

-          Provides evidence of condition that arose after the date og the FS

 

3. List (3) of auditor procedures in subsequent event.

 

-          Review procedures management

-          Read minutes of the meeting at shareholders

-          Read the entity larest interim FS

-          Extend previous oral or written aboutentity legal

-          Enquire management whenany subsequent event affect the FS

 

4. what is an attorney’s letter ?

 

-          An attorney’s letter is a formal business letter sent by a certificate Public Accountant (CPA) to a client’s attoney

 

5. Give (3) an example for an adjusting event

 

-          Sale of equity

-          A business combination

-          Destraction of company asset dll

 

6. What is the purpose of the attorney’s letter ?

 

-          To inform and certify to the auditor of any legal action agatract the client that could result in an adverse financial impact on the company’s financial statement

 

7. What is the three (3) period in subsequent eb=vent ?

 

-          P1 active audit must be performed

-          P2 the audit completed where there is noactive work should be performance but the auditor should remain receptive

-          P3 the financia statement have been issued which the is no active work is necessary but if material events come to light which affect the financial statement report