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Hello ma’am, hope you are doing good
Ma’am I am struggling to understand how despite an interim audit being conducted before the year end is considered “Late enough to enable sufficient work to be done to ease the pressure on the final audit”?
The line has been taken from my kaplan text
2nd doubt:
ma’am I am curious to understand how interim audit is “Useful when there is increased detection risk due to a tight reporting deadline.”
for example if we are concerned about recoverability of TRs then its difficult to do any valuation test with tighter deadline, so detection risk increases.
but its equally difficult during interim audit as we can’t examine extended post-yr cash receipts to ensure the valuation is correct, and adequate loss allowance is provided for.
So then how is an interim audit useful in mitigating detection risk when there are tight deadlines?
This post may help with your first query:
https://opentuition.com/topic/releasing-final-results-earlySuppose y/e is 31 December – when you would request external confirmation from TR (existence) and perform other procedures – as you say after-date cash receipts (recoverability).
So if you “bring forward” external confirmation to 30 November, you can do the same procedures – drawing conclusions “as at 30 November” and then consider the “roll forward” of one month.
So if at 30 November, management is making adequate loss allowance (specific and general – where the general might be based on past experience expressed as a % of age – e.g. see here https://opentuition.com/topic/audit-procedures-to-assess-valuation-of-receivables), the auditor consider, for example, the creditworthiness of any major new customers in the last month (e.g. according to references from a credit agency). That cash hasn’t been received by the time the auditor completes audit work isn’t the only factor that the auditor considers in assessing the adequacy of the allowance. For example, there may be customers who always take as much credit as they can “get away with” but who will pay when sent a “final demand notice”. The client’s credit controller/management will know the history of such customers (and the auditor will be able to confirm the pattern of their payments) and no allowance may be considered necessary even though they have old debts/are slow payers.
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