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Hey Mike,
I wanted to ask about the work performed by the auditor in a general time scale as to when audit is planned, when evidence is gathered, when review is done and when finally audit report is issued and when 2nd year audit is initiated. Also, with reference to the information from which the the audit work is performed as when interim Financial statements and draft financial statements at their disposal.Provide me with different stages of audit work performed during the course of the audit and what information will they have in order to perform that work at each stage in order to give a reasonable assurance on the truth and fairness of the financial statements.
Thanks.
Oh my word! You’re not expecting much are you!
In brief …..the interim audit work will typically be carried out some 2 or 3 months before the client’s accounting year end. It will have been planned say 4 weeks before.
The work involved at the interim stage is audit work to determine whether the accounting system and the internal control system appear to be working satisfactorily such that we could be justified in placing reliance on these systems when trying to fix our materiality levels
Some 2 months after the year end, there’s the final audit. At this stage, some brief work is carried out on the systems for the last 2 months of the year (to confirm that the systems have operated satisfactorily throughout the full accounting period) and substantive tests are carried out to confirm the appropriateness of the assets and liabilities in the draft financial statements given to the audit by the CFO.
Based on the substantive test conclusions the reporting partner will form an opinion about the truth and fairness of the view shown by the financial statements and express that opinion within the audit report
OK?
Yes, very well summarized just during the audit planning suppose we are new EA for the company and last year audit file is a very important source of information which we can’t access in this case what other documents can help us fill this gap of information and which documents will come to our aid at the planning stage of an audit.
The previous auditors MAY be willing to assist! Because, next week, they could be looking for your assistance when they are auditing one of your former clients! Furthermore, there is a professional responsibility to ensure that the transition from one audit firm to the next should be “as smooth as possible with the client’s best interests being of paramount importance”
As a bare minimum, the new firm should be able to have access to the final trial balance which is in agreement with the previous financial statements as well as a detailed analysis of accruals and prepayments.
The company itself will (should) have provided the previous auditors with schedules of major / material figures in the financial statements and will (should) have kept copies of these.
Directors’ minutes for the period subsequent to the previous accounting date could help as could the Audit Committee’s own records of discussions held with the (previous) auditors.
Work on this year’s audit by the new auditors could go some way to establishing the reasonableness of the reported figures for, for example, inventory, receivables and payables. By checking invoices shortly after the previous year end, that will give some degree of comfort about the year end values.
The bank can be contacted again to confirm the bank figures
All is not lost! There’s quite a wealth of sources from which to draw information
And, as a VERY LAST resort, you could persuade the client to let you carry out extensive substantive tests on last year’s balance sheet. They’re not going to be happy because they’ve already paid for it once but, if that’s all you have, then so be it
OK?
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