Page 160 - AAA Integrated Workbook STUDENT S18-J19

Chapter 103 4

Audit procedures

 Enquiring of directors if they are aware of any subsequent events that require
adjustment in the financial statements.

 Enquiring into management's procedures for the identification of subsequent
events.

 Inspection of minutes of members’ and directors’ meetings.

 Reviewing accounting records including budgets, forecasts and interim
information.

 Obtaining written representation from management that all subsequent events
have been considered in the preparation of the financial statements.

 Inspection of correspondence with legal advisors.

 Enquiring of the progress with regards to reported provisions and contingencies.

 Inspecting after date receipts from receivables.

 Inspecting the cash book after the year-end for payments/receipts that were not
accrued for at the year-end.

 Inspecting the sales price of inventories after the year-end.

Example 1

Before the auditor’s report is signed

You are auditing Yangtze Co. The year-end is 31 December 20X5. The
auditor’s report is due to be signed next week. During a review of the board
minutes for the latest board meeting held two weeks ago you discover that a
customer has filed a legal claim against the company in respect of an accident
which occurred on the client’s premises during December 20X5. The
company’s lawyers believe the claim is likely to succeed. The claim is material
to the financial statements.

This is an adjusting event. The auditor must ask management to adjust the
financial statements to recognise a provision for the estimated compensation.

If management refuse, the auditor will issue a modified opinion.

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