Completion and Review: formula sheet

Key formulas

Nature of evidence

Written representation = necessary information the auditor requires; audit evidence, but NOT sufficient on its own

It cannot replace other appropriate evidence that should reasonably be available on a matter.

Date of representation letter

Date: as near as practicable to, but not after, the date of the auditor's report

Covers all financial statements and periods referred to in the auditor's report.

Mandatory requests

Responsibility for FS + Information provided and completeness of transactions

These two responsibility representations must be requested in every audit. Other representations, such as management's plans relevant to going concern (which the auditor considers requesting under SA 570 where applicable), are requested as other SAs or the auditor's judgment require.

Doubt about integrity

Doubt about integrity of management → determine effect on reliability of representations and on audit evidence → if responsibility representations are not reliable or not provided → appropriate action, including disclaimer under SA 705

Discuss, reassess integrity, and consider withdrawal where law permits. If the responsibility representations are not provided, or doubt about integrity makes them unreliable, the action includes a disclaimer of opinion under SA 705. For other representations not provided, modify the opinion as appropriate.

Oral representations and inconsistency

Oral representation does not satisfy the requirement for a written representation; inconsistent representation → investigate and reconsider reliability

The auditor may request management to confirm oral representations in writing, but an oral representation cannot satisfy the requirement for a written one. If a representation is inconsistent with other evidence, investigate it and reconsider the reliability of other representations, and possibly management's integrity.

Basis of responsibility

Management assesses; auditor evaluates and concludes

Management prepares the assessment. You evaluate it and conclude on appropriateness of the basis and on material uncertainty.

Financial indicators

Net liability or net current liability position; loans nearing maturity with no realistic renewal or repayment; heavy reliance on short-term borrowings for long-term assets; adverse key ratios; substantial operating losses; negative operating cash flows; arrears or discontinuance of dividends; inability to pay creditors on due dates; inability to comply with loan terms; change from credit to cash-on-delivery with suppliers; inability to finance new product development

Group these as financial indicators in your answer.

Operating indicators

Loss of key management without replacement; loss of a major market, key customer, franchise, licence or principal supplier; labour difficulties; shortage of important supplies; emergence of a highly successful competitor

Group these as operating indicators.

Other indicators

Non-compliance with capital or statutory requirements; pending legal or regulatory proceedings that may result in claims the entity cannot meet; changes in law or government policy expected to affect the entity adversely; uninsured or underinsured catastrophes

Group these as other indicators.

Reporting: basis appropriate, no material uncertainty

Going concern basis appropriate and no material uncertainty → unmodified opinion with no going concern section

This is the plain case. Indicators may have been examined, but if management's plans resolve the doubt, nothing extra goes in the report.

Reporting: appropriate basis, adequate disclosure

Material uncertainty exists and is adequately disclosed → unmodified opinion + separate section 'Material Uncertainty Related to Going Concern'

Do not use an Emphasis of Matter paragraph for this situation. Use the separate section.

Reporting: inadequate disclosure

Material uncertainty exists but disclosure is inadequate → qualified or adverse opinion (SA 705), with a Basis for Qualified (Adverse) Opinion section

Choose qualified or adverse based on how material and pervasive the inadequacy is.

Reporting: basis inappropriate

Going concern basis used but inappropriate → adverse opinion

This applies where management should have used another basis, such as liquidation basis, but did not.

Management unwilling

Management unwilling to make or extend its assessment → consider the implications for the report; if sufficient appropriate evidence cannot be obtained by other procedures, this is a scope limitation under SA 705 → qualified opinion if the possible effects are material but not pervasive; disclaimer of opinion if they are material and pervasive

The auditor asks management to make or extend the assessment. If management refuses, you consider the implications for your report. If other procedures cannot give sufficient appropriate evidence, treat it as a limitation of scope and choose between a qualified opinion and a disclaimer based on the pervasiveness of the possible effects.

Overall review requirement

Near the end of the audit, design and perform analytical procedures that help form an overall conclusion on whether the financial statements are consistent with your understanding of the entity

This is mandatory under SA 520. It applies to every audit, not only where you have doubts.

Stages of use

Stages: Risk assessment (SA 315); Substantive procedures (SA 330/SA 520, optional); Overall review (SA 520)

Analytical procedures are required at risk assessment (SA 315) and at the overall review (SA 520). Using them as substantive procedures is optional and depends on the auditor's judgement.

Response to unusual results

Inconsistent or unexpected relationship → inquire of management → obtain evidence → perform other audit procedures as needed

Management's explanation alone is not enough. Corroborate it with audit evidence.

Reassessment trigger

Unexpected result at review → reconsider risk assessment → modify planned procedures if needed

Reviewing may reveal a risk of material misstatement you missed earlier.

Clearly trivial (conceptual relationship, not a formula)

Clearly trivial is well below materiality (far smaller, not just slightly smaller)

SA 450 sets no formula or percentage for this. It is a conceptual relationship, and the threshold is set by the auditor's own judgement. It is not the same as performance materiality. Doubt means the item is not trivial.

Aggregate uncorrected misstatements

Aggregate view = uncorrected factual + judgmental + projected misstatements, considered by class of transactions, account balance and disclosure, and also in aggregate

SA 450 does not prescribe a netting formula. The auditor considers the effect of uncorrected misstatements by class of transactions, account balance and disclosure, as well as in aggregate. As a working aid in numerical questions, you can add each item with its sign (overstatements of profit as plus, understatements of profit as minus) to get a net effect, and also note the gross amounts. Factual: no doubt. Judgmental: differences in estimates or policies. Projected: auditor's best estimate of misstatement in a population from sample results.

Evaluation test

Uncorrected misstatements (individual and aggregate) vs. materiality (reassessed)

SA 450 requires you to conclude, using judgement, whether the uncorrected misstatements are material, individually or in aggregate, considering the effect on the financial statements as a whole. Consider nature as well as amount. The opinion is then determined under SA 700 and SA 705. If management corrects the items, no modification is needed. If the items are material and remain uncorrected, SA 705 applies: qualified opinion if material but not pervasive, adverse opinion if material and pervasive.

Communication duty

Communicate all accumulated misstatements on a timely basis to the appropriate level of management and ask for correction; after evaluating, communicate the uncorrected ones to those charged with governance

Communication to those charged with governance covers the uncorrected misstatements, with the effect they may have on the opinion, unless law prohibits. It comes after your evaluation and before you obtain the written representation.

SA 260 purpose

Communicate responsibilities + planned scope and timing (including significant risks identified) + significant findings, to TCWG, in a timely way

Use this three-part frame for any SA 260 question. Do not forget significant risks identified under planned scope and timing.

Significant findings to communicate

Qualitative aspects of accounting practices + significant difficulties + significant matters discussed with management + written representations requested + circumstances affecting the form and content of the report + other significant matters relevant to oversight

This is the SA 260 list of significant findings. Uncorrected misstatements are communicated to TCWG under SA 450, which also requires you to request correction. This works alongside SA 260. Significant risks identified belong to the planned scope and timing part of the SA 260 frame.

Independence communication

Listed entities: SA 260 requires you to communicate a statement of compliance with relevant ethical requirements on independence, plus all relationships and other matters that may reasonably be thought to bear on independence, and the related safeguards. Other entities: SA 260 does not specifically require this; communicate where law, regulation or the Code of Ethics requires it, or where you judge it appropriate

For listed entities both parts are required by SA 260. For other entities, do not say there is no requirement at all. Law, regulation and the Code of Ethics may still require the communication.

Written representations rule

Written representation ≠ sufficient appropriate audit evidence on its own

Management must be asked for them. Date of representations should be as near as practicable to, but not after, the date of the auditor's report.

Completion checklist (illustrative sequence, not prescribed by any SA)

Review work → evaluate misstatements → subsequent events → going concern → written representations → overall analytical review → communicate with TCWG → sign

This is an illustrative sequence only. No standard fixes this order, and it can vary in practice. All steps must be done before signing.

Quick revision

• SA 560 deals with three periods, and the auditor's responsibility differs in each. First, events between the date of the financial statements and the date of the auditor's report: the auditor must perform procedures to identify events that need adjustment or disclosure. Second, facts that become known after the report date but before the financial statements are issued. Third, facts that become known after the financial statements are issued. In the second period, the auditor has no obligation to perform procedures after the report date. Management is responsible for informing the auditor of facts that become known. The auditor then discusses the matter with management and determines whether the financial statements need amendment. If management does not amend the financial statements where the auditor believes they need to be amended, the auditor notifies management and those charged with governance not to issue the financial statements to third parties before the amendment is made. If they are issued anyway, the auditor takes appropriate action to prevent reliance on the auditor's report. In the third period, the auditor also has no duty to search for such facts. But if a fact comes to notice that, had it been known at the report date, may have caused the report to be amended, the auditor discusses it with management and determines whether the financial statements need amendment. If management does not take the necessary steps (such as amending the financial statements and informing those who already hold them), the auditor notifies management and those charged with governance that the auditor will seek to prevent future reliance on the report. If management still does not act, the auditor takes appropriate action to prevent reliance on the report. If the financial statements are amended, the auditor extends the audit procedures to the date of the new report and provides a new or amended report. Dual-dating is possible only where the amendment is limited to the specific subsequent event.
• SA 560 separates events that give evidence of conditions at the period-end (adjusting) from those that arise afterwards (non-adjusting but may need disclosure).
• The auditor must perform procedures to identify events up to the date of the auditor's report that need adjustment or disclosure.
• Written representations are evidence from management, and they cannot replace other audit evidence that should be available.
• If management does not provide one or more requested representations, the auditor discusses the matter with management, re-evaluates management's integrity and the reliability of other evidence, and determines the effect on the opinion. If (a) the auditor concludes there is sufficient doubt about management's integrity that the representations about its responsibilities are not reliable, or (b) management does not provide the representations about its responsibilities for the preparation and presentation of the financial statements and the completeness of information provided, the auditor shall withdraw from the engagement where withdrawal is possible under applicable law or regulation. If withdrawal is not possible, the auditor shall disclaim an opinion on the financial statements in accordance with SA 705 (Revised). For other refused representations, the auditor re-evaluates integrity and determines the effect on the opinion.
• Going concern is a basis of accounting: the entity is assumed to continue in operation for the foreseeable future. The auditor concludes whether that basis is appropriate and whether a material uncertainty exists.
• Under SA 570 (Revised), if a material uncertainty exists and disclosure is adequate, the opinion stays unmodified, with a separate section headed "Material Uncertainty Related to Going Concern".
• If a material uncertainty exists but disclosure is inadequate, the auditor gives a qualified opinion if the effect is material but not pervasive, or an adverse opinion if the effect is pervasive. The Basis for Qualified (or Adverse) Opinion section must state that a material uncertainty exists and that the financial statements do not adequately disclose this matter. If the going concern basis of accounting is inappropriate, the auditor gives an adverse opinion.
• At the overall review stage, analytical procedures help the auditor judge whether the financial statements are consistent with the auditor's understanding of the entity.
• The auditor accumulates misstatements and judges whether uncorrected ones are material, individually or in total.
• Audit documentation should let an experienced auditor with no prior link to the audit understand the work done and conclusions reached.
• Significant matters from the audit should be communicated to those charged with governance on time.

Common mistakes

• Saying written representations are sufficient evidence so other procedures can be skipped. Fix: Write that representations support but never replace other appropriate evidence. Management's statement is not independent.
• Dating the representation letter after the auditor's report or well before it. Fix: Remember the rule: as near as practicable to, but not after, the report date.
• Using an Emphasis of Matter paragraph for a material uncertainty. Fix: Under SA 570 (Revised), use a separate section titled 'Material Uncertainty Related to Going Concern' when disclosure is adequate.
• Saying the auditor is responsible for preparing the going concern assessment. Fix: Write: management makes the assessment; the auditor evaluates it and concludes on appropriateness.
• Saying the overall review is optional. Fix: Remember that analytical procedures at risk assessment and at the overall review are required. Only their use as substantive tests is a choice.
• Treating the overall review as a replacement for detailed testing. Fix: State that it is a final reasonableness check on the statements as a whole and does not replace evidence from tests.
• Treating clearly trivial as equal to materiality or performance materiality. Fix: Remember that clearly trivial is far below materiality. Items under it are ignored. Items above it are accumulated even if immaterial.
• Saying the auditor corrects the misstatements in the books. Fix: Management prepares the statements. The auditor communicates, requests correction and evaluates what remains.
• Treating written representations as full audit evidence. Fix: Write that representations support other evidence but cannot replace it. If other evidence is missing, the letter does not fill the gap.
• Confusing management with those charged with governance. Fix: TCWG oversee the entity and its financial reporting. Management run it. Name the correct audience in each answer.

Exam tips

• Always state that written representations are necessary but not sufficient evidence. This single line earns marks in definition and scenario answers.
• For refusal questions, follow the order: discuss, reassess integrity and reliability, consider effect on evidence, consider withdrawal where law permits, then disclaim (for responsibility representations) or modify (for other representations).
• Learn the date rule exactly: not after the date of the auditor's report. Examiners use it in MCQs.
• Link SA 580 with other SAs: fraud, litigation, related parties and subsequent events all use representations. Mention this where relevant, and do not call going concern plans a mandatory SA 580 request.
• In MCQs, eliminate options that say representations replace procedures or that oral statements satisfy the written requirement.
• Write the three-part structure of Indicators, Procedures and Reporting. It maps neatly to step marks.
• Always classify indicators as financial, operating or other, and give two or three examples of each.
• In reporting questions, say clearly whether disclosure is adequate. This one fact decides the opinion.