Audit Finalisation and the Final Review for ACCA AA

What this chapter covers

Audit finalisation and the final review: topics in the order to study them

1. 1Subsequent Events (ISA 560)Start here. It is a rule-based topic with clear timing categories, and it feeds directly into the later topics.
2. 2Going Concern Review (ISA 570)It builds on subsequent events, since post year-end information often signals going concern problems, and it links to the opinion.
3. 3Written Representations (ISA 580)Once you know the issues the auditor must resolve, you can see which matters need management's confirmation and what to do if it is refused.
4. 4Final Analytical Procedures and Overall ReviewIt pulls the evidence together, so it makes most sense after the specific finalisation procedures are clear.
5. 5Audit Completion: Reviews, Documentation and CommunicationFinish with the wrap-up: file review, documentation and reporting to governance, which close the audit and lead into the auditor's report.

How to prepare Audit finalisation and the final review

1. Read each topic once to learn the purpose: what risk does this procedure address?
2. Write a one-page summary for each topic with the key rule, the auditor's duties and the effect on the report.
3. For subsequent events, practise sorting examples into adjusting or non-adjusting and by timing: before the report date, after the report date but before issue, and after issue.
4. For going concern, list indicators (financial, operating and other) and the audit procedures and disclosure consequences, then practise linking them to the opinion.
5. Practise objective test cases: read the scenario, find the one fact that decides each answer, and remember that wrong answers score nothing and are not penalised further.
6. Write timed constructed-response answers using clear points, each with a fact from the scenario and an action or conclusion, and review them against the marking points you missed.
7. Revise the link to the auditor's report: for each issue, state what happens if it is unresolved or management refuses to cooperate.

Common mistakes in Audit finalisation and the final review

• Classifying a subsequent event by its size rather than by whether it gives evidence of conditions at the year end.

  Fix: Ask one question first: did the condition exist at the year-end date? If yes, it is adjusting. If not, it is non-adjusting, with disclosure if material.

• Mixing up the auditor's going concern responsibility with management's.

  Fix: State that management assesses and the auditor evaluates, challenges the assumptions and concludes.

• Recommending the wrong report outcome for going concern.

  Fix: Link the outcome to the disclosure and to the appropriateness of the basis: - Adequate disclosure of a material uncertainty gives an unmodified opinion with a 'Material uncertainty related to going concern' section. - Inadequate disclosure gives a qualified or adverse opinion. The choice between them depends on how pervasive the misstatement is. - An inappropriate going concern basis that management has still used gives an adverse opinion. - Where management refuses to make or extend its assessment, consider a qualified opinion or a disclaimer.

• Treating a management representation letter as sufficient evidence.

  Fix: Say that representations support but never replace other evidence, especially where the evidence could be obtained directly.

• Giving generic answers such as 'perform more audit work' without reference to the scenario.

  Fix: Name the specific procedure, such as reviewing post year-end cash flow forecasts or inspecting the lender's correspondence, and tie it to the issue.

• Ignoring unadjusted misstatements in the overall review.

  Fix: Remember to assess unadjusted misstatements in aggregate against materiality and consider the effect on the opinion.

Last-day revision: Audit finalisation and the final review

• ✓Subsequent events are events occurring between the date of the financial statements and the date of the auditor's report. Facts that become known to the auditor after the date of the auditor's report are a separate matter.
• ✓Adjusting events give evidence of conditions at the year end. Non-adjusting events relate to conditions arising afterwards.
• ✓Before the report date, the auditor must perform procedures to identify events needing adjustment or disclosure.
• ✓After the report date, the auditor has no duty to search, but must act if a fact becomes known that would have affected the report.
• ✓Going concern: management makes the assessment, and the auditor evaluates it and concludes on the appropriateness of the assumption.
• ✓Going concern indicators include net current liabilities, loan default, loss of key customers, negative cash flows and legal action.
• ✓If going concern is doubtful but adequately disclosed, the report includes a material uncertainty section. If not disclosed, the opinion is modified.
• ✓Written representations are evidence but not sufficient on their own, and they do not replace other evidence.
• ✓If management refuses to provide requested representations, the auditor discusses it, reassesses integrity and considers the effect on the opinion.
• ✓Final analytical procedures check that the statements are consistent with your understanding of the entity and highlight unexpected relationships.
• ✓Completion includes file review by senior staff, a review of documentation and communication with those charged with governance.
• ✓Unadjusted misstatements are assessed individually and in total against materiality, and management is asked to correct them.

Audit finalisation and the final review in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

• CA IntermediateCompletion and Review
• ACCA Strategic ProfessionalCompletion and final review
• CMA IntermediateAudit Sampling, Audit Techniques and Analytical Procedure
• CA FinalCompletion and Review