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1、24-12006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/ElderCompleting the AuditChapter 2424-22006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasl
2、ey/Elder Arens/Beasley/ElderLearning Objective 1Conduct a review for contingentliabilities and commitments.24-32006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/ElderSummary of the Audit ProcessPhase IPhase IPl
3、an and design an auditPlan and design an auditapproach.approach.Phase IIPhase IIPerform tests of controlsPerform tests of controlsand substantive testsand substantive testsof transactions.of transactions.Phase IIIPhase IIIPerform analyticalPerform analyticalprocedures and testsprocedures and testsof
4、 details of balances.of details of balances.Phase IVPhase IVComplete the audit andComplete the audit andissue an audit report.issue an audit report.24-42006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/ElderPha
5、se IV Completing the AuditReview for contingentReview for contingentliabilities.liabilities.Review for Review for subsequent events.subsequent events.Accumulate finalAccumulate finalevidence.evidence.Evaluate results.Evaluate results.Issue audit report.Issue audit report.Communicate with Communicate
6、 with audit committeeaudit committeeand management.and management.24-52006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/ElderContingent LiabilitiesA contingent liability is a potential futureA contingent liabil
7、ity is a potential futureobligation to an outside party for anobligation to an outside party for anunknown amount resulting from activitiesunknown amount resulting from activitiesthat have already taken place.that have already taken place.24-62006 Prentice Hall Business Publishing,2006 Prentice Hall
8、 Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/ElderLikelihood of Occurrence and Financial Statement TreatmentReasonablyReasonablypossiblepossibleFootnote disclosure isFootnote disclosure isnecessarynecessaryProbableProbable(likely to occur)(likely to occur)Adjust
9、 financial statementsAdjust financial statementsoror note disclosure note disclosureRemoteRemote(slight chance)(slight chance)No disclosureNo disclosurenecessarynecessaryLikelihood ofLikelihood ofoccurrence of eventoccurrence of eventFinancial statementFinancial statementtreatmenttreatment24-72006 P
10、rentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/ElderAuditors Concerns Pending litigation for patent infringement,Pending litigation for patent infringement,product liability,or other actions product liability,or o
11、ther actions Income tax disputes Income tax disputes Product warranties Product warranties Notes receivable discounted Notes receivable discounted Guarantees of obligations of others Guarantees of obligations of others Unused balances of outstanding letters of credit Unused balances of outstanding l
12、etters of credit24-82006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/ElderAudit Procedures for Finding ContingenciesInquire of management(orally and inInquire of management(orally and inwriting)about the possi
13、bility ofwriting)about the possibility of unrecorded contingencies.unrecorded contingencies.Review current and previous years internalReview current and previous years internalrevenue reports for income tax settlements.revenue reports for income tax settlements.Review the minutes of directors andRev
14、iew the minutes of directors andstockholders meetings for indicationsstockholders meetings for indications of lawsuits or other contingencies.of lawsuits or other contingencies.24-92006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley
15、/Elder Arens/Beasley/ElderAudit Procedures for Finding ContingenciesAnalyze legal expenses and review invoicesAnalyze legal expenses and review invoicesand statements from legal counsel.and statements from legal counsel.Obtain a letter from each major attorney of theObtain a letter from each major a
16、ttorney of theclient as to the status of pending litigation.client as to the status of pending litigation.Review audit documentation for any informationReview audit documentation for any informationthat may indicate a potential contingency.that may indicate a potential contingency.Examine letters of
17、 credit in force.Examine letters of credit in force.24-102006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/ElderLearning Objective 2Obtain and evaluate letters fromthe clients attorneys.24-112006 Prentice Hall
18、Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/ElderInquiry of Clients AttorneysA list including(1)pending threatened litigationA list including(1)pending threatened litigation and(2)asserted or unasserted claims or and(2)asse
19、rted or unasserted claims or assessments with which the attorney assessments with which the attorneyhas had involvement.has had involvement.A request that the attorney furnish informationA request that the attorney furnish informationor comment about the progress of each item listed.or comment about
20、 the progress of each item listed.24-122006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/ElderInquiry of Clients AttorneysA request for the identification of any unlistedA request for the identification of any
21、unlistedpending or threatened legal action or apending or threatened legal action or astatement that the clients list is complete.statement that the clients list is complete.A statement informing the attorney of the attorneysA statement informing the attorney of the attorneysresponsibility to inform
22、 management of legal mattersresponsibility to inform management of legal mattersrequiring disclosure in the financial statementsrequiring disclosure in the financial statementsand to respond directly to the auditor.and to respond directly to the auditor.24-132006 Prentice Hall Business Publishing,20
23、06 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/ElderSarbanes-Oxley ActCongress included provisions in this act directingCongress included provisions in this act directingthe SEC to issue rules requiring attorneys servingthe SEC to issue rules requi
24、ring attorneys servingpublic companies to report material violationspublic companies to report material violationsby the company of federal securities laws.by the company of federal securities laws.The American Bar Association amended itsThe American Bar Association amended itsattorney-client confid
25、entiality rules to permitattorney-client confidentiality rules to permitattorneys to breach confidentiality if a clientattorneys to breach confidentiality if a clientis committing a crime or fraud.is committing a crime or fraud.24-142006 Prentice Hall Business Publishing,2006 Prentice Hall Business
26、Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/ElderLearning Objective 3Conduct a post-balance-sheetreview for subsequent events.24-152006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/
27、ElderPeriod Covered by Subsequent Events ReviewClients endingClients endingbalance sheetbalance sheetdatedate12-31-0512-31-05Date clientDate clientissues financialissues financialstatementsstatements3-26-063-26-06AuditAuditreportreportdatedate3-11-063-11-06Period to which review forPeriod to which r
28、eview forsubsequent events appliessubsequent events appliesPeriod forPeriod forprocessingprocessingthe financialthe financialstatementsstatements24-162006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/ElderTypes
29、 of Subsequent Events1 1Those that have a direct effectThose that have a direct effecton the financial statementson the financial statementsand require adjustmentand require adjustment2 2Those that have Those that have nono direct effect direct effecton the financial statements buton the financial s
30、tatements butfor which disclosure is advisablefor which disclosure is advisable24-172006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/ElderRequiring Adjustmentvv Declaration of bankruptcy by a customer Declarat
31、ion of bankruptcy by a customer with an accounts receivable balance with an accounts receivable balancevv Settlement of a litigation at an amount Settlement of a litigation at an amount different from the amount recorded different from the amount recorded on the books on the booksvv Disposal of equi
32、pment not being used in Disposal of equipment not being used in operations at a price below the current operations at a price below the current book value book valuevv Sale of investments at a price belowSale of investments at a price below recorded cost recorded cost24-182006 Prentice Hall Business
33、 Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/ElderAdvisability of Disclosure Decline in the market value of securities Decline in the market value of securities held for temporary investment or resale held for temporary investment o
34、r resale Issuance of bonds or equity securities Issuance of bonds or equity securities Decline in the market value of inventory Decline in the market value of inventory as a consequence of government action as a consequence of government action barring further sale of a product barring further sale
35、of a product Uninsured loss of inventories as a result Uninsured loss of inventories as a result of fire of fire A merger or an acquisition A merger or an acquisition24-192006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Are
36、ns/Beasley/ElderAudit TestsProcedures normally integrated asProcedures normally integrated asa part of the verification of year-enda part of the verification of year-endaccount balancesaccount balancesProcedures performed specifically forProcedures performed specifically forthe purpose of discoverin
37、g events orthe purpose of discovering events ortransactions that must be recognizedtransactions that must be recognizedas subsequent eventsas subsequent events24-202006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beas
38、ley/Elder Inquire of management.Inquire of management.Correspond with attorneys.Correspond with attorneys.Review internal statements prepared Review internal statements prepared subsequent to the balance sheet date.subsequent to the balance sheet date.Review records prepared subsequent Review record
39、s prepared subsequent to the balance sheet date.to the balance sheet date.Examine minutes issued subsequent Examine minutes issued subsequent to the balance sheet date.to the balance sheet date.Obtain a letter of representation,Obtain a letter of representation,Audit Tests24-212006 Prentice Hall Bus
40、iness Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/ElderDual DatingThe first date is the date for theThe first date is the date for thecompletion of field work exceptcompletion of field work exceptfor a specific exception.for a speci
41、fic exception.The second date,which isThe second date,which isalways later,deals withalways later,deals withthe exception.the exception.24-222006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/ElderLearning Objec
42、tive 4Design and perform the final stepsin the evidence-accumulationsegment of the audit.24-232006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/Elder1.Perform final analytical procedures.1.Perform final analyti
43、cal procedures.2.Evaluate the going-concern assumption.2.Evaluate the going-concern assumption.3.Obtain a management representation letter.3.Obtain a management representation letter.4.Consider information accompanying the4.Consider information accompanying the basic financial statements.basic finan
44、cial statements.5.Read other information in the annual report.5.Read other information in the annual report.Final Evidence Accumulation24-242006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/ElderManagement Repr
45、esentation LetterTo impress upon management its responsibility To impress upon management its responsibility for the assertions in the financial statementsfor the assertions in the financial statementsTo document the responses from managementTo document the responses from management to inquiries abo
46、ut various aspects of the audit to inquiries about various aspects of the audit24-252006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/Elder1.Financial statements1.Financial statements2.Completeness of informati
47、on2.Completeness of information3.Recognition,measurement,and disclosure3.Recognition,measurement,and disclosure4.Subsequent events4.Subsequent events5.Internal control 5.Internal control Management Representation Letter24-262006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishin
48、g,Auditing 11/e,Auditing 11/e,Arens/Beasley/Elder Arens/Beasley/Elder1.Managements acknowledgment of its1.Managements acknowledgment of its responsibility for establishing and responsibility for establishing and maintaining effective internal control maintaining effective internal control over finan
49、cial reporting over financial reporting2.Managements conclusion about the2.Managements conclusion about the effectiveness of internal control over effectiveness of internal control over financial reporting as of the end of financial reporting as of the end of the fiscal period the fiscal period3.Dis
50、closure of all deficiencies3.Disclosure of all deficiencies4.Managements knowledge of any fraud4.Managements knowledge of any fraudManagement Representation Letter:Internal Control24-272006 Prentice Hall Business Publishing,2006 Prentice Hall Business Publishing,Auditing 11/e,Auditing 11/e,Arens/Bea