Opening-balances.pptx

External Confirmations PSA 505

Generalizations on Audit Evidence If from independent outside sources: more reliable If generated internally: more reliable

If in the form of documents and written representations :more reliable If obtained directly by the auditor: more reliable

External Confirmation Procedures

Determining the information to be confirmed or requested

Selecting the appropriate confirming party

Designing the confirmatio n requests

3

Sending the requests

External Confirmation Procedures

Determining the information to be confirmed or requested

Selecting the appropriate confirming party

Designing the confirmatio n requests

4

Sending the requests

External Confirmation

Audit evidence obtained as a direct It is frequently performed to confirm or response from a third party (the confirming request information regarding account party in paper form, electronic or other balances and their elements medium Determining the information to be confirmed or requested

External Confirmation Procedures

Determining the information to be confirmed or requested

Selecting the appropriate confirming party

Designing the confirmatio n requests

6

Sending the requests

Confirmation requests are sent a confirming party the auditor believes is knowledgeable about the information to be confirmed Selecting the appropriate confirming party

External Confirmation Procedures

Determining the information to be confirmed or requested

Selecting the appropriate confirming party

Designing the confirmatio n requests

8

Sending the requests

Designing the confirmation requests

2

Specific identified risks of material

3

The layout and presentation

4

Prior experience on the audit or similar engagements

5

Management’s authorization or encouragement

6

The ability of the confirming party to confirm or provide information

Factors to consider

1 The assertions being addressed

Different Confirmation Request Positive Confirmation Letter

Negative Confirmation Letter

Different Confirmation Request A request that the confirming party respond directly to the auditor

Positive Confirmation Letter It indicates whether the confirming party agrees or disagrees with information in the request or providing the requested information

Different Confirmation Request A request that the confirming party respond directly to the auditor ONLY if the confirming party DISAGREES with the information provided in the request.

Negative Confirmation Letter It is designed for use in situations where a client company's internal controls are already considered to be quite strong

External Confirmation Procedures

Determining the information to be confirmed or requested

Selecting the appropriate confirming party

Designing the confirmatio n requests

13

Sending the requests

The auditor may send an additional confirmation request when a reply to a previous request has not been received within a reasonable time Sending the requests

Management Refusal…

Inquire as to management’ s reasons for the refusal

Evaluate the implications of management’ s refusal on the auditor’s assessment of the relevant risks of material misstatement

Perform alternative audit procedures designed to obtain relevant and reliable audit evidence

Results of External Confirmation Procedures

 When Responses Necessary

 Reliability of Responses

Reliability of Responses

 If responses will not be available, determine the implications for the audit and the auditor’s opinion

 evaluate the implications on the assessment of the relevant risks of material misstatement

 If there are doubts as to confirmations, obtain further audit evidence to resolve those doubts

1 Received by the auditor indirectly

2

Appeared not to come from the originally intended confirming party

Factors that may indicate doubts as to reliability

Reliability of Responses

E X A M P L E S

1 Responses are received electronically

2

Confirming Party uses third party to coordinate

Evaluating Evidence Obtained The auditor shall evaluate whether the results provide relevant and reliable audit evidence, or whether performing further audit procedures is necessary

Results of External Confirmation Procedures

 When Responses Necessary

 Reliability of Responses

Reliability of Responses

 If responses will not be available, determine the implications for the audit and the auditor’s opinion

 evaluate the implications on the assessment of the relevant risks of material misstatement and revise the assessment

 If there are doubts as to confirmations, obtain further audit evidence to resolve those doubts

Initial Audit Engagements – Opening Balances PSA 510

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This PSA deals with the auditor’s responsibilities relating to opening balances when conducting an initial audit engagement. In addition to financial statement amounts, opening balances include matters requiring disclosure that existed at the beginning of the period

Scope of the PSA

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“

This PSA deals with the auditor’s responsibilities relating to opening balances when conducting an initial audit engagement. In addition to financial statement amounts, opening balances include matters requiring disclosure that existed at the beginning of the period

Scope of the PSA

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Definitions… Account balances that exist at the beginning of the period.

Opening Balances

Based upon the closing balances of the prior period and reflects the effects if transactions and events prior periods and accounting policies in the prior period

Include matters requiring disclosure that existed at the beginning of the period

“

This PSA deals with the auditor’s responsibilities relating to opening balances when conducting an initial audit engagement. In addition to financial statement amounts, opening balances include matters requiring disclosure that existed at the beginning of the period

Scope of the PSA

”

“

This PSA deals with the auditor’s responsibilities relating to opening balances when conducting an initial audit engagement. In addition to financial statement amounts, opening balances include matters requiring disclosure that existed at the beginning of the period

Scope of the PSA

”

Definitions… The FS for the prior period were not audited Initial Audit Engagement The FS for prior period were audited by a predecessor auditor

Definitions… Predecessor Auditor

The auditor from different audit firm who audited the financial statements of an entity in the prior period and who has been replaced by the current auditor

Definitions… Predecessor Auditor

The auditor from different audit firm who audited the financial statements of an entity in the prior period and who has been replaced by the current auditor

Definitions… Predecessor Auditor

The auditor from different audit firm who audited the financial statements of an entity in the prior period and who has been replaced by the current auditor

Objectives… Opening balances contain misstatements that materially affect the current period’s financial statements Appropriate accounting policies reflected in the opening balances have been consistently applied in the current period’s financial statements

Audit Opening Balances Procedures…

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2 3

the auditor shall read the most recent financial statements

Determining whether the opening balances reflect the application of appropriate accounting policies

Perform additional audit procedures as are appropriate in the circumstances

Audit Procedures… Consistency of Accounting Policies

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Obtain sufficient appropriate evidence about whether the accounting policies have been consistently applied Obtain sufficient appropriate evidence whether changes in accounting policies have been properly accounted, presented and disclosed

Audit Procedures…

Relevant Information in the Predecessor Auditor’s Report

6

If there was a modification to the opinion, evaluate the effect of the matter caused the modification

Audit Conclusion and Opening Balances Reporting…

1 2

Auditor is unable to obtain sufficient appropriate evidence regarding the opening balances

Auditor concludes that the opening balances contain a misstatement that materially affects the current period FS Issue and ADVERSE opinion or QUALIFIED opinion

Audit Conclusion and Consistency of Accounting Policies Reporting…

3 4

If the current period’s accounting policies are not consistently applied in relation to opening balances

If the change in accounting policies is not accounted properly

Issue and ADVERSE opinion or QUALIFIED opinion

Audit Conclusion and Reporting…

Modification to the Opinion in the Predecessor Auditor’s Report

5

If what caused the modification to the auditor’s opinion is still relevant and material to current period FS Issue and ADVERSE opinion or QUALIFIED opinion