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COMPLETING AN AUDIT

COMPLETING THE AUDIT – Procedures to be performed near the end of fieldwork

 Search for unrecorded liabilities

 Review the minutes of meetings
 Perform final analytical procedures
 Perform procedures to identify loss contingencies
 Perform the review for subsequent events
 Consider going concern matters
 Obtain the representation letter

RELATED PSAs:

PSA 501 (for litigations and claims)

PSA 520 (for analytical procedures)

PSA 540
AUDITING ACCOUNTING ESTIMATES AND RELATED DISCLOSURES

 The objective of the auditor is to obtain sufficient appropriate audit evidence about whether
accounting estimates and related disclosures in the financial statements are reasonable in the
context of the applicable financial reporting framework.
 Accounting estimate – A monetary amount for which the measurement, in accordance with the
requirements of the applicable financial reporting framework, is subject to estimation uncertainty.
 Examples of accounting estimates related to classes of transactions, account balances and
disclosures include:
 Inventory obsolescence.
 Depreciation of property and equipment.
 Valuation of infrastructure assets.
 Valuation of financial instruments.
 Outcome of pending litigation.
 Provision for expected credit losses.
 Valuation of insurance contract liabilities.
 Warranty obligations.
 Employee retirement benefits liabilities.
 Share-based payments.
 Fair value of assets or liabilities acquired in a business combination, including the determination
of goodwill and intangible assets.
 Impairment of long-lived assets or property or equipment held for disposal.
 Non-monetary exchanges of assets or liabilities between independent parties.
 Revenue recognized for long-term contracts.

 Making accounting estimates (management uses judgment) involves the following:

 Selecting and applying methods, significant assumptions and data

 Selecting point estimate (management’s point estimate)
 Developing related disclosures about estimation uncertainty
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 Inherent risk in making accounting estimates.

 Estimation uncertainty due to limitation in knowledge or data.

 Subjectivity.
 Complexity in measurement.

 Identifying and assessing the RMM (overall FS level and assertion level) related to accounting
estimates
 To identify the risk of material of material misstatement, the auditor shall obtain understanding of
(the entity and its environment, including IC):

Entity and its environment:

(a) The entity’s transactions and other events and conditions that may give rise to the need for, or
changes in, accounting estimates to be recognized or disclosed in the financial statements.
(b) The requirements of the applicable financial reporting framework related to accounting estimates
(including the recognition criteria, measurement bases, and the related presentation and disclosure
requirements); and how they apply in the context of the nature and circumstances of the entity
and its environment, including how transactions and other events or conditions are subject to, or
affected by, inherent risk factors.
(c) Regulatory factors relevant to the entity’s accounting estimates, including, when applicable,
regulatory frameworks related to prudential supervision.
(d) The nature of the accounting estimates and related disclosures that the auditor expects to be
included in the entity’s financial statements, based on the auditor’s understanding of the matters
in (a)–(c) above.

The Entity’s Internal Control

(e) The nature and extent of oversight and governance that the entity has in place over management’s
financial reporting process relevant to accounting estimates.
(f) How management identifies the need for, and applies, specialized skills or knowledge related to
accounting estimates, including with respect to the use of a management’s expert.
(g) How the entity’s risk assessment process identifies and addresses risks relating to accounting
estimates.
(h) The entity’s information system as it relates to accounting estimates, including:

i. The classes of transactions, events and conditions that are significant to the financial statements
and that give rise to the need for, or changes in, accounting estimates and related disclosures;
and
ii. For such accounting estimates and related disclosures, how management:

a. Identifies the relevant methods, assumptions or sources of data, and the need for changes in
them, that are appropriate in the context of the applicable financial reporting framework,
including how management:

i. Selects or designs, and applies, the methods used, including the use of models; (
ii. Selects the assumptions to be used, including consideration of alternatives, and
identifies significant assumptions; and
iii. Selects the data to be used;
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b. Understands the degree of estimation uncertainty, including through considering the range of
possible measurement outcomes; and
c. Addresses the estimation uncertainty, including selecting a point estimate and related
disclosures for inclusion in the financial statements.

(i) Control activities relevant to the audit over management’s process for making accounting
estimates as described in (h)(ii).
(j) How management reviews the outcome(s) of previous accounting estimates and responds to the
results of that review.

 The auditor shall separately assess inherent risk and control risk at the assertion level. The auditor
shall take the following into account in identifying the risks of material misstatement and in
assessing inherent risk:
(a) The degree to which the accounting estimate is subject to estimation uncertainty; and
(b) The degree to which the following are affected by complexity, subjectivity, or other inherent
risk factors:
(i) The selection and application of the method, assumptions and data in making the
accounting estimate; or
(ii) The selection of management’s point estimate and related disclosures for inclusion in the
financial statements.
 The auditor shall determine whether any of the risks of material misstatement identified and
assessed are, in the auditor’s judgment, a significant risk.
 If the auditor has determined that a significant risk exists, the auditor shall obtain an
understanding of the entity’s controls, including control activities, relevant to that risk.

 Responses to assessed risks of material misstatement

 The auditor’s further audit procedures shall include one or more of the following approaches:

(a) Obtaining audit evidence from events occurring up to the date of the auditor’s report;
(b) Testing how management made the accounting estimate; or
(c) Developing an auditor’s point estimate or range.

 For a significant risk relating to an accounting estimate, the auditor’s further audit procedures
shall include tests of controls in the current period if the auditor plans to rely on those controls.
 When the approach to a significant risk consists only of substantive procedures, those procedures
shall include tests of details

 Written Representations
 The auditor shall request written representations from management and, when appropriate, those
charged with governance about whether the methods, significant assumptions and the data used in
making the accounting estimates and the related disclosures are appropriate to achieve
recognition, measurement or disclosure that is in accordance with the applicable financial
reporting framework. The auditor shall also consider the need to obtain representations about
specific accounting estimates, including in relation to the methods, assumptions, or data used.

PSA 550 Related Parties

 Nature of Related Party Relationships and Transactions. The nature of related party
relationships and transactions may, in some circumstances, give rise to higher risks of
material misstatement of the financial statements than transactions with unrelated parties.
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For example:

 Related parties may operate through an extensive and complex range of

relationships and structures, with a corresponding increase in the complexity of
related party transactions.
 Information systems may be ineffective at identifying or summarizing
transactions and outstanding balances between an entity and its related parties.
 Related party transactions may not be conducted under normal market
terms and conditions; for example, some related party transactions may be
conducted with no exchange of consideration.
 The auditor has a responsibility to perform audit procedures to identify, assess and
respond to the risks of material misstatement arising from the entity’s failure to
appropriately account for or disclose related party relationships, transactions or balances
in accordance with the requirements of the framework.
 The auditor’s objectives are:
 to obtain an understanding of related party relationships and transactions
sufficient to be able:
(i) To recognize fraud risk factors, if any, arising from related party relationships
and transactions that are relevant to the identification and assessment of the
risks of material misstatement due to fraud; and
(ii) To conclude, based on the audit evidence obtained, whether the financial
statements, insofar as they are affected by those relationships and transactions,
Achieve fair presentation (for fair presentation frameworks) or are not
misleading (for compliance frameworks); and

 to obtain sufficient appropriate audit evidence about whether related party

relationships and transactions have been appropriately identified, accounted
for and disclosed in the financial statements in accordance with the
framework.

PSA 560
SUBSEQUENT EVENTS

FOCUS NOTES:
 Type of subsequent events
(a) Those that provide evidence of conditions that existed at the date of the financial
statements; and
(b) Those that provide evidence of conditions that arose after the date of the financial
statements.

 Objectives
(a) To obtain sufficient appropriate audit evidence about whether events occurring
between the date of the financial statements and the date of the auditor’s report that
require adjustment of, or disclosure in, the financial statements are appropriately reflected
in those financial statements in accordance with the applicable financial reporting
framework; and
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(b) To respond appropriately to facts that become known to the auditor after the date of
the auditor’s report, that, had they been known to the auditor at that date, may have caused
the auditor to amend the auditor’s report.

 Definitions
(a) Date of the financial statements – The date of the end of the latest period covered by the
financial statements.
(b) Date of approval of the financial statements – The date on which all the statements that
comprise the financial statements, including the related notes, have been prepared and
those with the recognized authority have asserted that they have taken responsibility for
those financial statements.
(c) Date of the auditor’s report – The date the auditor dates the report on the financial
statements in accordance with PSA 700.
(d) Date the financial statements are issued – The date that the auditor’s report and audited
financial statements are made available to third parties.
(e) Subsequent events – Events occurring between the date of the financial statements and the
date of the auditor’s report, and facts that become known to the auditor after the date of the
auditor’s report.

 Requirements

 Events Occurring between the Date of the Financial Statements and the Date of the
Auditor’s Report
1. perform audit procedures to identify subsequent events.
 Obtaining an understanding of any procedures management has established to
ensure that subsequent events are identified.
 Inquiring of management and, where appropriate, those charged with governance
as to whether any subsequent events have occurred which might affect the financial
statements.
 Reading minutes, if any, of the meetings, of the entity’s owners, management and
those charged with governance, that have been held after the date of the financial
statements and inquiring about matters discussed at any such meetings for which
minutes are not yet available.
 Reading the entity’s latest subsequent interim financial statements, if any.
2. if subsequent events have been identified, determine whether appropriately reflected
on FS.
3. request management and, where appropriate, those charged with governance, to
provide a written representation in accordance with PSA 580 that all events
occurring subsequent to the date of the financial statements and for which the
applicable financial reporting framework requires adjustment or disclosure have been
adjusted or disclosed.

 Facts Which Become Known to the Auditor after the Date of the Auditor’s Report but
before the Date the Financial Statements Are Issued
1. auditor has no obligation to perform any audit procedures regarding the financial
statements after the date of the auditor’s report.
2. however, if a fact becomes known to the auditor that, had it been known to the auditor
at the date of the auditor’s report, may have caused the auditor to amend the auditor’s
report, the auditor shall:
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(a) Discuss the matter with management and, where appropriate, those charged with
governance.
(b) Determine whether the financial statements need amendment and, if so,
(c) Inquire how management intends to address the matter in the financial
statements.
3. If management amends the financial statements, the auditor shall:
(a) Carry out the audit procedures necessary in the circumstances on the amendment.
(b) Unless restricted reporting applies:
(i) extend the audit procedures to identify subsequent events up to the date of the
new auditor’s report; and
(ii) provide a new auditor’s report on the amended financial statements. The new
auditor’s report shall not be dated earlier than the date of approval of the
amended financial statements.
4. (restricted reporting) Where law, regulation or the financial reporting framework does
not prohibit management from restricting the amendment of the financial statements to
the effects of the subsequent event or events causing that amendment and those
responsible for approving the financial statements are not prohibited from restricting
their approval to that amendment, the auditor is permitted to restrict the audit
procedures on subsequent events to that amendment. In such cases, the auditor shall
either:
(a) (dual – dating) Amend the auditor’s report to include an additional date restricted
to that amendment that thereby indicates that the auditor’s procedures on
subsequent events are restricted solely to the amendment of the financial
statements described in the relevant note to the financial statements;

Illustrated Dual Dating

(Date of auditor’s report), except as to Note Y, which is as of (date of
completion of audit procedures restricted to amendment described
in Note Y).
or
(b) Provide a new or amended auditor’s report that includes a statement in an
Emphasis of Matter paragraph or Other Matter paragraph that conveys that the
auditor’s procedures on subsequent events are restricted solely to the amendment
of the financial statements as described in the relevant note to the financial
statements.
5. In some jurisdictions, management may not be required by law, regulation or the
financial reporting framework to issue amended financial statements and, accordingly,
the auditor need not provide an amended or new auditor’s report. However, if
management does not amend the financial statements in circumstances where the
auditor believes they need to be amended, then:
(a) If the auditor’s report has not yet been provided to the entity, the auditor
shall modify the opinion as required by PSA 705 and then provide the auditor’s
report; or
(b) If the auditor’s report has already been provided to the entity, the auditor
shall notify management and, unless all of those charged with governance are
involved in managing the entity, those charged with governance, not to issue the
financial statements to third parties before the necessary amendments have been
made. If the financial statements are nevertheless subsequently issued without the
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necessary amendments, the auditor shall take appropriate action, to seek to prevent
reliance on the auditor’s report.

 Facts Which Become Known to the Auditor after the Financial Statements Have Been
Issued
1. After the financial statements have been issued, the auditor has no obligation to
perform any audit procedures regarding such financial statements. However, if, after the
financial statements have been issued, a fact becomes known to the auditor that, had it
been known to the auditor at the date of the auditor’s report, may have caused the
auditor to amend the auditor’s report, the auditor shall:
(a) Discuss the matter with management and, where appropriate, those charged with
governance;
(b) Determine whether the financial statements need amendment; and, if so,
(c) Inquire how management intends to address the matter in the financial statements.
2. If management amends the financial statements, the auditor shall:
(a) Carry out the audit procedures necessary in the circumstances on the amendment.
(b) Review the steps taken by management to ensure that anyone in receipt of the
previously issued financial statements together with the auditor’s report thereon is
informed of the situation.
(c) Unless restricted reporting applies:
(i) Extend the audit procedures to the date of the new auditor’s report, and date
the new auditor’s report no earlier than the date of approval of the amended
financial statements; and
(ii) Provide a new auditor’s report on the amended financial statements.
(d) When restricted reporting on subsequent events is permitted, amend the auditor’s
report (by dual – dating), or provide a new auditor’s report that includes emphasis
of matter paragraph.
3. The auditor shall include in the new or amended auditor’s report an Emphasis of Matter
paragraph or Other Matter(s) paragraph referring to a note to the financial statements
that more extensively discusses the reason for the amendment of the previously issued
financial statements and to the earlier report provided by the auditor.
4. If management does not take the necessary steps to ensure that anyone in receipt of the
previously issued financial statements is informed of the situation and does not amend
the financial statements in circumstances where the auditor believes they need to be
amended, the auditor shall notify management and, unless all of those charged with
governance are involved in managing the entity, those charged with governance, that
the auditor will seek to prevent future reliance on the auditor’s report. If, despite such
notification, management or those charged with governance do not take these necessary
steps, the auditor shall take appropriate action to seek to prevent reliance on the
auditor’s report.

PSA 570
GOING CONCERN

FOCUS NOTES:

 Going Concern Assumption

 Under the going concern assumption, an entity is viewed as continuing in business for the
foreseeable future.
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 Responsibility for Assessment of the Entity’s Ability to Continue as a Going Concern

 Management is responsible to make an assessment of an entity’s ability to continue as a
going concern.
 The auditor’s responsibility is to obtain sufficient appropriate audit evidence about the
appropriateness of management’s use of the going concern assumption.

 Objectives
a. To obtain sufficient appropriate audit evidence regarding, and conclude on, the
appropriateness of management’s use of the going concern basis of accounting in the
preparation of the financial statements;
b. To conclude, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the entity’s ability to
continue as a going concern; and
c. To report in accordance with this PSA.

 Requirements
 Risk Assessment Procedures and Related Activities
a. consider whether there are events or conditions that may cast significant doubt on the
entity’s ability to continue as a going concern.
b. determine whether management has already performed a preliminary assessment of
the entity’s ability to continue as a going concern.
c. if such an assessment has been performed, discuss the assessment with management
and determine whether management has identified events or conditions that,
individually or collectively, may cast significant doubt on the entity’s ability to continue
as a going concern and, if so, management’s plans to address them.
d. if such an assessment has not yet been performed, the auditor shall discuss with
management the basis for the intended use of the going concern assumption, and
inquire of management whether events or conditions exist that, individually or
collectively, may cast significant doubt on the entity’s ability to continue as a going
concern.
e. the auditor shall remain alert throughout the audit for audit evidence of events or
conditions that may cast significant doubt on the entity’s ability to continue as a going
concern.

 Evaluating Management’s Assessment

a. Evaluate management’s assessment of the entity’s ability to continue as a going concern.
b. Evaluation shall cover the same period as that used by management to make its
assessment.
c. request management to extend its assessment period to at least twelve months from
that date of FS if management’s assessment period is less than twelve months..
d. consider whether management’s assessment includes all relevant information of which
the auditor is aware as a result of the audit.

 Period beyond Management’s Assessment

 The auditor shall inquire of management as to its knowledge of events or conditions
beyond the period of management’s assessment that may cast significant doubt on the
entity’s ability to continue as a going concern.
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 Additional Audit Procedures When Events or Conditions Are Identified
a. obtain sufficient appropriate audit evidence to determine whether or not a material
uncertainty exists through performing additional audit procedures, including
consideration of mitigating factors. These procedures shall include:
 Where management has not yet performed an assessment of the entity’s ability to
continue as a going concern, requesting management to make its assessment.
 Evaluating management’s plans for future actions in relation to its going concern
assessment, whether the outcome of these plans is likely to improve the situation
and whether management’s plans are feasible in the circumstances.
 Where the entity has prepared a cash flow forecast, and analysis of the forecast is a
significant factor in considering the future outcome of events or conditions in the
evaluation of management’s plans for future action:
1. Evaluating the reliability of the underlying data generated to prepare the
forecast; and
2. Determining whether there is adequate support for the assumptions underlying
the forecast.
 Considering whether any additional facts or information have become available since the
date on which management made its assessment.
 Requesting written representations from management and, where appropriate, those
charged with governance, regarding their plans for future action and the feasibility of these
plans.

 Audit Conclusions and Reporting

 Based on the audit evidence obtained, the auditor shall conclude whether, in the
auditor’s judgment, a material uncertainty exists related to events or conditions that,
individually or collectively, may cast significant doubt on the entity’s ability to continue
as a going concern.
 A material uncertainty exists when the magnitude of its potential impact and likelihood
of occurrence is such that, in the auditor’s judgment, appropriate disclosure of the
nature and implications of the uncertainty is necessary for:
a. the fair presentation of the financial statements, or
b. the financial statements not to be misleading.

 Adequacy of Disclosures When Events or Conditions Have Been Identified and a

Material Uncertainty Exists
 If the auditor concludes that management’s use of the going concern basis of
accounting is appropriate in the circumstances but a material uncertainty exists, the
auditor shall determine whether the financial statements:
a. Adequately disclose the principal events or conditions that may cast significant
doubt on the entity’s ability to continue as a going concern and management’s
plans to deal with these events or conditions; and
b. Disclose clearly that there is a material uncertainty related to events or conditions
that may cast significant doubt on the entity’s ability to continue as a going
concern and, therefore, that it may be unable to realize its assets and discharge its
liabilities in the normal course of business.
 Adequacy of Disclosures When Events or Conditions Have Been Identified but No
Material Uncertainty Exists
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 If events or conditions have been identified that may cast significant doubt on the
entity’s ability to continue as a going concern but, based on the audit evidence
obtained the auditor concludes that no material uncertainty exists, the auditor shall
evaluate whether, in view of the requirements of the applicable financial reporting
framework, the financial statements provide adequate disclosures about these events
or conditions

 Implications for the Auditor’s Report

 Use of Going Concern Basis of Accounting Is Inappropriate
 If the financial statements have been prepared using the going concern basis
of accounting but, in the auditor’s judgment, management’s use of the going
concern basis of accounting in the preparation of the financial statements is
inappropriate, the auditor shall express an adverse opinion.
 Use of Going Concern Basis of Accounting Is Appropriate but a Material Uncertainty
Exists
 If adequate disclosure about the material uncertainty is made in the financial
statements, the auditor shall express an unmodified opinion and the auditor’s
report shall include a separate section under the heading “Material
Uncertainty Related to Going Concern” to:
(a) Draw attention to the note in the financial statements that discloses
the matters; and
(b) State that these events or conditions indicate that a material
uncertainty exists that may cast significant doubt on the entity’s ability to
continue as a going concern and that the auditor’s opinion is not modified
in respect of the matter.
 If adequate disclosure about the material uncertainty is not made in the
financial statements, the auditor shall:
(a) Express a qualified opinion or adverse opinion, as appropriate, in
accordance with PSA 705; and
(b) In the Basis for Qualified (Adverse) Opinion section of the
auditor’s report, state that a material uncertainty exists that may cast
significant doubt on the entity’s ability to continue as a going concern and
that the financial statements do not adequately disclose this matter.
 In situations involving multiple uncertainties that are significant to the
financial statements as a whole, the auditor may consider it appropriate in
extremely rare cases to express a disclaimer of opinion.

 Management Unwilling to Make or Extend Its Assessment

 if management is unwilling to make or extend its assessment when requested to do so
by the auditor, the auditor shall express a qualified or disclaimer of opinion.

 Communication with Those Charged with Governance

 the auditor shall communicate with those charged with governance events or conditions
identified that may cast significant doubt on the entity’s ability to continue as a going
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concern. Such communication with those charged with governance shall include the
following:
a. Whether the events or conditions constitute a material uncertainty;
b. Whether the use of the going concern assumption is appropriate in the preparation
and presentation of the financial statements; and
c. The adequacy of related disclosures in the financial statements.
d. Where applicable, the implications for the auditor’s report.

 Significant Delay in the Approval of Financial Statements

 If there is significant delay in the approval of the financial statements by management or
those charged with governance after the date of the financial statements, the auditor
shall inquire as to the reasons for the delay.
 If the auditor believes that the delay could be related to events or conditions relating to
the going concern assessment, the auditor shall perform those additional audit
procedures necessary, as well as consider the effect on the auditor’s conclusion
regarding the existence of a material uncertainty.

 Examples of events or conditions, which may give rise to business risks, that individually or
collectively may cast significant doubt about the going concern assumption are set out below.
 Financial
o Net liability or net current liability position.
o Fixed-term borrowings approaching maturity without realistic prospects of renewal
or repayment; or excessive reliance on short-term borrowings to finance long-term
assets.
o Indications of withdrawal of financial support by debtors and other creditors.
o Negative operating cash flows indicated by historical or prospective financial
statements.
o Adverse key financial ratios.
o Substantial operating losses or significant deterioration in the value of assets used
to generate cash flows.
o Arrears or discontinuance of dividends.
o Inability to pay creditors on due dates.
o Inability to comply with the terms of loan agreements.
o Change from credit to cash-on-delivery transactions with suppliers.
o Inability to obtain financing for essential new product development or other
essential investments.
 Operating
o Management intentions to liquidate the entity or to cease operations.
o Loss of key management without replacement.
o Loss of a major market, franchise, license, or principal supplier.
o Labor difficulties or shortages of important supplies.
o Labor difficulties.
o Shortages of important supplies.
o Emergence of a highly successful competitor.
 Other
o Non-compliance with capital or other statutory requirements.
o Pending legal or regulatory proceedings against the entity that may, if successful,
result in claims that are unlikely to be satisfied.
o Changes in legislation or government policy expected to adversely affect the entity.
o Uninsured or underinsured catastrophes when they occur.
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PSA 580
WRITTEN REPRESENTATIONS

FOCUS NOTES:

 Written Representations as Audit Evidence

 Although written representations provide necessary audit evidence, they do not provide
sufficient appropriate audit evidence on their own about any of the matters with which they
deal.
 Furthermore, the fact that management has provided reliable written representations does
not affect the nature or extent of other audit evidence that the auditor obtains about the
fulfillment of management’s responsibilities, or about specific assertions.

 Objectives
1. To obtain written representations from management and, where appropriate, those
charged with governance that they believe that they have fulfilled their responsibility for
the preparation of the financial statements and for the completeness of the information
provided to the auditor;
2. To support other audit evidence relevant to the financial statements or specific assertions in
the financial statements by means of written representations if determined necessary by
the auditor or required by other PSAs; and
3. To respond appropriately to written representations provided by management and, where
appropriate, those charged with governance, or if management or, where appropriate, those
charged with governance do not provide the written representations requested by the
auditor.

 Definitions
 Written representation – A written statement by management provided to the auditor to
confirm certain matters or to support other audit evidence. Written representations in
this context do not include financial statements, the assertions therein, or supporting books
and records.
 For purposes of this PSA, references to “management” should be read as “management and,
where appropriate, those charged with governance.” Furthermore, in the case of a fair
presentation framework, management is responsible for the preparation and fair
presentation of the financial statements in accordance with the applicable financial
reporting framework; or the preparation of financial statements that give a true and fair
view in accordance with the applicable financial reporting framework.

 Requirements:

Management from whom Written Representations Requested:

 auditor shall request written representations from management with appropriate
responsibilities for the financial statements and knowledge of the matters concerned.

Written Representations about Management’s Responsibilities:

 request management to provide a written representation that it has fulfilled its
responsibility for the preparation of the financial statements in accordance with the
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applicable financial reporting framework, including where relevant their fair presentation,
as set out in the terms of the audit engagement.
 request management to provide a written representation that:
a. It has provided the auditor with all relevant information and access as agreed in the
terms of the audit engagement, and
b. All transactions have been recorded and are reflected in the financial statements.
 Management’s responsibilities shall be described in the written representations in the
manner in which these responsibilities are described in the terms of the audit engagement.

Other Written Representations:

 List of PSAs Containing Requirements for Written Representations
o PSA 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial
Statements – paragraph 40
o PSA 250 (Revised), Consideration of Laws and Regulations in an Audit of
Financial Statements – paragraph 17
o PSA 450, Evaluation of Misstatements Identified during the Audit – paragraph 14
o PSA 501, Audit Evidence—Specific Considerations for Selected Items – paragraph
12
o PSA 540 (Revised), Auditing Accounting Estimates and Related Disclosures –
paragraph 37
o PSA 550, Related Parties – paragraph 26
o PSA 560, Subsequent Events – paragraph 9
o PSA 570 (Revised), Going Concern – paragraph 16(e)
o PSA 710, Comparative Information—Corresponding Figures and Comparative
Financial Statements – paragraph 9
o PSA 720 (Revised), The Auditor’s Responsibilities Relating to Other Information
- paragraph 13(c)

 Additional Written Representations about the Financial Statements

1. representations about whether the selection and application of accounting policies are
appropriate; and
2. whether matters such as the following, where relevant under the applicable financial
reporting framework, have been recognized, measured, presented or disclosed in
accordance with that framework:
a. Plans or intentions that may affect the carrying value or classification of assets and
liabilities;
b. Liabilities, both actual and contingent;
c. Title to, or control over, assets, the liens or encumbrances on assets, and assets
pledged as collateral; and
d. Aspects of laws, regulations and contractual agreements that may affect the financial
statements, including noncompliance.
 Additional Written Representations about Information Provided to the Auditor
1. request management to provide a written representation that it has communicated to
the auditor all deficiencies in internal control of which management is aware.
 Written Representations about Specific Assertions
1. the auditor may consider it necessary to request management to provide written
representations about specific assertions in the financial statements; in particular, to
support an understanding that the auditor has obtained from other audit evidence of
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management’s judgment or intent in relation to, or the completeness of, a specific
assertion.

Date of and Period(s) Covered by Written Representations:

 as near as practicable to, but not after, the date of the auditor’s report on the financial
statements.
 written representations shall be for all financial statements and period(s) referred to in the
auditor’s report.

Form of Written Representations:

 written representations shall be in the form of a representation letter addressed to the
auditor.

Illustrative Representation Letter

(Entity Letterhead)

(To Auditor)
(Date)

This representation letter is provided in connection with your audit of the financial
statements of ABC Company for the year ended December 31, 20XX for the purpose
of expressing an opinion as to whether the financial statements are presented fairly,
in all material respects in accordance with Philippine Financial Reporting Standards.

We confirm that (, to the best of our knowledge and belief, having made such inquiries
as we considered necessary for the purpose of appropriately informing ourselves):

Financial Statements
 We have fulfilled our responsibilities, as set out in the terms of the audit
engagement dated [insert date], for the preparation of the financial statements
in accordance with Philippine Financial Reporting Standards; in particular the
financial statements are fairly presented in accordance therewith.
 Significant assumptions used by us in making accounting estimates, including
those measured at fair value, are reasonable.
 Related party relationships and transactions have been appropriately accounted
for and disclosed in accordance with the requirements of Philippine Financial
Reporting Standards.
 All events subsequent to the date of the financial statements and for which
Philippine Financial Reporting Standards require adjustment or disclosure have
been adjusted or disclosed.
 The effects of uncorrected misstatements are immaterial, both individually and
in the aggregate, to the financial statements as a whole. A list of the uncorrected
misstatements is attached to the representation letter.
 [Any other matters that the auditor may consider appropriate]

Information Provided
 We have provided you with:
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o Access to all information of which we are aware that is relevant to the
preparation of the financial statements such as records, documentation and
other matters;
o Additional information that you have requested from us for the purpose of
the audit; and
o Unrestricted access to persons within the entity from whom you determined
it necessary to obtain audit evidence.
 All transactions have been recorded in the accounting records and are reflected
in the financial statements.
 We have disclosed to you the results of our assessment of the risk that the
financial statements may be materially misstated as a result of fraud.
 We have disclosed to you all information in relation to fraud or suspected fraud
that we are aware of and that affects the entity and involves:
o Management;
o Employees who have significant roles in internal control; or
o Others where the fraud could have a material effect on the financial statements.
 We have disclosed to you all information in relation to allegations of fraud, or
suspected fraud, affecting the entity’s financial statements communicated by
employees, former employees, analysts, regulators or others.
 We have disclosed to you all known instances of non-compliance or suspected
non-compliance with laws and regulations whose effects should be considered
when preparing financial statements.
 We have disclosed to you the identity of the entity’s related parties and all the
related party relationships and transactions of which we are aware.
 [Any other matters that the auditor may consider necessary.]

__________________________ ___________________________
Management Management

Doubt as to the Reliability of Written Representations and Requested Written

Representations Not Provided:
 If the auditor has concerns about the competence, integrity, ethical values or diligence of
management, or about its commitment to or enforcement of these, the auditor shall
determine the effect that such concerns may have on the reliability of representations (oral
or written) and audit evidence in general.
 In particular, if written representations are inconsistent with other audit evidence, the
auditor shall perform audit procedures to attempt to resolve the matter.
 If management does not provide one or more of the requested written representations, the
auditor shall:
a. Discuss the matter with management;
b. Reevaluate the integrity of management and evaluate the effect that this may have on
the reliability of representations (oral or written) and audit evidence in general; and
c. Take appropriate actions, including determining the possible effect on the opinion in the
auditor’s report in accordance with PSA 705.
 The auditor shall disclaim an opinion on the financial statements in accordance with PSA
705 if:
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a. The auditor concludes that there is sufficient doubt about the integrity of management
such that the written representations about management’s responsibilities are not
reliable; or
b. Management does not provide the written representations about management’s
responsibilities.

ASSESSMENT TEST:

1. Analytical procedures are required as a part of the

a. Detailed tests of balances
b. Internal control assessment
c. Overall review at the conclusion of the audit
d. Substantive testing

2. Which of the following procedures would an auditor most likely perform while evaluating audit
findings at the conclusion of an audit?

a. Obtain assurance from the entity's attorney that all material litigation has been disclosed in the
financial statements
b. Verify the clerical accuracy of the entity's proof of cash and its bank cutoff statement
c. Determine whether reportable conditions have corrected
d. Develop an estimate of the total likely misstatement in the financial statements

3. Which of the following is not a procedure that auditors typically perform to search for significant
events during the subsequent period?
a. Review minutes of board of directors' meeting
b. Review the latest available interim financial statements
c. Inquire about any unusual adjustments made subsequent to the balance sheet date
d. Review changes in internal control during the period subsequent to the balance sheet date

4. Auditors often request that the audit client send a letter of inquiry to those attorneys who have been
consulted with respect to litigation, claims, or assessments. The primary reason for this request is to
provide the auditors with:

a. An estimate of the amount of the probable loss

b. An expert opinion as to whether a loss is possible, probable or remote
c. Information concerning the progress of cases to date
d. Corroborative audit evidence

5. The objective of the auditor in the audit of accounting estimates is:

a. To obtain sufficient appropriate audit evidence about whether accounting estimates and related
disclosures in the financial statements are reasonable in the context of the applicable financial
reporting framework.
b. To determine whether there is management bias in making accounting estimates.
c. To determine the degree of estimation uncertainty.
d. To determine accounting estimates that may give rise to significant risk.

6. In evaluating the reasonableness of an entity’s accounting estimates, an auditor normally would be

concerned about assumptions that are
a. Susceptible to bias.
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b. Consistent with prior periods.
c. Insensitive to variations.
d. Similar to industry guidelines.

7. Which of the following procedures would an auditor ordinarily perform first in evaluating the
management’s accounting estimates for reasonableness?
a. Develop independent expectations (auditor’s point estimate or auditor’s range) of management
estimates.
b. Consider the appropriateness of the key factors or assumptions used in preparing the estimates.
c. Test the calculations used by management in developing estimates.
d. Obtain an understanding of how management developed its estimates.

8. In evaluating the reasonableness of an accounting estimate, an auditor most likely would concentrate
on key factors and assumptions that are
a. Consistent with prior periods
b. Similar to industry guidelines
c. Objective and not susceptible to bias
d. Deviations from historical patterns

9. In evaluating an accounting estimates, one of an auditor’s objectives is to determine whether the

estimates are
a. Not subject to bias
b. Consistent with industry guidelines
c. Based on objective assumptions
d. Reasonable in the circumstances

10. The susceptibility of an accounting estimate and related disclosures to an inherent lack of precision in
its measurement.
a. Estimation uncertainty
b. Inherent risk
c. Estimation misstatement
d. Estimation error

11. The amount, or range of amounts, respectively, derived from audit evidence for use in evaluating
management’s point estimate.
a. Auditor’s point estimate or auditor’s range
b. Management bias
c. Management’s point estimate
d. Estimation uncertainty

12. Responsible for making accounting estimates:

a. Entity’s management.
b. Auditor.
c. Board of Directors.
d. Audit committee.

13. The assessment of the reasonableness of the entity’s accounting estimates and whether the estimates
are consistent with other audit evidence obtained during the audit is the responsibility of:
a. Auditor.
b. Entity’s management.
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c. Audit Committee.
d. Board of Directors.

14. Which of the following is NOT an objective of the auditor in considering related party transactions?
a. To obtain an understanding of related party relationships and transactions sufficient to be able to
recognize fraud risk factors and to be able to conclude whether the financial statements achieved
fair presentation or are not misleading.
b. To obtain sufficient appropriate audit evidence about whether related party relationships and
transactions have been appropriately identified, accounted for and disclosed in the financial
statements.
c. To determine the legality of the related party transactions.
d. All of the above are objectives in audit of related parties.

15. In the context of related parties, the potential effects of inherent limitations on the auditor’s ability to
detect material misstatements are greater because of the following reasons, EXCEPT:
a. Management may be unaware of the existence of all related party relationships and transactions,
particularly if the applicable financial reporting framework does not establish related party
requirements.
b. Related party relationships may present a greater opportunity for collusion, concealment or
manipulation by management.
c. The substance of related party transactions is not different from the form.
d. All of the above are reasons.

16. Responsible for the identification and disclosure of related parties and transactions with such parties.
a. Auditor.
b. Entity’s management.
c. Audit Committee.
d. Board of Directors.

17. Which of the following may indicate the existence of related party transactions?
a. Transactions which have abnormal terms of trade, such as unusual prices, interest rates,
guarantees, and repayment terms.
b. Transactions which lack an apparent logical business reason for their occurrence.
c. Transactions in which substance differs from form.
d. Transactions processed in an unusual manner.
e. High volume or significant transactions with certain customers or suppliers as compared with
others.
f. Unrecorded transactions such as the receipt or provision of management services at no charge.
g. All of the above.

18. If related parties are identified during the audit, the auditor shall include in the audit documentation
a. the names of the identified related parties and the nature of the related party relationships.
b. the names of the identified related parties only.
c. the nature of the related party relationships only.
d. The auditor is not required to document identified related parties and the nature of the related
party relationships.

19. Which of the following auditing procedures would be most likely to assist an auditor in identifying
related party transactions?
a. Inspecting correspondence with lawyers for evidence of unreported contingent liabilities.
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b. Vouching accounting records for recurring transactions recorded just after the balance sheet date.
c. Reviewing confirmations of loans receivable and payable for indications of guarantees.
d. Performing analytical procedures to seek indications of possible financial difficulties.

20. In auditing related party transactions, an auditor ordinarily places primary emphasis on
a. The probability that related party transactions will recur.
b. Confirming the existence of related parties.
c. Verifying the valuation of related party transactions.
d. The adequacy of the disclosure of the related party transaction.

21. The auditor shall obtain a written representation from management concerning which of the
following:
a. The completeness of information provided regarding the identification of related parties and the
adequacy of related party disclosures in the financial statements.
b. That there are no related parties and related party transactions.
c. That related party transactions recorded as arms-length transactions.
d. The elimination of related party transactions from the financial statements.

22. Events occurring between the date of the financial statements and the date of the auditor’s report and
facts that become known to the auditor after the date of the auditor’s report.
a. Significant events
b. accountable events
c. subsequent events
d. quantifiable events

23. An auditor issued an audit report that was dual dated for a subsequent event occurring after the audit
report date but before release of the auditor’s report. The auditor’s responsibility for events
occurring subsequent to the audit report date was

a. Limited to include only events occurring up to the date of the last subsequent event referenced.
b. Limited to the specific event referenced.
c. Extended to the subsequent events occurring through the date of release of the report.
d. Extended to include all events occurring since the audit report date.

24. Which of the following procedures would an auditor most likely perform to obtain evidence about the
occurrence of subsequent events?
a. Confirming a sample of material accounts receivable established after year end
b. Comparing the financial statements being reported on with those of the prior period.
c. Investigating personnel changes in the accounting department occurring after yer end.
d. Inquiring as to whether any unusual adjustments were made after year end.

25. Responsible to make an assessment of the entity’s ability to continue as a going concern.
a. Auditor
b. Management
c. Stockholders
d. SEC

26. Responsible for adequate disclosure of the uncertainties related to events or conditions that may cast
significant doubt upon the entity’s ability to continue as a going concern.
a. auditor
 b. management
c. stockholders
d. SEC

27. To evaluate the appropriateness of management’s use of the going concern assumptions and to
consider whether there are material uncertainties about the entity’s ability to continue as a going
concern that need to be disclosed is the responsibility of:
a. auditor
b. management
c. stockholders
d. SEC

28. If Going Concern assumption is appropriate but a material uncertainty exists and adequate disclosure
is made in the financial statements, the auditor should:
a. express a qualified or adverse opinion
b. express an unmodified opinion and the report shall include a separate section under the heading
“Material Uncertainty Related to Going Concern”
c. express a qualified or disclaimer of opinion
d. express an adverse opinion

29. If Going Concern assumption is appropriate but a material uncertainty exists and adequate diclosure
is not made in the financial statements, the auditor should:
a. express a qualified or adverse opinion
b. express an unqualified opinion and add an emphasis of matter paragraph
c. express a qualified or disclaimer of opinion
d. express an adverse opinion

30. If Going Concern assumption is inappropriate the auditor should express:

a. express a qualified or adverse opinion
b. express an unqualified opinion and add an emphasis of matter paragraph
c. express a qualified or disclaimer of opinion
d. express an adverse opinion

31. An auditor will express a qualified opinion or a disclaimer of opinion for which of the following:
a. Going concern assumption is appropriate but a material uncertainty that is adequately disclosed
exists.
b. Going concern assumption is inappropriate.
c. Going concern assumption is appropriate but a material uncertainty that is not adequately
disclosed exists.
d. Management is unwilling to make or extend its assessment when requested to do so by the
auditor.

32. If multiple uncertainties regarding events or conditions that may cast significant doubt upon an
entity’s ability to continue as a going concern exists, the auditor should:
a. express an adverse opinion
b. express a disclaimer of opinion
c. express an unmodified opinion
d. express a qualified opinion

33. Ordinarily, written representation letter is requested from:

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 a. External auditor.
b. Internal auditor.
c. Chief Executive Officer and Chief Financial Officer.
d. Chairman of the board of directors.

34. Because written representations are necessary audit evidence, the auditor’s opinion cannot be
expressed, and the auditor’s report cannot be dated, before the date of the written representations.
a. True
b. False

35. If management does not provide written representations about management’s responsibilities, the
auditor shall:
a. Express a qualified opinion.
b. Disclaim an opinion.
c. Express an adverse opinion.
d. Express unqualified opinion.

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