Chapter 24 – Completing the Audit
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Completing the Audit
Chapter 24
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 24 - 1Learning Objective 1
Design and perform audit tests
related to presentation and
disclosure audit objectives.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 24 - 2Presentation and Disclosure
Audit Objectives (page 779)
Occurrence and rights and obligations:
Disclosed events and transactions have
occurred and pertain to the entity.
Completeness:
All disclosures that should have been
included in the financial statements
have been included.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 24 - 3Presentation and Disclosure
Audit Objectives (page 779)
Classification and understandability:
Financial information is appropriately
presented and described and disclosures
are clearly expressed.
Accuracy and valuation:
Financial and other information are
disclosed fairly and at appropriate amounts.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 24 - 4Learning Objective 2
Conduct a review for contingent
liabilities and commitments.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 24 - 5Contingent Liabilities
A contingent liability is a potential future
obligation to an outside party for an
unknown amount resulting from activities
that have already taken place.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 24 - 6Likelihood of Occurrence and
Financial Statement Treatment
Likelihood of Financial Statement
Occurrence of Event Treatment
Remote No disclosure
(slight chance) is necessary
Reasonably Footnote disclosure
possible is necessary
Probable Adjust financial statements
(likely to occur) or note disclosure
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 24 - 7Auditor’s Concerns
Pending litigation for patent infringement,
product liability, or other actions
Income tax disputes
Product warranties
Notes receivable discounted
Guarantees of obligations of others
Unused balances of outstanding letters of credit
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 24 - 8Audit Procedures for Finding
Contingencies
Inquire of management about the possibility
of unrecorded contingencies.
Review current and previous years’ internal
revenue reports for income tax settlements.
Review the minutes of directors’ and
stockholders’ meetings for indications of
lawsuits or other contingencies.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 24 - 9Audit Procedures for Finding
Contingencies
Analyze legal expenses and review invoices
and statements from legal counsel.
Obtain a letter from each major attorney of the
client as to the status of pending litigation.
Review audit documentation for any information
that may indicate a potential contingency.
Examine letters of credit in force.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 24 - 10
