ICAI Notes: Completion and Review | Auditing and Ethics for CA Intermediate PDF Download

 Page 1


a
    
 
CHAPTER 
7 
 
LEARNING OUTCOMES 
 
  
COMPLETION AND 
REVIEW 
 
 
 
 
 
After studying this chapter, you would be able to understand- 
? Meaning of “Subsequent Events” 
? SA 560- Subsequent Events 
? Meaning of “Going Concern” and its significance 
? SA 570- Going Concern 
? SA 450- Evaluation of misstatements identified during the audit   
? Meaning of Written representations 
? SA 580-Written representations 
? Significance of Communication with Those charged with governance 
? Overview of SA 260 -concerning Communication with Those charged 
with governance 
? Necessity of communication of significant deficiencies in internal 
control  
? Overview of SA 265- Communicating Deficiencies in Internal Control to 
Those Charged with Governance and Management 
? Practicality of above concepts using examples and case studies.  
© The Institute of Chartered Accountants of India
Page 2


a
    
 
CHAPTER 
7 
 
LEARNING OUTCOMES 
 
  
COMPLETION AND 
REVIEW 
 
 
 
 
 
After studying this chapter, you would be able to understand- 
? Meaning of “Subsequent Events” 
? SA 560- Subsequent Events 
? Meaning of “Going Concern” and its significance 
? SA 570- Going Concern 
? SA 450- Evaluation of misstatements identified during the audit   
? Meaning of Written representations 
? SA 580-Written representations 
? Significance of Communication with Those charged with governance 
? Overview of SA 260 -concerning Communication with Those charged 
with governance 
? Necessity of communication of significant deficiencies in internal 
control  
? Overview of SA 265- Communicating Deficiencies in Internal Control to 
Those Charged with Governance and Management 
? Practicality of above concepts using examples and case studies.  
© The Institute of Chartered Accountants of India
a
 
 
 
AUDITING AND ETHICS  
 
7.2 
 
 
 
 
 
  
SA 260
• COMMUNICATION WITH THOSE CHARGED WITH
GOVERNANCE
SA 265
• COMMUNICATING DEFICIENCIES IN INTERNAL
CONTROL TO THOSE CHARGED WITH
GOVERNANCE AND MANAGEMENT
SA 450
• EVALUATIONS OF MISSTATEMENTS IDENTIFIED
DURING THE AUDIT
SA 560
• SUBSEQUENT  EVENTS
SA 570
• GOING  CONCERN
SA 580
• WRITTEN  REPRESENTATIONS
CHAPTER OVERVIEW 
 
© The Institute of Chartered Accountants of India
Page 3


a
    
 
CHAPTER 
7 
 
LEARNING OUTCOMES 
 
  
COMPLETION AND 
REVIEW 
 
 
 
 
 
After studying this chapter, you would be able to understand- 
? Meaning of “Subsequent Events” 
? SA 560- Subsequent Events 
? Meaning of “Going Concern” and its significance 
? SA 570- Going Concern 
? SA 450- Evaluation of misstatements identified during the audit   
? Meaning of Written representations 
? SA 580-Written representations 
? Significance of Communication with Those charged with governance 
? Overview of SA 260 -concerning Communication with Those charged 
with governance 
? Necessity of communication of significant deficiencies in internal 
control  
? Overview of SA 265- Communicating Deficiencies in Internal Control to 
Those Charged with Governance and Management 
? Practicality of above concepts using examples and case studies.  
© The Institute of Chartered Accountants of India
a
 
 
 
AUDITING AND ETHICS  
 
7.2 
 
 
 
 
 
  
SA 260
• COMMUNICATION WITH THOSE CHARGED WITH
GOVERNANCE
SA 265
• COMMUNICATING DEFICIENCIES IN INTERNAL
CONTROL TO THOSE CHARGED WITH
GOVERNANCE AND MANAGEMENT
SA 450
• EVALUATIONS OF MISSTATEMENTS IDENTIFIED
DURING THE AUDIT
SA 560
• SUBSEQUENT  EVENTS
SA 570
• GOING  CONCERN
SA 580
• WRITTEN  REPRESENTATIONS
CHAPTER OVERVIEW 
 
© The Institute of Chartered Accountants of India
 
 
COMPLETION AND REVIEW 
a
 
 
7.3 
Excited as he was, to know outcome of audit his friend Shekhar was part of, Sameer 
called him up one day. He came to know that substantive procedures have already 
been performed and audit is in its last leg of completion. A question arose in his 
mind. Is something more to be done? Are there still some procedures left to be 
performed? 
It is in this context, he came to know about “Subsequent events”. He was under the 
impression that audit is concerned only with events occurring up to date of financial 
statements. However, he rued his elementary understanding. Not only auditor is 
concerned with events occurring up to date of financial statements, he has also to 
deal with effects of events occurring up to date of auditor’s report. Even after 
signing audit report, if auditor becomes aware of certain facts, he has to take 
necessary steps in certain situations. What are those steps and situations? 
Apart from this, auditor has to assess whether use of going concern assumption by 
management in preparation of financial statements is appropriate. Applying his 
accountancy knowledge of AS 1, he remembered that it is one of the three 
fundamental accounting assumptions. It means that an enterprise will continue to 
be in business in foreseeable future. It is the basic assumption which affects how 
financial statements of an enterprise are prepared.  Wow! That is why it is so 
important for auditors. 
He was also considering whether misstatements found during audit have to be 
informed to the management first. Why it is necessary to do so?  The reason behind 
it must be to provide an opportunity to management to correct those 
misstatements. Another reason could be of judging response of management to 
such misstatements. Something new may come to knowledge of auditors before he 
forms opinion and signs on dotted lines. 
Remembering that audit suffers from inherent limitations, he knew that audit 
procedures are not completely fool-proof. An auditor may falter due to limitations 
of procedures themselves or due to their faulty selection. In such a case, how can 
auditor be sure of everything, of completeness of information, of recording of all 
transactions? That is where written representations come in the picture.  
He has understood now reason for lull period in the audit and why an auditor takes 
time to sign report. 
There are still procedures to be performed by auditor after completion of 
substantive procedures involving detailed checking. An auditor has to deal with 
© The Institute of Chartered Accountants of India
Page 4


a
    
 
CHAPTER 
7 
 
LEARNING OUTCOMES 
 
  
COMPLETION AND 
REVIEW 
 
 
 
 
 
After studying this chapter, you would be able to understand- 
? Meaning of “Subsequent Events” 
? SA 560- Subsequent Events 
? Meaning of “Going Concern” and its significance 
? SA 570- Going Concern 
? SA 450- Evaluation of misstatements identified during the audit   
? Meaning of Written representations 
? SA 580-Written representations 
? Significance of Communication with Those charged with governance 
? Overview of SA 260 -concerning Communication with Those charged 
with governance 
? Necessity of communication of significant deficiencies in internal 
control  
? Overview of SA 265- Communicating Deficiencies in Internal Control to 
Those Charged with Governance and Management 
? Practicality of above concepts using examples and case studies.  
© The Institute of Chartered Accountants of India
a
 
 
 
AUDITING AND ETHICS  
 
7.2 
 
 
 
 
 
  
SA 260
• COMMUNICATION WITH THOSE CHARGED WITH
GOVERNANCE
SA 265
• COMMUNICATING DEFICIENCIES IN INTERNAL
CONTROL TO THOSE CHARGED WITH
GOVERNANCE AND MANAGEMENT
SA 450
• EVALUATIONS OF MISSTATEMENTS IDENTIFIED
DURING THE AUDIT
SA 560
• SUBSEQUENT  EVENTS
SA 570
• GOING  CONCERN
SA 580
• WRITTEN  REPRESENTATIONS
CHAPTER OVERVIEW 
 
© The Institute of Chartered Accountants of India
 
 
COMPLETION AND REVIEW 
a
 
 
7.3 
Excited as he was, to know outcome of audit his friend Shekhar was part of, Sameer 
called him up one day. He came to know that substantive procedures have already 
been performed and audit is in its last leg of completion. A question arose in his 
mind. Is something more to be done? Are there still some procedures left to be 
performed? 
It is in this context, he came to know about “Subsequent events”. He was under the 
impression that audit is concerned only with events occurring up to date of financial 
statements. However, he rued his elementary understanding. Not only auditor is 
concerned with events occurring up to date of financial statements, he has also to 
deal with effects of events occurring up to date of auditor’s report. Even after 
signing audit report, if auditor becomes aware of certain facts, he has to take 
necessary steps in certain situations. What are those steps and situations? 
Apart from this, auditor has to assess whether use of going concern assumption by 
management in preparation of financial statements is appropriate. Applying his 
accountancy knowledge of AS 1, he remembered that it is one of the three 
fundamental accounting assumptions. It means that an enterprise will continue to 
be in business in foreseeable future. It is the basic assumption which affects how 
financial statements of an enterprise are prepared.  Wow! That is why it is so 
important for auditors. 
He was also considering whether misstatements found during audit have to be 
informed to the management first. Why it is necessary to do so?  The reason behind 
it must be to provide an opportunity to management to correct those 
misstatements. Another reason could be of judging response of management to 
such misstatements. Something new may come to knowledge of auditors before he 
forms opinion and signs on dotted lines. 
Remembering that audit suffers from inherent limitations, he knew that audit 
procedures are not completely fool-proof. An auditor may falter due to limitations 
of procedures themselves or due to their faulty selection. In such a case, how can 
auditor be sure of everything, of completeness of information, of recording of all 
transactions? That is where written representations come in the picture.  
He has understood now reason for lull period in the audit and why an auditor takes 
time to sign report. 
There are still procedures to be performed by auditor after completion of 
substantive procedures involving detailed checking. An auditor has to deal with 
© The Institute of Chartered Accountants of India
a
 
 
 
AUDITING AND ETHICS  
 
7.4 
effect of subsequent events. He has to obtain sufficient appropriate evidence 
regarding appropriateness of use by management of going concern assumption in 
preparation of financial statements.  Misstatements identified during audit have to 
be evaluated and communicated. Communication regarding significant audit 
findings and other matters is made to those charged with governance.  Written 
representations are obtained. All such procedures are performed before signing of 
audit report. 
 1. 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 are known as subsequent events. 
Consider case of a company which may have planned an agreement to merge 
between the date of the financial statements and the date of the auditor’s report. 
Or a fire claim amount of an entity receivable from insurance company as on date 
of financial statements may have been settled at a reduced amount before date of 
auditor’s report.  These are some of the examples of subsequent events. 
Financial statements may be affected by certain events that occur after the date of 
the financial statements. Many financial reporting frameworks specifically refer to 
such events. Such financial reporting frameworks ordinarily identify two types of 
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. 
Examples of events providing evidence of conditions that existed at the date 
of the financial statements 
• Declaration of insolvency of a major debtor of the entity between the date of 
financial statements and the date of auditor’s report providing evidence on 
the recoverability of the money due from debtor as on date of the financial 
statements. 
• Settling a legal claim outside the court at a reduced amount between the date 
of financial statements and the date of auditor’s report for which provision 
© The Institute of Chartered Accountants of India
Page 5


a
    
 
CHAPTER 
7 
 
LEARNING OUTCOMES 
 
  
COMPLETION AND 
REVIEW 
 
 
 
 
 
After studying this chapter, you would be able to understand- 
? Meaning of “Subsequent Events” 
? SA 560- Subsequent Events 
? Meaning of “Going Concern” and its significance 
? SA 570- Going Concern 
? SA 450- Evaluation of misstatements identified during the audit   
? Meaning of Written representations 
? SA 580-Written representations 
? Significance of Communication with Those charged with governance 
? Overview of SA 260 -concerning Communication with Those charged 
with governance 
? Necessity of communication of significant deficiencies in internal 
control  
? Overview of SA 265- Communicating Deficiencies in Internal Control to 
Those Charged with Governance and Management 
? Practicality of above concepts using examples and case studies.  
© The Institute of Chartered Accountants of India
a
 
 
 
AUDITING AND ETHICS  
 
7.2 
 
 
 
 
 
  
SA 260
• COMMUNICATION WITH THOSE CHARGED WITH
GOVERNANCE
SA 265
• COMMUNICATING DEFICIENCIES IN INTERNAL
CONTROL TO THOSE CHARGED WITH
GOVERNANCE AND MANAGEMENT
SA 450
• EVALUATIONS OF MISSTATEMENTS IDENTIFIED
DURING THE AUDIT
SA 560
• SUBSEQUENT  EVENTS
SA 570
• GOING  CONCERN
SA 580
• WRITTEN  REPRESENTATIONS
CHAPTER OVERVIEW 
 
© The Institute of Chartered Accountants of India
 
 
COMPLETION AND REVIEW 
a
 
 
7.3 
Excited as he was, to know outcome of audit his friend Shekhar was part of, Sameer 
called him up one day. He came to know that substantive procedures have already 
been performed and audit is in its last leg of completion. A question arose in his 
mind. Is something more to be done? Are there still some procedures left to be 
performed? 
It is in this context, he came to know about “Subsequent events”. He was under the 
impression that audit is concerned only with events occurring up to date of financial 
statements. However, he rued his elementary understanding. Not only auditor is 
concerned with events occurring up to date of financial statements, he has also to 
deal with effects of events occurring up to date of auditor’s report. Even after 
signing audit report, if auditor becomes aware of certain facts, he has to take 
necessary steps in certain situations. What are those steps and situations? 
Apart from this, auditor has to assess whether use of going concern assumption by 
management in preparation of financial statements is appropriate. Applying his 
accountancy knowledge of AS 1, he remembered that it is one of the three 
fundamental accounting assumptions. It means that an enterprise will continue to 
be in business in foreseeable future. It is the basic assumption which affects how 
financial statements of an enterprise are prepared.  Wow! That is why it is so 
important for auditors. 
He was also considering whether misstatements found during audit have to be 
informed to the management first. Why it is necessary to do so?  The reason behind 
it must be to provide an opportunity to management to correct those 
misstatements. Another reason could be of judging response of management to 
such misstatements. Something new may come to knowledge of auditors before he 
forms opinion and signs on dotted lines. 
Remembering that audit suffers from inherent limitations, he knew that audit 
procedures are not completely fool-proof. An auditor may falter due to limitations 
of procedures themselves or due to their faulty selection. In such a case, how can 
auditor be sure of everything, of completeness of information, of recording of all 
transactions? That is where written representations come in the picture.  
He has understood now reason for lull period in the audit and why an auditor takes 
time to sign report. 
There are still procedures to be performed by auditor after completion of 
substantive procedures involving detailed checking. An auditor has to deal with 
© The Institute of Chartered Accountants of India
a
 
 
 
AUDITING AND ETHICS  
 
7.4 
effect of subsequent events. He has to obtain sufficient appropriate evidence 
regarding appropriateness of use by management of going concern assumption in 
preparation of financial statements.  Misstatements identified during audit have to 
be evaluated and communicated. Communication regarding significant audit 
findings and other matters is made to those charged with governance.  Written 
representations are obtained. All such procedures are performed before signing of 
audit report. 
 1. 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 are known as subsequent events. 
Consider case of a company which may have planned an agreement to merge 
between the date of the financial statements and the date of the auditor’s report. 
Or a fire claim amount of an entity receivable from insurance company as on date 
of financial statements may have been settled at a reduced amount before date of 
auditor’s report.  These are some of the examples of subsequent events. 
Financial statements may be affected by certain events that occur after the date of 
the financial statements. Many financial reporting frameworks specifically refer to 
such events. Such financial reporting frameworks ordinarily identify two types of 
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. 
Examples of events providing evidence of conditions that existed at the date 
of the financial statements 
• Declaration of insolvency of a major debtor of the entity between the date of 
financial statements and the date of auditor’s report providing evidence on 
the recoverability of the money due from debtor as on date of the financial 
statements. 
• Settling a legal claim outside the court at a reduced amount between the date 
of financial statements and the date of auditor’s report for which provision 
© The Institute of Chartered Accountants of India
 
 
COMPLETION AND REVIEW 
a
 
 
7.5 
has already been made in financial statements. It provides evidence on 
adjustment in provision amount already made in financial statements, if any. 
Examples of events providing evidence of conditions that arose after the date 
of the financial statements 
• Issue of new share capital. 
• Planned merger of the company. 
• Destruction of substantial inventories due to fire between the date of the 
financial statements and the date of auditor’s report. 
 
1.1 SA 560 Subsequent Events 
SA 560 deals with the auditor’s responsibilities relating to subsequent events in an 
audit of financial statements.  
1.2 Objectives of auditor in accordance with SA 560 
The objectives of the auditor are to: -  
(a)  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 and  
(b)  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. 
Subsequent events
Events occuring 
between the  date of 
the financial statements 
and the date of the 
auditor's report
Facts which become known to 
the auditor after the date of 
the auditor's report but before 
the date the financial 
statements are issued
Facts which become 
known to the auditor 
after the financial 
statements have been 
issued
© The Institute of Chartered Accountants of India