Completion and Review
Domain 7 covers the final sweep before the report is signed: evaluating misstatements, subsequent events, going concern, written representations and quality review.
Accumulating misstatements (SA 450)
The auditor accumulates uncorrected misstatements other than those clearly trivial, communicates them to management and those charged with governance, and evaluates whether they are material individually or in aggregate, including effect on ratios, covenants and trends.
Subsequent events (SA 560)
Adjusting events give evidence of conditions existing at the balance sheet date, such as a customer's bankruptcy confirming that a receivable was impaired. Non-adjusting events indicate conditions arising later, such as a fire, and may require disclosure. The auditor's responsibility runs to the date of the report, and afterwards if facts become known that would have changed the report.
Going concern (SA 570)
Evaluate management's assessment, look for indicators such as net liability, covenant breach or loss of a key customer, and where a material uncertainty exists check that disclosure is adequate; if not, modify the opinion.
Written representations (SA 580)
Obtained near the report date, covering management's responsibilities and specific assertions. They are not a substitute for other evidence and are of limited value on subjective matters.
Worked example
A debtor of 3 crore is declared insolvent on 15 May; the year end is 31 March and the report is due 20 June. Reasoning: the insolvency confirms a condition at year end, since the debtor was already in difficulty, so the receivable is written down as an adjusting event rather than merely disclosed.
Traps
- Treating every post-year-end event as adjusting.
- Accepting written representations instead of performing procedures.
- Confusing the date of the financial statements with the date of the audit report.
- Overlooking that engagement quality control review under SA 220 is mandatory for listed entities.