Completion & Final Review

🟢 Lite — Quick Review (1h–1d)

Completion & Final Review — Key Facts

• ISA 560 — Subsequent Events (between balance sheet date and auditor’s report date)
• ISA 570 — Going Concern (assessing ability to continue as going concern)
• ISA 580 — Written Representations (management representations as audit evidence)
• ISA 520 — Analytical Procedures (evaluation of financial information through analysis)
• Subsequent Events Types:
  • Type 1: Adjusting events (affect FS — must adjust)
  • Type 2: Non-adjusting events (don’t affect FS — must disclose)
• Going Concern: Entity may be unable to continue operations for foreseeable future (12 months from approval date)
• Written Representations: Formal written statements from management — NOT a substitute for sufficient appropriate evidence

⚡ Exam Tip: Going concern is HOT exam topic. Always check for: consecutive losses, loan covenant breaches, negative working capital, dependence on single customer/supplier, litigation.

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🟡 Standard — Regular Study (2d–2mo)

Completion & Final Review — Detailed Content

ISA 560 — Subsequent Events:

Definition: Events occurring between the balance sheet date and the date of the auditor’s report.

Timeline:

Balance Sheet Date ─────────────────── Auditor's Report Date
        ↓                                       ↓
   Year-end                        Report issued to shareholders
        |←────── Subsequent Period ──────────────→|

Two Types:

Type 1 — Adjusting Events: Events that provide additional evidence of conditions existing at balance sheet date.

Examples:

• Insolvency of a receivable (customer fails after year-end)
• Sale of inventory at lower than cost (NRV evidence)
• Resolution of a provision (confirms estimate)
• Discovery of fraud or error

Required Action: Adjust the financial statements

Type 2 — Non-Adjusting Events: Events that arise from conditions after balance sheet date (not existing at year-end).

Examples:

• Mergers and acquisitions after year-end
• Asset destruction by fire (occurred after year-end)
• Changes in foreign exchange rates
• Decline in market value of investments after year-end

Required Action: Disclose in notes if material (non-adjusting but material = note disclosure with quantified impact)

Auditor’s Procedures for Subsequent Events:

1. Inquire with management about events after balance sheet date
2. Review board/management meeting minutes post year-end
3. Review latest interim financial statements
4. Review accounting records (journal entries, reconciliations)
5. Consider need for events occurring after report date (reissue vs dual dating)

ISA 570 — Going Concern:

Key Definitions:

• Going Concern Assumption: Entity will continue operations for foreseeable future (minimum 12 months from approval date)
• Material Uncertainty: Doubt about entity’s ability to continue — requires EOM (Emphasis of Matter) paragraph
• Substantial Doubt: Significant doubt requiring going concern opinion modifications

Going Concern Assessment Process:

Step 1: Perform risk assessment — identify going concern indicators
Step 2: Evaluate management's assessment (forecast, assumptions)
Step 3: Assess adequacy of management's plans
Step 4: Consider mitigating factors (bank support, asset disposals)
Step 5: Consider need for disclosure/EOM paragraph
Step 6: Conclude on going concern assumption

Going Concern Indicators (ISA 570):

• Financial: Net liability position, adverse key ratios, negative cash flows, loan covenant breaches, inability to pay creditors
• Operational: Loss of key management, loss of major customer/supplier, labor disputes, legal proceedings
• Other: Natural disasters, regulatory action, going concern qualification in prior year

⚡ Exam Tip: Management override (ISA 240) is relevant here — management may manipulate forecasts to present overly optimistic going concern assessments.

ISA 580 — Written Representations:

Purpose: Provide evidence about specific matters that cannot be verified with third parties (e.g., management intentions, completeness of disclosures).

Key Points:

• Written representations ARE audit evidence (but not sufficient on their own)
• Cannot substitute for other sufficient appropriate evidence
• Should be obtained on the auditor’s report date
• If management refuses to provide → qualified/disclaimer of opinion

Contents of Management Representation Letter:

• Financial statements are properly prepared
• All relevant information disclosed
• All contingencies disclosed
• No material misstatements
• Management’s assessment of going concern is valid
• Completeness of transactions and records
• Availability of all books and records

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🔴 Extended — Deep Study (3mo+)

Comprehensive Completion & Final Review Notes

ISA 520 — Analytical Procedures at Completion:

Analytical procedures MUST be performed in the completion stage to:

1. Assist in forming overall conclusion on financial statements
2. Compare financial performance with prior periods
3. Compare with industry benchmarks
4. Investigate significant fluctuations and relationships

Types of Analytical Procedures:

Type	Method	Reliability
Trend analysis	Compare line items over time	Medium
Ratio analysis	Calculate and compare key ratios	Depends on data quality
Reasonableness testing	Compare actual vs expected	High if reliable data
Reasonableness of totals	Reconcile control accounts	Medium

Key Ratios to Calculate at Completion:

• Gross profit margin (compare to prior year and industry)
• Net profit margin
• Current ratio (liquidity)
• Quick ratio (acid test)
• Debtor collection period
• Creditor payment period
• Inventory turnover
• Return on capital employed (ROCE)

Overall Review — Final Sign-Off Checklist:

□ Obtain representation letter from management
□ Perform analytical procedures on FS
□ Review subsequent events (ISA 560)
□ Evaluate going concern (ISA 570)
□ Evaluate adequacy of disclosures
□ Obtain updated lawyer's letter (contingencies)
□ Review for subsequent discovered facts (ISA 560 post-report)
□ Confirm no management bias in estimates
□ Evaluate sufficiency and appropriateness of evidence
□ Review working papers for completeness
□ Discuss with TCWG (those charged with governance)
□ Form audit opinion and draft report
□ Partner review and sign-off

ISA 560 — Subsequent Discovered Facts (Post-Report):

If auditor discovers facts after report date:

1. Facts existing at report date → Consider whether FS need amendment; if yes, communicate to TCWG; if management refuses → take legal advice
2. Facts after report date → No action required (unless they affect matters at balance sheet date)

Going Concern — Modified Opinion Scenarios:

Situation	Opinion Type
Material uncertainty, adequately disclosed	Unmodified + EOM paragraph
Material uncertainty, inadequately disclosed	Qualified (Limitation) or Adverse
Going concern basis inappropriate	Qualified or Adverse
Significant doubt but not material	Unmodified + possibly EOM

Written Representations — Specific Representations:

The letter should include representations on:

• Management’s responsibility for FS
• Fair presentation of FS
• Completeness of information provided
• Provision of all minutes of meetings
• Transactions properly recorded and disclosed
• Compliance with applicable laws and regulations
• Identification of related parties and transactions
• No undisclosed contingent liabilities
• No events after balance sheet date requiring adjustment/disclosure
• Management’s assessment of going concern is appropriate
• Provision for inventory NRV is adequate
• Provision for bad debts is adequate

Common Exam Mistakes:

Mistake	Correction
”Subsequent receipts = no issue with receivables”	Subsequent receipts prove EXISTENCE but not VALUATION (customer might have paid AFTER year-end but already be insolvent)
“Going concern = unqualified always”	If material uncertainty exists and not adequately disclosed → modified opinion
”Management letter = substitute for evidence”	Written representations are evidence, NOT a substitute for other evidence
”All post-year-end events = adjusting”	Only adjust if they confirm conditions EXISTING at balance sheet date

⚡ High-Yield Going Concern Formula:

Working Capital = Current Assets − Current Liabilities

If Current Assets < Current Liabilities → Net Current Liability Position
                                      → Potential Going Concern Risk

Indicators requiring immediate attention:
□ Negative working capital
□ Overdraft exceeding authorized limit
□ Loan covenants breached (or about to be)
□ Debts maturing within 12 months without refinancing
□ Reliance on single customer (>50% revenue)

⚡ Audit Final Review — Key Questions to Ask:

1. Have all material misstatements been corrected?
2. Is the going concern assumption appropriate?
3. Are subsequent events properly accounted for?
4. Is the evidence sufficient and appropriate?
5. Are disclosures complete and accurate?
6. Does the FS present fairly in all material respects?
7. Any unusual transactions requiring disclosure?
8. Related party transactions properly disclosed?

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