Question

In: Finance

You are the audit senior on the audit engagement of Brown’s Farm Produce. You have assigned...

You are the audit senior on the audit engagement of Brown’s Farm Produce. You have assigned the role of identifying subsequent events for this audit client to Brian Peters who is Senior Associate with your firm. This is his first subsequent events review. The following information pertains to the audit engagement of Brown’s Farm Produce.

i)  Detailed audit work was completed on Thursday 5 December 1997.

ii)  The proposed audit report sign date is Friday 19 December 1997.

iii)  It is proposed that the financial statements be sent to the shareholders on Tuesday 6 January 1998 and

iv)  Brown’s Farm Produce will have their AGM on Wednesday 28 January 1998.

You are required to provide coaching to Brian as it relates to the following:

1. The auditor’s responsibilities for detecting material subsequent events in the following periods:

-  31 October to 5 December 1997

-  5 December to 19 December 1997

-  19 December to 5 January 1998

-  5 January 1998 to 28 January 1998

-  After 28 January 1998

2.  Design three audit procedures which can be used to examine subsequent reviews.

3.  Describe to Brian the audit work he should perform at period ii) above.

Solutions

Expert Solution

1. The auditor's responsibilities for detecting material subsequent events in the following periods:

- 31 October to December 1997:

Auditor should make sure that all events up to the date of the auditor's report that may require adjustment of, or disclosure in, the financial statements have been identified.

- 5 December to 19 December 1997:

Auditor should make sure that all events up to the date of the auditor's report that may require adjustment of, or disclosure in, the financial statements have been identified.

- 19 December to 5 january 1998:

For this period it is the responsibility of the management to make auditor aware of any material facts which affect financial statements. Auditor should subsequently take appropriate actions.

- 5 january 1998 to 28 January 1998 and there after:

There is no obligation on auditor to perform audit procedures during the period. However, if circumstances warrant financial statements to be revised then auditor should ammend his audit report accordingly and the date of audit report should not be earlier than the date of FS. Moreover if management does not change the FS and auditor is of view that FS are not correct than he should publicly make known to third parties for not relying over the audit report and resign from the post.

2. Three audit procedures are :

* Reviewing procedures management has established to ensure that subsequent events are identified.

* Reading minutes of the management of shareholders, the board of directors, and audit committee, held after period end.

* Reading the entity's latest avilablav interim financial statements.

3. Describe to Brain the audit work he should perform at period ii) above.

Period ii here must refer to period between 5 December to 19 December 1997 wherein Brain should look for material changes which require ammendment in audit reports.


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