Audit Completion and Evaluation

Introduction and Context

An audit is not complete when fieldwork ends. The final stage requires the auditor to assemble, evaluate, and challenge the evidence obtained; determine whether identified misstatements have been corrected or remain material; consider events and conditions arising after the reporting date; assess going concern; obtain appropriate written representations; perform final analytical procedures; and conclude whether the financial statements are fairly presented in accordance with the applicable financial reporting framework.

Audit completion is therefore an evaluative process rather than an administrative formality. The auditor moves from testing individual balances and transactions to considering the financial statements as a whole. This change in perspective is essential because an error that appears immaterial in isolation may become material when combined with other errors, affects a key ratio, reverses a profit into a loss, or conceals a breach of a lending covenant.

The completion phase also involves professional judgment. Auditors must remain alert to management bias, incomplete information, contradictory evidence, and events that may undermine earlier conclusions. The final audit opinion must be supported by sufficient appropriate audit evidence and by documentation that enables an experienced auditor, having no previous connection with the engagement, to understand the work performed and the basis for the conclusion.

Learning Objectives

By the end of this chapter, students should be able to:

1. Explain the purpose and timing of audit completion procedures.
2. Accumulate, evaluate, and communicate identified misstatements.
3. Distinguish corrected from uncorrected misstatements and assess their aggregate effect.
4. Apply the auditor’s responsibilities for subsequent events and going concern.
5. Evaluate contingencies, litigation, and commitments.
6. Explain the purpose and limitations of written representations and final analytical procedures.
7. Conduct a completion review and determine whether sufficient appropriate evidence supports the audit conclusion.
8. Recognize ethical, governance, technological, and documentation issues in audit completion.

1. The Completion Phase as an Evidence-Integration Process

During planning, the auditor develops a risk assessment and audit strategy. During fieldwork, the auditor performs procedures directed at assertions, account balances, classes of transactions, and disclosures. At completion, these separate results must be integrated. The auditor asks whether:

• all planned procedures have been completed or satisfactorily resolved;
• identified risks have been addressed;
• evidence is sufficient and appropriate in relation to materiality;
• accounting policies and estimates are reasonable;
• misstatements, individually and collectively, materially affect the financial statements;
• subsequent events or new information require adjustment or disclosure;
• the going-concern basis of accounting remains appropriate;
• the financial statements comply with the applicable reporting framework; and
• the proposed audit opinion is supported by the evidence.

Sufficient refers to the quantity of audit evidence. Appropriate refers to its quality—its relevance and reliability. More evidence does not compensate automatically for poor-quality evidence. For example, many internally generated schedules may not provide the same persuasive support as a reliable external confirmation.

Completion procedures should be performed by appropriately experienced personnel. The engagement partner retains ultimate responsibility for the audit opinion, even when much of the detailed review is delegated. Review is not merely proofreading: it involves evaluating whether judgments are reasonable, evidence supports conclusions, and contradictory information has been resolved.

2. Materiality and the Evaluation of Misstatements

2.1 The nature of audit misstatements

A misstatement is a difference between the reported amount, classification, presentation, or disclosure of a financial statement item and the amount, classification, presentation, or disclosure required by the applicable framework. Misstatements may result from:

• mathematical or clerical errors;
• incorrect application of accounting policies;
• omission of transactions or disclosures;
• inaccurate estimates;
• inappropriate classification;
• fraud; or
• management decisions to suppress unfavorable information.

A misstatement may be factual, judgmental, or projected. A factual misstatement is objectively established, such as an invoice recorded twice. A judgmental misstatement arises from a difference in estimates or accounting judgments, such as an allowance for doubtful debts that the auditor considers understated. A projected misstatement is an auditor’s estimate of the likely error in a population based on sampling results.

2.2 Accumulating identified misstatements

Auditors normally accumulate all identified misstatements other than those that are clearly trivial. “Clearly trivial” does not mean simply below overall materiality. It means so small or inconsequential that it would not reasonably influence any user’s decisions, whether considered individually or collectively. The threshold should be established carefully and should not be used to avoid recording inconvenient errors.

A misstatement schedule commonly includes:

The auditor should record the nature, amount, affected assertions, and whether the error is isolated or part of a pattern. Classification and disclosure errors require special attention because they may affect users even when the amount is small.

2.3 Projecting sample misstatements

When audit sampling identifies errors, the auditor may project the likely misstatement to the entire population. The specific projection method depends on the sampling design and the nature of the error. A simple illustrative ratio method is:

This relationship is appropriate only as a simplified illustration where proportional projection is justified. It does not replace consideration of sampling risk, individually significant items, stratification, or the applicable sampling standard. The auditor must also consider the possible misstatement within the sampling risk allowance.

2.4 Evaluating aggregate effect

The auditor aggregates uncorrected misstatements by statement of financial position effect, profit or loss effect, cash-flow effect, and disclosure effect. Offsetting is not automatically acceptable. An asset overstatement and a liability understatement may both mislead users even if their net effect on total assets is zero. Similarly, a current-period overstatement may not be offset by an unrelated understatement in another account.

The evaluation normally considers:

• size relative to overall materiality and performance materiality;
• nature of the misstatement;
• circumstances in which it arose;
• effect on trends, ratios, and covenants;
• effect on compliance with law or regulation;
• effect on management compensation;
• whether it hides a change from profit to loss;
• whether it affects a key segment or related party transaction;
• whether it indicates bias in estimates; and
• whether it is part of a recurring pattern.

A misstatement can be material by nature even when quantitatively small. Examples include an undisclosed related-party transaction, an error that enables management to meet a bonus target, or a missing disclosure about substantial litigation.

2.5 Corrected and uncorrected misstatements

The auditor communicates identified misstatements to management at an appropriate level and requests correction. The auditor should also communicate uncorrected misstatements to those charged with governance, together with their possible effect on the audit opinion. Management may correct some items and decline to correct others.

Before concluding that uncorrected misstatements are immaterial, the auditor should obtain management’s reasons for not correcting them and assess whether those reasons indicate bias. The auditor should request a written representation that management believes the effects of uncorrected misstatements are immaterial, individually and in aggregate, to the financial statements as a whole. This representation supports—but does not replace—the auditor’s own evaluation.

3. Subsequent Events

3.1 Meaning and categories

Subsequent events are events occurring between the date of the financial statements and the date of the auditor’s report, and facts discovered after the auditor’s report that may have affected the financial statements or the auditor’s report had they been known earlier.

Two broad categories are important:

1. Adjusting events provide additional evidence about conditions that existed at the reporting date. The financial statements should generally be adjusted.
2. Non-adjusting events relate to conditions arising after the reporting date. They are not normally adjusted, but material events may require disclosure.

The exact treatment depends on the applicable financial reporting framework. The auditor’s role is not to create accounting policy but to evaluate whether management has applied the framework correctly.

3.2 Procedures before the auditor’s report

The auditor performs procedures designed to obtain sufficient appropriate evidence about events requiring adjustment or disclosure. These may include:

• reading minutes of shareholder, board, and committee meetings;
• inspecting interim financial information and subsequent management accounts;
• making inquiries of management, legal advisers, and those charged with governance;
• reviewing post-year-end sales, purchases, receipts, payments, and financing;
• examining correspondence with regulators, lenders, insurers, and lawyers;
• reviewing post-year-end journal entries and unusual transactions; and
• obtaining updated information about litigation, guarantees, and commitments.

The auditor does not provide absolute assurance that every subsequent event will be discovered. Procedures are performed up to the date of the auditor’s report, and the auditor should obtain evidence that management has considered relevant events through that date.

3.3 Facts discovered after the report date

If a fact becomes known after the auditor’s report date that might have caused a different report, the auditor should discuss the matter with management and those charged with governance. The appropriate response depends on whether the financial statements require amendment and whether the report has already been released. The auditor may need to perform additional procedures, issue a new or amended report, or take steps to prevent reliance on the original report where permitted by law and professional standards.

4. Going Concern

4.1 Concept and responsibilities

Going concern is the assumption that an entity will continue operating for the foreseeable future and will realize assets and settle liabilities in the normal course of business. Management is responsible for assessing the entity’s ability to continue as a going concern and for making appropriate disclosures. The auditor evaluates management’s assessment and obtains sufficient evidence about relevant conditions.

The auditor’s conclusion is not a guarantee that the entity will survive. Rather, it addresses whether the going-concern basis is appropriate and whether a material uncertainty exists that should be disclosed.

4.2 Indicators of difficulty

Financial indicators include recurring losses, negative operating cash flows, net liability positions, overdue borrowings, breaches of loan covenants, and dependence on short-term financing. Operating indicators include loss of key customers, supply disruptions, inability to replace essential management, or the loss of a major license. External indicators include adverse litigation, regulatory action, economic crisis, or technological obsolescence.

One indicator does not automatically establish a material uncertainty. Management may have realistic plans to obtain financing, restructure operations, sell assets, or reduce costs. The auditor evaluates the feasibility and evidence supporting those plans rather than accepting them at face value.

4.3 Audit procedures and reporting

The auditor should evaluate management’s assessment period, test cash-flow forecasts, compare forecasts with historical accuracy, inspect financing agreements, assess covenant compliance, and consider post-year-end trading. Forecast assumptions should be compared with external evidence where possible, such as market demand, interest rates, or confirmed financing.

If the going-concern basis is inappropriate, the auditor expresses an adverse opinion where the financial statements are prepared on that basis. If the basis is appropriate but a material uncertainty exists and is adequately disclosed, the auditor’s report includes a section drawing attention to the disclosure in accordance with applicable standards. If disclosure is inadequate, the opinion is modified. If sufficient evidence cannot be obtained, the auditor considers the implications for a qualified opinion or disclaimer.

5. Contingencies, Litigation, and Commitments

A contingency is a possible obligation or possible asset whose existence depends on uncertain future events. Common examples include lawsuits, tax disputes, product warranties, guarantees, environmental claims, and regulatory investigations. The accounting treatment may require recognition of a provision, disclosure of a contingent liability, or no recognition, depending on probability, measurability, and the reporting framework.

Audit procedures may include:

• obtaining a management schedule of litigation and claims;
• sending an inquiry letter to the entity’s external legal counsel, with management authorization;
• reviewing legal expenses and correspondence;
• inspecting insurance policies and indemnity agreements;
• examining board minutes and regulatory communications; and
• assessing whether the financial statement disclosure describes the nature, timing, uncertainty, and potential financial effect.

The auditor should be alert to management’s reluctance to contact lawyers, limitations placed on legal responses, and differences between legal correspondence and management’s representations. A refusal to provide access to relevant legal evidence may represent a scope limitation and can affect the audit opinion.

Commitments such as purchase agreements, capital expenditure contracts, guarantees, and future lease obligations may not be recognized as liabilities at the reporting date but may require disclosure. Their significance should be considered in relation to liquidity and going concern.

6. Written Representations

Written representations are statements provided by management to confirm particular matters or to support other audit evidence. They normally address management’s responsibility for preparing the financial statements, providing complete information, recording all transactions, disclosing related parties, and assessing going concern. They may also cover uncorrected misstatements, fraud, laws and regulations, and subsequent events.

Representations should be obtained from management with appropriate responsibility and knowledge, usually the chief executive and chief financial officer or equivalent officers. They should be dated as near as practicable to, but not after, the date of the auditor’s report.

Written representations are necessary audit evidence in specified areas, but they are not a substitute for other evidence when independent evidence is available. Their reliability depends on the competence, integrity, and authority of the persons giving them. If representations conflict with other evidence, the auditor investigates the inconsistency. If management refuses to provide required representations, the auditor considers the effect on the opinion because this may indicate a fundamental limitation on the scope of the audit.

7. Final Analytical Procedures

Analytical procedures at completion assist the auditor in forming an overall conclusion about whether the financial statements are consistent with the auditor’s understanding of the entity. They differ from substantive analytical procedures performed to obtain evidence about individual assertions, although similar techniques may be used.

Final procedures may compare:

• current-year and prior-year revenue by product or location;
• gross margins across periods and business units;
• payroll costs with employee numbers;
• interest expense with borrowings and interest rates;
• receivables with sales trends and collection history; and
• cash flows with reported profit and working-capital movements.

The auditor investigates relationships that are inconsistent with other evidence or expectations. A final analytical review is not a mechanical ratio exercise. Its value depends on the quality of data, the precision of expectations, and the auditor’s willingness to investigate unusual results.

For example, stable revenue accompanied by a sharp increase in receivables and declining cash collections may indicate revenue-recognition problems, credit deterioration, or aggressive year-end sales. The final review may therefore identify a risk that was not apparent when individual accounts were tested.

8. Completion Review and Audit Documentation

A completion review brings together work performed by the engagement team. It commonly includes:

1. checking that the audit plan and risk assessment were updated for new information;
2. reviewing significant risks and the responses performed;
3. ensuring that all significant account balances and disclosures have been addressed;
4. examining uncorrected misstatements and management’s responses;
5. reviewing estimates, unusual transactions, related parties, and fraud considerations;
6. assessing subsequent events, going concern, contingencies, and commitments;
7. performing the final analytical review;
8. obtaining written representations;
9. checking the financial statements against the applicable framework;
10. confirming that review notes have been cleared; and
11. determining whether the report wording is consistent with the evidence.

Audit documentation should show who performed and reviewed each procedure, when it was completed, what evidence was obtained, and how significant judgments were resolved. Documentation made after the report date should identify the circumstances, persons involved, and effect on the audit file. Undocumented work is difficult to defend and may be treated as work not performed.

An engagement quality review, where required, is performed by an appropriately qualified person who is not part of the engagement team. The reviewer evaluates significant judgments, independence, consultation, materiality, going concern, and the proposed report before its release.

9. Determining Whether Evidence Is Sufficient and Appropriate

The final conclusion requires professional judgment. Evidence is persuasive when it is relevant to the assertion and reliable in origin and form. Reliability is generally enhanced when evidence is obtained directly by the auditor, comes from an independent external source, is documentary rather than oral, and is generated in a well-controlled system. These are broad tendencies, not absolute rules.

The auditor should consider whether evidence is:

• consistent with other evidence;
• obtained from a knowledgeable and independent source;
• sufficiently precise to address the risk;
• timely in relation to the reporting date; and
• complete, especially for liabilities and disclosures.

If evidence is insufficient, the auditor should perform additional procedures, seek alternative evidence, consult appropriately, or modify the opinion where the limitation cannot be resolved. The auditor must not allow reporting deadlines, client pressure, or fee considerations to replace evidence.

10. Ethical, Governance, and Regulatory Considerations

Completion is particularly vulnerable to deadline pressure and confirmation bias. Ethical risks include accepting management’s explanation without corroboration, reducing testing to meet a reporting timetable, ignoring small errors because management is important to the firm, and allowing a desire for an unmodified opinion to influence judgment.

Professional skepticism requires a questioning mind and critical assessment of evidence. It does not mean assuming that management is dishonest; it means recognizing that even honest people may make biased estimates or omit unfavorable information. Independence must be maintained in fact and appearance. The auditor should communicate significant findings, uncorrected misstatements, control deficiencies, and difficulties encountered to those charged with governance.

Technology can support completion through automated journal-entry analysis, continuous monitoring of post-year-end transactions, data visualization, and electronic confirmation platforms. Artificial intelligence may identify unusual patterns in large datasets, but its output is not itself audit evidence. Auditors must understand data provenance, model limitations, false positives, false negatives, access controls, and the need for human review. Evidence generated by an opaque system should not be accepted without evaluating its reliability.

11. Illustrative Case: Northbridge Manufacturing Ltd.

Background

Northbridge Manufacturing Ltd. is a medium-sized producer of industrial components. Its year-end is 31 December. The audit team has completed substantive testing and is preparing the audit report. Overall materiality is set at $400,000, and the clearly trivial threshold is $20,000. The company has a bank loan containing a covenant requiring a minimum current ratio and positive annual profit.

Problems identified

The audit team identifies four matters:

• inventory includes obsolete components overstated by $180,000;
• an unrecorded supplier invoice of $140,000 relates to goods received before year-end;
• management has not disclosed a legal claim with a possible loss of $600,000;
• a major customer entered insolvency in January, and evidence indicates that its financial difficulty existed before year-end. The customer’s receivable is $250,000.

Management agrees to record the inventory write-down and supplier invoice but refuses to adjust the customer receivable or disclose the legal claim. Management argues that each remaining item is below overall materiality.

Analysis

The unrecorded supplier invoice is a factual misstatement and is corrected. The inventory error is also corrected. The customer insolvency is a subsequent event that provides evidence about a condition existing at year-end; the receivable should therefore be evaluated for impairment under the applicable framework. The legal claim is not assessed solely by amount. Its nature, probability, and possible effect on liquidity and the covenant make disclosure important even if recognition is not required.

The auditor also considers whether the errors indicate a wider problem in the completeness of liabilities and valuation of receivables. The final analytical review shows that receivables increased sharply while cash collections fell. This corroborates the need for additional testing of subsequent receipts and customer balances.

Management’s refusal to correct or disclose the matters is communicated to those charged with governance. The auditor updates the going-concern assessment because recognition of the receivable loss and possible legal exposure may cause a covenant breach. Forecasts are tested against available financing and correspondence with the bank.

Approach and outcome

The auditor performs additional procedures on post-year-end cash receipts, reviews the legal counsel response, and inspects the loan agreement. Northbridge records the receivable impairment and provides a detailed litigation disclosure. The bank confirms that it will waive the covenant breach before the report date. The auditor obtains written representations, completes the final analytical review, and concludes that the financial statements are fairly presented and that the going-concern disclosure is adequate.

Had management refused to make the adjustment or provide adequate disclosure, the auditor would have evaluated a modified opinion. If the evidence about the receivable or litigation could not be obtained, the auditor would have considered whether the resulting scope limitation was material or pervasive.

Learning points

The case illustrates that completion requires aggregation, not isolated evaluation. It also demonstrates that subsequent events may affect year-end measurements, qualitative disclosure matters can be material, and a final analytical review can reveal relationships overlooked during account-by-account testing. Finally, going concern, covenant compliance, and the audit opinion must be considered together.

Challenges and Limitations

Audit completion cannot eliminate all uncertainty. Estimates remain uncertain, legal outcomes may be unknowable, and management forecasts may be affected by rapidly changing markets. Sampling provides reasonable rather than absolute assurance. Subsequent-event procedures are limited to information available before the report date, and written representations may be self-serving.

Other challenges include compressed reporting timetables, complex group structures, remote audits, cyber incidents, restricted access to legal advisers, and large volumes of electronic data. These limitations reinforce the importance of planning throughout the audit, timely communication with governance, robust documentation, and professional skepticism.

Best-Practice Completion Workflow

A disciplined workflow is:

1. update the risk assessment for new information;
2. complete and review all planned procedures;
3. record and aggregate misstatements;
4. request corrections and evaluate management’s explanations;
5. perform subsequent-event and going-concern procedures;
6. assess contingencies, commitments, related parties, and disclosures;
7. perform final analytical procedures;
8. obtain written representations;
9. complete the financial statement and disclosure checklist;
10. resolve review points and consultations;
11. perform the required engagement quality review; and
12. approve the audit report only when sufficient appropriate evidence supports the conclusion.

Chapter Summary

Audit completion integrates the results of the entire engagement and determines whether the financial statements can support an audit opinion. The auditor accumulates all but clearly trivial misstatements, evaluates corrected and uncorrected items individually and collectively, and considers both quantitative and qualitative materiality. Misstatements should not be offset casually, and management’s refusal to correct errors may indicate bias.

The auditor reviews subsequent events, distinguishing events that provide evidence about conditions existing at year-end from events arising afterward. Going concern requires evaluation of management’s assessment, financial and operational indicators, forecasts, financing, and disclosures. Contingencies, litigation, and commitments require evidence from management, legal advisers, contracts, and governance records.

Written representations support but do not replace other audit evidence. Final analytical procedures provide an overall reasonableness check and may identify inconsistencies missed in detailed testing. Completion reviews, documentation, consultation, and engagement quality review help ensure that the proposed opinion is consistent with the evidence. Throughout the process, professional skepticism, independence, ethical judgment, and effective communication with those charged with governance are essential.

Key Terms

Audit completion: The final phase in which audit evidence, misstatements, disclosures, and significant judgments are evaluated before reporting.

Sufficient appropriate audit evidence: Evidence adequate in quantity and relevant and reliable in quality.

Misstatement: A difference between reported information and information required by the applicable reporting framework.

Factual misstatement: An objectively verifiable error.

Judgmental misstatement: A difference arising from an accounting estimate or judgment.

Projected misstatement: An estimate of likely population error based on sample results.

Clearly trivial: So small or inconsequential that it would not reasonably influence users, individually or collectively.

Uncorrected misstatement: An identified misstatement that management has not corrected.

Subsequent event: An event occurring after the reporting date that may affect the financial statements or audit report.

Adjusting event: A subsequent event providing evidence about conditions existing at the reporting date.

Non-adjusting event: An event reflecting conditions arising after the reporting date.

Going concern: The assumption that an entity will continue operating and meet obligations in the normal course.

Material uncertainty: Significant uncertainty related to conditions that may cast substantial doubt on going concern.

Contingent liability: A possible obligation dependent on uncertain future events.

Written representation: A written statement from management supporting specified audit matters.

Final analytical procedures: Overall analytical evaluations performed near the end of the audit.

Professional skepticism: A questioning mind and critical assessment of audit evidence.

Engagement quality review: An objective review of significant judgments and conclusions before the audit report is released.

Review Questions

Short Answer Questions

1. What is the difference between sufficient and appropriate audit evidence?
2. Why should auditors accumulate uncorrected misstatements?
3. Distinguish an adjusting event from a non-adjusting event.
4. What is the purpose of written representations?
5. State two procedures used to evaluate going concern.

Long Answer Questions

1. Explain how an auditor evaluates the aggregate effect of identified misstatements.
2. Describe the auditor’s responsibilities for subsequent events before and after the audit report date.
3. Discuss the evidence needed to evaluate management’s going-concern assessment.
4. Explain the role, usefulness, and limitations of final analytical procedures.
5. Describe the major components of a completion review and explain why documentation is important.

Analytical / Application Questions

1. An entity has an uncorrected inventory overstatement, an undisclosed related-party transaction, and a small error that changes a loss into a profit. Explain how the auditor should evaluate these matters.
2. After year-end, a major customer becomes insolvent. The customer had missed payments before year-end, but management claims the insolvency is a new event. What evidence should the auditor obtain, and how might the financial statements be affected?
3. Management forecasts positive cash flows but relies on an unsigned refinancing agreement and optimistic sales growth. Analyze the auditor’s response and explain possible reporting consequences.

Multiple Choice Questions with Answers

Question 1

Which statement best describes an uncorrected misstatement?

A. An error that is below the clearly trivial threshold

B. An identified misstatement that management has not corrected

C. A difference discovered after the audit report that never affects reporting

D. A projected error that has already been adjusted

Correct Answer: B. An identified misstatement that management has not corrected

Question 2

Which event generally provides evidence about conditions existing at the reporting date?

A. A fire occurring after year-end

B. A new loan obtained after year-end

C. A customer insolvency confirming financial difficulty existing at year-end

D. A new product launch after year-end

Correct Answer: C. A customer insolvency confirming financial difficulty existing at year-end

Question 3

Which factor can make a quantitatively small misstatement material by nature?

A. It is recorded in a low-value expense account

B. It concerns an undisclosed related-party transaction

C. It is corrected before the audit report

D. It has no effect on any disclosure

Correct Answer: B. It concerns an undisclosed related-party transaction

Question 4

Written representations from management are best described as:

A. A complete substitute for independent audit evidence

B. Statements that support specified matters but do not replace necessary other evidence

C. Evidence obtained directly from customers and suppliers

D. Documents prepared only by the auditor

Correct Answer: B. Statements that support specified matters but do not replace necessary other evidence

Question 5

What is a primary purpose of final analytical procedures?

A. To replace all substantive testing

B. To calculate the audit fee

C. To form an overall conclusion about whether the financial statements are consistent with the auditor’s understanding

D. To determine management salaries

Correct Answer: C. To form an overall conclusion about whether the financial statements are consistent with the auditor’s understanding

Question 6

Which condition is most directly associated with going-concern risk?

A. A stable cash balance and profitable operations

B. Recurring losses and overdue borrowings

C. A completed physical inventory count

D. A reduction in office supplies

Correct Answer: B. Recurring losses and overdue borrowings

Question 7

If management refuses to provide a required written representation, the auditor should primarily consider whether:

A. The audit can continue without documentation

B. The refusal creates a scope limitation affecting the opinion

C. The representation can be signed by any employee

D. The matter is automatically immaterial

Correct Answer: B. The refusal creates a scope limitation affecting the opinion

Question 8

Which source is generally most relevant when evaluating pending litigation?

A. An unrelated supplier’s invoice

B. The entity’s marketing plan

C. A response from external legal counsel authorized by management

D. A prior-year bank reconciliation

Correct Answer: C. A response from external legal counsel authorized by management

Question 9

Why should auditors avoid automatically offsetting an asset overstatement against a liability understatement?

A. Offsetting is always prohibited by every accounting framework

B. The two errors may mislead users in different ways even if the net amount is zero

C. Only cash errors may be aggregated

D. All errors must be ignored if they offset

Correct Answer: B. The two errors may mislead users in different ways even if the net amount is zero

Question 10

Who retains ultimate responsibility for the audit opinion?

A. The client’s bookkeeper

B. The external lawyer

C. The engagement partner

D. The internal auditor of a supplier

Correct Answer: C. The engagement partner