Topic list

  1. General reviews of financial statements
  2. Opening balances and comparatives
  3. Events after the reporting date
  4. Going concern
  5. Management representations
  6. Audit completion

Learning outcomes

  • Perform appropriate analytical reviews and consistency reviews to see whether information as a whole make sense.
  • Assess whether opening balances for the current period financial statements were properly brought forward from previous periods
  • State whether all the comparative information from previous periods has been properly disclosed, and they seem to be consistent with current period.
  • Review any event occurring after the reporting date and whether they have any effect on financial statements under review.
  • Obtain any other additional information and explanations through management representations.


Upon completion of detailed audit tests over different transactions and account balances contained in the financial statements, the auditor should carry out such additional reviews deemed necessary to all the findings in focus to draw an overall picture they portly. The auditor should consider the following areas.

  • General Review of Financial Statements.

At the end of an audit, after the bulk of an audit work has been completed, but before auditors can give an opinion, there are various other procedures that auditors must undertake.

ISA 700 requires auditors to carry out such reviews of financial statements as is sufficient, in conjunction with the conclusions drawn from other evidence obtained, to give them a reasonable basis for the opinion on financial statements.

Firstly auditors should consider compliance with regulations governing the preparation and presentation of financial statements, by confirming that;

  • Presentations are overall in compliance with the Companies Act
  • Accounting policies employed are reasonable and are consistent with appropriate financial reporting framework, in this case the internationally generally accepted accounting principles (GAAP).

Review of Consistency and Reasonableness

The auditor should consider whether the financial statements are consistent with knowledge of the entity’s business and with results of other procedures and the manner of disclosure is fair by considering the following issues;

  • Whether they adequately reflect the information and explanations obtained and conclusions drawn during the course of the audit.
  • The presence of any new factors which may affect the presentation of, and disclosures in the financial statements.
  • An assessment of the results of analytical procedures, as to whether financial statements as a whole are consistent with auditors’ knowledge of the business
  • An assessment of any apparent undue influence or pressure that may have been exerted on directors or management and may have an effect on the presentations.
  • Consider potential impact on financial statements of aggregating all uncorrected misstatements.
  • Opening Balances and Comparatives

Opening balances are those account balances that existed at the beginning of the period, brought forward from the previous periods closing balances.

Comparative figures are amounts and other disclosures of preceding periods included for comparison with current periods financial statements, but do not form part of the current periods’ financial statements, though it is the Companies Act requirement that they be presented.

The extent to which the auditor would need to check them depends on whether it is the auditor’s first or continuing audit, and whether prior periods were audited or not.

ISA510 requires auditors to obtain sufficient appropriate evidence that;

  • Opening balances do not contain misstatements that may materially affect current period financial statements.
  • The prior period’s closing balances have been duly brought forward as current periods opening balances.
  • Appropriate accounting policies have been consistently applied, and that any changes to policies were reasonable and have been properly accounted for and adequately disclosed.


The auditor should consider their effects on his opinion if, either he is unable to obtain sufficient appropriate evidence concerning opening balances, or

If the effects of any misstatements in the opening balances were not properly accounted for and adequately disclosed


ISA710- Although the auditor is not reporting on prior periods financial statements, he should carry out appropriate tests to determine whether the comparisons comply in material respect with appropriate financial reporting framework and consistent application of policies for ease in comparison.

  • Where prior periods financial statements were not audited the auditor should state in his report.
  • Where material misstatements are discovered in prior periods figures which have material effects on the current period financial statements, auditors should discuss with management for amendment in accordance with International Accounting Standard (IAS) 8, or qualify his report to the extent of their materiality if not amended.


  • Events occurring after the reporting date (Subsequent Events)


International Accounting Standard (IAS) 10 classifies events occurring after the balance sheet date as;


Adjusting events:        Events that provide additional information or evidence on conditions that existed at the reporting date

Non-adjusting events: These events are new and completely relate to the accounting period after the reporting date.


ISA560- The auditors’ responsibility is to design and perform audit procedures to obtain sufficient appropriate audit evidence that all events up to the auditors’ report that may require adjustments or disclosures in the financial statements have been identified and appropriate adjustments made by management.

If such events occur and management does not make appropriate adjustments where the auditor believes they need to, the auditor should consider the impact on financial statements and report to the extent of their materiality.


The auditor should continue monitoring the occurrence of such events after the report but up to the financial statements issuing or passing date, and if he becomes aware of facts that may materially affect financial statements and need amendments and management do not amend the financial statements, and the facts would change the audit opinion, he should issue another report or opinion to replace the prior one. The auditor is generally not responsible for events after that date.


  • Going Concern


Going concern is an assumption that an entity shall continue operational into the foreseen future (at least twelve months from the reporting date). This means that there is neither intention, nor do there exist conditions that may force it to close down or severely curtail its current operations. This assumption has the effect on presentation of information in financial statements, for example, the distinction between current and non-current items. The alternative, if no going concern is assumed, is to present information on a realization basis.


The auditors’ responsibility is to assess the appropriateness of the use or non-use of the going concern assumption in preparation of financial statements by considering the possible impact of any apparent factors that may affect its ability to continue as a going concern. Such factors may include (the list is not exhaustive):


Financial Indicators;

  • Liquidity problems such as adverse current and quick ratios
  • Poor profits or constant loss making
  • Inability to raise new capital when required
  • Major restructuring of debt
  • Substantial sale of non-current assets without replacement possibility etc.


Operational indicators;

  • Loss of key management without appropriate replacement
  • Loss of key markets, suppliers and chains or franchises
  • Fundamental changes in technology to which the entity is unable to adequately adapt or renders its key products obsolete.
  • Labour difficulties including shortages and unrests.


Other indicators;

  • Non-compliance with pertinent regulations
  • Major litigations faced by an entity
  • Changes in legislation or government policies


Audit Procedures

  • The auditor should remain alert, throughout the audit, for evidence or conditions which may cast doubt on the entity’s ability to continue as a going concern.
  • He should also enquire from management as to its knowledge of any such events that may indicate future problems.
  • He may carry out additional analytical procedures, particularly those that may help predict business failure such as the Altman’s Z score, a combination of a number of accounting ratios.
  • He should also assess the possible effects of such indicators, for example, noncompliance with major regulation or liquidity or cash flow problems may bring an entity to a quicker end than loss making.
  • He should note the presence of any mitigating factors to some identified problems.
  • The auditor should also obtain management future plans and management representation on matters involving the entity’s going concern.


If such matters or uncertainties exist and the auditor is still in doubt as to whether going concern can be assumed, he should qualify the report to the extent that financial statements are misleading. If material uncertainties exist and management has recognized and properly disclosed them, the auditor should not qualify but only modify his report through an emphasis of matter paragraph.

He should qualify (adverse opinion) his report otherwise. However if the uncertainties are pervasive he should qualify (adverse opinion) his report whether they have been properly disclosed or not.


  • Management Representations


This is the acknowledgement of management of their responsibility for financial statements for their fair presentation and in accordance with relevant financial reporting framework and supply specific information to the auditor as may be needed from time to time during the course of audit.


Auditors should obtain written confirmations from management on matters material to financial statements when other sufficient appropriate evidence cannot be reasonably expected to exist, for example, where knowledge of the facts of some matters may be confined to management. They help to confirm auditors’ understanding of oral representations made by management during the course of the audit.


When relying on representations the auditor should;

  • Seek corroborative evidence from other sources
  • Evaluate the reasonableness of the representations and their consistence with other relevant information.
  • Consider the responsibility of those making representations and if they appear to be well informed on particular matters.
  • Evaluate any representations that seem to contradict other evidence and consider whether it casts doubt on the reliability other evidence from the representations.
  • If management refuses to provide written representations the auditor should consider the extent to which that represents a limitation of scope and appropriately qualify his report.


ISA 240 requires the auditor to obtain written representations from management and those charged with governance that:

  • They acknowledge their responsibility for the design, implementation and maintenance of internal control to prevent and detect fraud.


  • They have disclosed to the auditor management’s assessment of the risk of fraud in the financial statements.


  • They have disclosed to the auditor their knowledge of fraud/suspected fraud involving management, employees with significant roles in internal control, and others where fraud could have a material effect on the financial statements.


  • They have disclosed to the auditor their knowledge of any allegations of fraud/suspected fraud communicated by employees, former employees, analysts, regulators or others.


Written representations can take the form of;

  • Representation letter from management.
  • A letter from the auditor outlining his understanding of management representations due for management acknowledgement.

Relevant minutes of meetings


Elements of management representation letter;

  • Should be addressed to the auditor
  • Contains specified information
  • Be appropriately dated and signed by management.


A management representations letter is different from and should not be confused with a management letter (or letter of control weaknesses) referred to in chapter 10.


6           Audit Completion


The auditor should complete the audit work by carrying out the following procedures;


What audit procedures would you carry out to confirm the adequacy of disclosure of contingent liabilities and their related provisions in the financial statements of an entity.   


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