The Completion Stage of an Audit: Key Procedures and Requirements Under ISA

Introduction

The completion stage of an audit is a critical phase where auditors consolidate all the evidence gathered throughout the audit, review the final version of the financial statements, and ultimately form their audit opinion. This stage ensures compliance with key International Standards on Auditing (ISA) and serves as the final quality control step before issuing the audit report.

This article explores the key requirements of various ISAs relevant to the completion stage and their practical implications for auditors.

Review of Audit Files and Evaluation of Misstatements

Audit File Review

All audit work must be reviewed to ensure that sufficient appropriate audit evidence has been obtained. This is a fundamental quality control requirement under ISA 220, Quality Control for an Audit of Financial Statements.

The audit file review is essential for:
✅ Ensuring compliance with audit procedures
✅ Identifying misstatements or contradictory evidence
✅ Determining if additional audit procedures are needed

The review process must be documented according to ISA 230, Audit Documentation, including:

Who reviewed the audit work
The date and extent of the review

Evaluation of Misstatements – ISA 450

ISA 450, Evaluation of Misstatements Identified During the Audit, requires auditors to:
📌 Accumulate all misstatements identified (except those that are clearly trivial)
📌 Communicate misstatements to management and request corrections
📌 Assess uncorrected misstatements for materiality—individually and in aggregate
📌 Discuss implications with governance if misstatements remain uncorrected

Key Actions:

The auditor presents the audit error schedule listing misstatements.
If adjustments are made, the auditor must verify the corrections.
If uncorrected, the auditor must assess whether the misstatements are material and may impact the audit opinion.

Management must provide a written representation confirming whether uncorrected misstatements are immaterial.

Final Analytical Procedures – ISA 520

At the completion stage, auditors must perform final analytical procedures as per ISA 520, Analytical Procedures.

Objectives of Final Analytical Procedures

🔍 Confirm that the financial statements are consistent with the auditor’s understanding of the entity
🔍 Identify unexpected trends or risks of misstatement
🔍 Validate the reasonableness of the financial statements

Common Analytical Procedures

📊 Ratio analysis (e.g., profitability, liquidity, leverage ratios)
📊 Comparisons with prior-period financial statements
📊 Trend analysis to identify unusual fluctuations

If unexpected discrepancies arise, the auditor must:
✅ Reassess the risk of material misstatement
✅ Modify planned audit procedures
✅ Perform additional audit work

The auditor must also review financial statement disclosures for completeness and compliance with IFRS or other applicable frameworks.

Subsequent Events and Going Concern Considerations

Two key ISAs apply near the end of the audit:

1. ISA 560 – Subsequent Events

ISA 560 requires auditors to:
📆 Identify events occurring between the date of financial statements and the auditor’s report.
📆 Determine whether adjustments or disclosures are needed.
📆 Perform specific audit procedures (e.g., reviewing board minutes, discussing with management).

⚠️ If subsequent events procedures are performed too early and not updated, significant events may be missed.

2. ISA 570 – Going Concern

ISA 570 states that auditors must:
✅ Continuously assess whether the entity can continue as a going concern.
✅ Review all evidence gathered and consider any new risks before finalizing the audit report.

Written Representations and Communication with Governance

Written Representations – ISA 580

According to ISA 580, Written Representations, auditors must:
📄 Obtain a written statement from management confirming their responsibility for financial statements.
📄 Ensure that the date of the written representation is as close as possible to the auditor’s report date.

The auditor cannot issue the audit report before receiving written representations.

Communication with Governance – ISA 260

ISA 260 requires the auditor to communicate significant audit findings with those charged with governance, including:
📌 Issues related to internal controls
📌 Uncorrected misstatements and their potential impact
📌 Audit independence matters

The auditor must also assess whether communication with governance has been effective throughout the audit.

Audit Clearance Meeting

At the conclusion of the audit, an audit clearance meeting is typically held between the auditor and the client’s management/governance team.

Key Topics Discussed in the Clearance Meeting:

✅ Internal controls and financial statement preparation process
✅ Proposed adjustments to financial statements
✅ Challenges encountered during the audit
✅ Regulatory updates affecting financial reporting
✅ Confirmation of accounting policies

Although not required under ISA, the audit clearance meeting helps prevent misunderstandings regarding financial statements and the auditor’s opinion.

Conclusion

The completion stage of an audit requires careful execution to comply with ISA standards and ensure the accuracy of the financial statements.

Key Takeaways:

✔ Audit file reviews ensure that all necessary procedures are completed.
✔ Evaluation of misstatements helps determine their materiality and impact.
✔ Final analytical procedures validate the overall reasonableness of financial statements.
✔ Subsequent events and going concern assessments ensure completeness and accuracy.
✔ Written representations and governance communication are crucial final steps.
✔ Audit clearance meetings facilitate a smooth conclusion of the audit.

🚀 By effectively planning and executing the completion stage, auditors can avoid issuing an inappropriate opinion and ensure compliance with international auditing standards.

Audit Assertions Under ISA 315 (Revised 2019)

Introduction

Audit assertions play a crucial role in ensuring the accuracy and reliability of financial statements. As per ISA 315 (Revised 2019), auditors rely on specific assertions to assess the completeness, accuracy, and validity of financial information.

This guide explores audit assertions, their significance, and how auditors apply them in interim and final audit procedures. It also provides practical examples and test methods to help candidates understand how to approach audit-related questions effectively.

Interim and Final Audit Procedures

Interim Audit

During the interim audit, the system of internal control is documented and evaluated. This assessment helps auditors determine the appropriate mix of tests of control and substantive procedures. The primary focus at this stage is on transactions that have occurred during the period.

Final Audit

The final audit focuses on the financial statements and the assertions regarding assets, liabilities, and equity interests. At this stage, the auditor designs substantive procedures to ensure that all relevant assertions have been tested to obtain reasonable assurance.

Understanding Assertions in Audits

Assertions are claims made by management regarding the accuracy and completeness of financial statements. They apply to both:

Transactions and events recorded in the financial statements.
Account balances and related disclosures at the reporting period-end.

Assertions help auditors determine the areas where misstatements may occur and design appropriate audit procedures.

Categories of Assertions Under ISA 315 (Revised 2019)

ISA 315 classifies assertions into two groups:

1. Assertions About Classes of Transactions and Events (During the Period)

These assertions relate to transactions recorded during the accounting period and their disclosures:

Occurrence – Ensures that transactions and events recorded actually occurred and pertain to the entity.
Completeness – Confirms that all transactions that should have been recorded are included.
Accuracy – Verifies that amounts and other data have been recorded correctly.
Cut-off – Ensures transactions are recorded in the correct accounting period.
Classification – Transactions are recorded in the proper accounts.
Presentation – Ensures that transactions are appropriately described and disclosures are clear and understandable.

2. Assertions About Account Balances and Related Disclosures (At the Period End)

These assertions focus on the balances of assets, liabilities, and equity at the end of the reporting period:

Existence – Ensures that assets, liabilities, and equity interests exist.
Rights and Obligations – Confirms the entity holds the rights to assets and has obligations for liabilities.
Completeness – Ensures that all assets, liabilities, and equity interests are recorded.
Accuracy, Valuation, and Allocation – Verifies the correctness of recorded balances and disclosures.
Classification – Assets, liabilities, and equity are recorded in the correct accounts.
Presentation – Ensures proper aggregation or disaggregation of financial information for clear disclosure.

Application of Assertions in Audit Procedures

Understanding how to test assertions is essential for auditors. Below are examples of audit procedures for each assertion.

1. Assertions for Transactions

Assertion	Definition	Example Audit Procedure
Occurrence	Transactions recorded actually took place.	Select a sample of sales from the general ledger and trace to sales invoices, dispatch notes, and customer orders.
Completeness	All transactions that should be recorded are included.	Select a sample of customer orders, trace them to dispatch notes, sales invoices, and postings in the sales ledger.
Accuracy	Transactions are correctly recorded without errors.	Recalculate invoice totals and payroll figures to confirm accuracy.
Cut-off	Transactions are recorded in the correct period.	Check last goods received notes and dispatch notes, ensuring purchases and sales are recorded in the right period.
Classification	Transactions are recorded in the proper accounts.	Review purchase invoices and verify correct posting to general ledger accounts.
Presentation	Transactions are clearly described and properly disclosed.	Check if total employee expenses are properly classified (e.g., salaries, pension costs, taxes).

2. Assertions for Account Balances

Assertion	Definition	Example Audit Procedure
Existence	Ensures that assets and liabilities exist.	Physical verification of assets, confirmation of receivables, bank balance confirmations.
Rights and Obligations	Entity holds rights to assets and obligations for liabilities.	Review title deeds for property, loan agreements for borrowings.
Completeness	Ensures that all balances are included.	Compare payables ledger balances with supplier statements.
Accuracy, Valuation, and Allocation	Assets, liabilities, and equity are recorded at appropriate values.	Review asset purchase invoices, check depreciation calculations.
Classification	Balances are recorded in the correct accounts.	Ensure research expenses are classified correctly under IAS 38.
Presentation	Financial statement disclosures are clear and correct.	Use disclosure checklists to verify compliance with IFRS and local regulations.

Why Assertions Matter in Audits

Assertions are critical because:

They help auditors identify risks of material misstatements in financial statements.
They guide the selection of appropriate audit procedures to obtain sufficient and appropriate evidence.
They ensure compliance with financial reporting frameworks such as IFRS and GAAP.
They provide assurance to stakeholders regarding the reliability of financial statements.

Conclusion

Assertions, as outlined in ISA 315 (Revised 2019), are fundamental in audit planning and execution. By understanding these assertions and applying relevant audit procedures, auditors can provide reasonable assurance that financial statements are free from material misstatements and present a true and fair view of an entity’s financial position.

Key Takeaway: Candidates preparing for FAU or AA exams should focus on learning assertions, recognizing their application in different audit scenarios, and understanding relevant audit procedures for testing them effectively.

This structured approach makes the article engaging, informative, and easy to understand. Let me know if you’d like any refinements! 🚀

Materiality Threshold in Audits

Introduction

The materiality threshold in audits is a benchmark used to ensure that an audit provides reasonable assurance that no material misstatement exists that could significantly affect the usability of financial statements. Since it is impractical to test every transaction, auditors use materiality thresholds to optimize resource allocation while maintaining the reliability of financial reporting.

What is the Materiality Threshold in Audits?

Materiality refers to the importance of financial information in influencing users’ decisions. The concept differs slightly under various accounting standards:

U.S. GAAP: Information is material if its omission or misstatement could influence the judgment of a reasonable person relying on the report.
IFRS: Information is material if omitting, misstating, or obscuring it could reasonably be expected to influence financial statement users’ decisions.

Materiality affects key stakeholders, including:

Shareholders
Creditors
Suppliers
Customers
Management
Regulatory Authorities

Example of Materiality in Audits

Consider two transactions:

$1 transaction: A misstatement would have no significant impact on financial decision-making.
$1,000,000 transaction: A misstatement could materially impact financial statement users.

Thus, materiality is determined by both absolute and relative size, as well as the nature of the misstatement.

Determining Materiality

Auditors rely on professional judgment to determine materiality, considering both quantitative and qualitative factors:

1. Quantitative Considerations

A $1 million misstatement in a company with $5 million revenue (20% impact) is highly material.
The same misstatement in a company with $5 billion revenue (0.02% impact) is likely immaterial.

2. Qualitative Considerations

Even a small misstatement may be material if it involves:

Fraud (e.g., embezzlement)
Regulatory violations
Intentional misstatements
Significant market implications

Thus, auditors evaluate both the absolute and relative amounts as well as the nature of misstatements.

Methods for Calculating Materiality

The International Accounting Standards Board (IASB) does not prescribe specific materiality calculations. However, various research studies and auditing bodies provide common methodologies.

1. Norwegian Research Council Materiality Calculation Methods

Single Rule Methods

5% of pre-tax income
0.5% of total assets
1% of shareholders’ equity
1% of total revenue

Variable Size Rule Methods

2%-5% of gross profit (if less than $20,000)
1%-2% of gross profit (if between $20,000 and $1,000,000)
0.5%-1% of gross profit (if between $1,000,000 and $100,000,000)
0.5% of gross profit (if above $100,000,000)

2. Discussion Paper 6: Audit Risk and Materiality (July 1984)

Provides materiality calculation ranges based on audit risk:

0.5%-1% of total revenue
1%-2% of total assets
1%-2% of gross profit
2%-5% of shareholders’ equity
5%-10% of net income

3. Blended Methods

Some auditors use a weighted combination of different materiality thresholds to provide a comprehensive assessment.

Conclusion

Materiality thresholds in audits ensure efficiency while maintaining the accuracy and reliability of financial statements. Since materiality is subjective, auditors must consider both quantitative impact and qualitative factors. Various methodologies help determine appropriate benchmarks, ultimately improving transparency and financial decision-making.

Want to learn more? Stay updated with the latest audit standards and best practices!